samchain/econo-pairs-v1 huggingface dataset:
All these elements contributed to a credit boom throughout the Spanish economy, particularly in the real estate sector. In this context, let me add that – crucially – the Bank of Spain reacted very well: notably by introducing a strict regulatory system for special purpose vehicles which significantly restricted regulatory capital arbitrage, and by introducing dynamic provisions, which may have reduced the very high credit supply in the good years. Without those measures the credit boom could have been even bigger.7 Moreover, the provision  1  See also Stiglitz et al. (2000); Matutes and Vives (2000), and Martínez-Miera and Repullo (2010). 2  See Kalemli-Ozcan, Pappaioannou and Peydró (2010). 3  See Allen and Gale (2000). 4  See Brunnermeier and Petersen (2009). 5  See Mian and Sufi (2009); Maddaloni and Peydró (2011); Jiménez, Mian, Peydró and Sufi (2011), Altunbas, Marqués and Gambacorta (2010). 6  See Pérez-Quirós (2000); Adrian and Shin (2009); Allen and Rogoff (2011); Rajan and Diamond (2009); Jiménez et al. (2011); Jiménez and Saurina (2006). 7  See Jiménez, Ongena, Peydró and Saurina (2011). 2  BIS central bankers’ speeches  buffers have been vital during the crisis as they have allowed banks to continue supporting credit availability. The crisis calls for change Some key features of the recent crisis have been, in my view, the fragility both on the liability and asset sides of banks, coupled with a densely interlinked global financial sector.

In general, banking competition brings very positive aspects for the real economy and to welfare, and there is no doubt that liberalisation of the banking sector in Spain has been very positive for the country. However, we should bear in mind, as some chapters of the book point out, that too much competition may significantly increase bank risk-taking and that this may have negative implications and that  BIS central bankers’ speeches  1  this may undermine financial stability.1 The recent very intense competition for retail deposits may also be a notable example in this regard. Another important aspect of liberalisation has been the internationalisation of the banking sector, which is very well explained in the book. I would like to stress two aspects of this phenomenon: i) the foreign expansion by Spanish banks (particularly Santander and BBVA), and ii) the significant dependence on foreign liquidity (mainly through international wholesale markets), especially after the introduction of the euro.2 Expansion abroad, when it is well executed, definitely brings benefits in terms of geographical diversification, which have become clear during the crisis, however a reliance on funding from abroad may bring some fragility if that source of liquidity dries up, as the crisis has shown.3 In previous banking crises, banks typically suffered from runs on retail deposits, whereas nowadays these runs are wholesale-based.4 In the light of this, the sector should aim to diversify its sources of funding liquidity.
This is exactly what the UK and other European countries aimed to do in joining the Exchange Rate Mechanism. Sharing a currency also helps promote integration. It does so by eliminating one of the barriers between markets, improving transparency of pricing and increasing competition. Sharing a currency can also help to increase the mobility of labour and capital, raise trade in goods and services, and improve the flow of technology and ideas.4 In these ways, members of a currency union can exploit more fully comparative advantage and ensure greater dynamic efficiency. Set against these benefits are the potentially large costs of giving up an independent monetary policy tailored to the needs of the region and a flexible exchange rate that can help absorb shocks. A flexible exchange rate acts as a valuable shock absorber when domestic wages and prices are sticky.5 For example, suppose demand for a country’s exports falls. All else equal, its output will fall, unemployment increase and current account deteriorate. With an independent currency, exchange rate depreciation can dampen these effects by improving competitiveness, and monetary policy can become more accommodative, supporting demand and employment. However, if the country were part of a currency area with its foreign market, its exchange rate would by definition not change, putting the full weight of adjustment on wages and unemployment – a significantly more protracted and painful process. In addition, the responsiveness of monetary policy to weak demand in that country would be diluted by the needs of the broader membership.

Mobility of capital can also promote necessary adjustment to shocks. Moreover, if capital in one part of a union is owned by those in other parts, the effect of a given shock is diluted across the union. Simply put, risks and rewards are shared. Similarly, the ability to borrow from other parts of the currency union in deep and liquid cross-union credit markets or integrated banking systems allows one part of a union to smooth out temporary falls in incomes.19 However, free movement of capital can be a mixed blessing. If the funds provided by one part of a union to another can be withdrawn easily, these outflows can – if the right structures are not in place – undermine financial and economic stability of all members. This brings me to the second feature of a successful currency union – banking union. Banking union Effective currency unions need a wide range of institutions to support an integrated and efficient financial sector. These are often referred to as a “banking union” and include: •  Common supervisory standards,  •  Access to central bank liquidity and lender of last resort facilities,  •  Common resolution mechanisms, and  •  A credible deposit guarantee scheme. Without a banking union, cross-border capital flows can be restricted, the effectiveness of monetary policy impaired and, in the extreme, the viability of the union itself undermined.
These FTAs will lead to further opening up of the financial sector. Other countries are doing the same. The EU is enlarging its markets through FTAs with East European, African and Latin American economies. North and South America, including the US, aim to conclude a Free Trade Area of the Americas by 2005. Japan and South Korea have mooted the idea of a Northeast Asia FTA, but otherwise, amidst this flurry of activity, Asia has been conspicuously quiet. Our FTA strategy is an insurance policy so that we will not be left out in the cold, should a weakened WTO fail to protect our interests. In every FTA negotiation, our partner will ask for bilateral trade concessions beyond what we have committed in WTO. Our regime for trade in goods is already almost totally open. What many of our FTA partners want is preferential market access in services, in particular in financial services. For the US, this would be a major motivation for their considering an FTA with Singapore. Singapore financial institutions must clearly brace themselves for the greater competition this development would bring. 4. Financial sector reform - a change in mindset  Our response to these challenges must be to press on with liberalising and upgrading in the financial sector. The key shift is in the mindset of the players. We must be keenly aware of the changing environment, and of the urgency to respond. For all the concrete changes over the last two years, changing mindsets will be even harder.

It is not just a more efficient distribution and marketing channel. It is opening up new financial applications and business models, and breaking down national barriers separating financial markets. Bill McDonough, the President of the New York Federal Reserve Bank, has described the internet as the most important strategic issue facing financial institutions today. The best way to package and deliver financial services over the internet is not yet clear. In share trading, the success of discount brokers like eTrade, and ECNs like Island, is obvious. There is also promising potential for trading fixed income instruments and derivatives online. But for other financial services, institutions are still experimenting with different business models and approaches. They all know that a new generation of customers will want to do business over the internet, and banks will have to meet this demand or lose business to new players. The internet has also created new roles in the financial services value chain, e.g. infomediaries, or intermediaries which gather and present information on financial products offered by different financial institutions, so that consumers can compare prices and quality at the click of a mouse before committing to a specific product like mortgages, insurance packages and loans. Financial institutions will need to gear up to participate in electronic commerce. For them, the internet means not only new business opportunities, but also fiercer competition, including across borders. It will create new risks, which they must recognise and manage. Financial supervisors need to understand the nature of the new internet based activities.
Doing so may enable the central bank to take into consideration the longer-run  BIS Review 96/2007  3  consequences on inflation and production of potentially large movements in asset prices and levels of indebtedness that have been built up over long periods of time. From a theoretical perspective, central banks should always look at inflation and growth over the indefinite future, and thus this seems a reasonable proposal. At the same time one must remember that in practice it is difficult to construct forecasts for longer horizons that actually contain more information than that which is contained in the forecast for the coming two to three years. Also, the horizon may in fact have to be very long to illustrate the issues at hand. The Riksbank view The monetary policy strategy followed by the Riksbank is that of flexible inflation targeting. When setting interest rates we consider not only the outlook for inflation but also the development of the real economy. In most situations, monetary policy is focused on bringing inflation back to target within a two-year horizon, which is deemed as providing enough time to allow consideration to be given to developments in the real economy. In certain circumstances, if inflation has deviated substantially from the target, it is reasonable to let inflation return to target at a slower pace, provided this does not undermine the credibility of the inflation target.

David Clementi: A bank for all regions: promoting monetary and financial stability in the United Kingdom Speech by Mr David Clementi, Deputy Governor of the Bank of England, to the Ulster Society of Chartered Accountants, Belfast, 14 March 2002. *  *  *  Introduction Ladies and gentlemen, thank you very much indeed for your kind invitation to be here with you tonight. Despite its name, the Bank of England is the central bank of the United Kingdom, and as such it is essential for us to get out and about in the country at large, explaining our actions, and listening hard to the views of businesses and the wider public about the way we are doing our job. In the past year, members of the Bank's Monetary Policy Committee have made some 50 visits across the UK. On this trip, apart from attending this dinner, I have held a meeting with the regional council of the CBI, discussed trading conditions with local business people, and explained our mission to some of the Northern Irish press. I want to cover three main themes in my comments tonight. First, I want briefly to explain the Bank's general approach to monetary policy. Second, I want to give you my current assessment of the outlook for the economy. And, third, I want to explain the Bank's other key role - that of maintaining stability in our financial system.
Stefan Ingves: The evolution of the Basel Committee Welcome and keynote address by Mr Stefan Ingves, Governor of the Sveriges Riksbank and Chairman of the Basel Committee on Banking Supervision, at a symposium to mark 25 years of the Basel Capital Accord “25 years of international financial regulation: Challenges and opportunities”, Basel, 26 September 2013. *  *  *  Good morning everyone. On behalf of the Basel Committee, I would like to welcome you to today’s symposium, which the Committee is hosting to mark 25 years since the first Basel Accord on bank capital was established. And let me at the same time also acknowledge Jaime Caruana and the BIS, not only for hosting this event, but also for their unwavering support of the Committee over the past almost 40 years. As many of you know, the Basel Committee started out in 1974 as the Basel Committee on Banking Regulations and Supervisory Practices. In the aftermath of the Herstatt collapse, the G10 Governors of the day were seeking ways to preserve and promote the stability of the international financial system. It is worth reflecting during the morning, as we discuss the Committee’s achievements to date, that the basic problems we encounter today – poorly run institutions, interconnectedness and financial instability – are the same as those faced by the Committee when it was founded. This is not to imply that nothing has been achieved: on the contrary, a great deal has been done and the world has benefited greatly.

Since then, the Committee’s role as a standard setter has only grown – to the extent that, today, this is seen as its primary purpose. Whereas the Committee took 10 years to publish its first 10 documents, this year alone it has published more than 30 – with more to come. But with all the public focus on standard-setting, it is important not to forget the critical “behind the scenes” role of information-sharing, since we all well know that regulation cannot be successful without strong supervision and cooperation to back it up. The second important influence on the Committee has been the growing sophistication and complexity of international financial markets. The original Basel Accord was beautiful in its simplicity – something that many people long for today – but it could not keep up with the development of increasingly complex financial instruments. These may have offered substantial benefits to society, but they strained the simple Basel I methodology. The Committee’s response was most obviously manifested in Basel II. This marked another turning-point in the Committee’s evolution, moving us from a “one size fits all” regime to differential approaches using internal models. This meant the regulatory regime was better aligned with banks’ underlying risk profile, but regulation was now no longer simple or completely uniform across banks. Like any change, it has delivered some undoubted benefits, but it has also created a whole new range of challenges that we are still grappling with today. The third key influence on the Committee stems from increasing globalisation.
Governments preferred to close their eyes rather than to consolidate the edifice. None of the Member States listened to the warning bells that were regularly sounded, notably by the ECB. At the same time, the markets also closed their eyes to the widening gaps within the euro area. Once the single currency was in place, everyone found it convenient to disregard the area’s economic divergences and differences in competitiveness. The result is that today we have a monetary union zone, but the heterogeneity of its different economies has increased. What a mea culpa ! It is not a mea culpa. The ECB and the Governing Council, of which I am a member, have never contributed to this indifference. On the contrary, over the last ten years we have signalled and highlighted these risks. However, neither markets nor governments took any notice. Everyone benefited from what I would describe as an “incredible” decade, with interest rates decreasing for everyone across the board and certain countries posting exceptionally dynamic growth rates in an essentially inflation free environment. In that context, everyone got access to cheap debt financing relatively easily. The wake-up call is all the more painful today as a result. The financial crisis obliges us to completely rethink the European social model that is substantially state-financed. Was Europe ready for the single currency? The founding fathers of the euro, and particularly François Mitterrand and Helmut Kohl, imagined the euro as a major stimulus for greater European integration.

They knew that it would require stronger European governance and the implementation of euro-area fiscal discipline … But governments chose to side-step their responsibilities in this respect. 2  BIS central bankers’ speeches  In 2003, France and Germany, the two most powerful States in the euro area, breached the famous Maastricht criteria… Are they not partly responsible for the subsequent crisis? Each Member States carries a share of the blame. The ECB however is not to blame. There were strict fiscal rules. If governments had respected these rules we would not have had this chain reaction leading to the current crisis. In 2007, 2008 and 2009, we had to prevent the financial crisis from deepening and limit the consequences for the real economy. The ECB and States did what was expected of them by supporting the banking systems. However, after 2009, the markets started looking at the accounting situations of each Member State and started doubting the capacity of certain States to honour their financial liabilities. The markets also remembered that behind the governments’ bank rescue plans there were States and with no single or common signature and that the banking system was not sufficiently uniform at the European level. Each State therefore found itself with its own financial credibility and its own specific debt financing conditions, depending on its individual fiscal situation. And in this respect, what is your opinion of the policy orientations adopted by François Hollande, his government and the new majority?
1  Comparison is between medians for the high and low groups of the sample shown in Chart 1 and 2, with high and low groups defined as those above and below medians of the sample. 2  All speeches are available online at www.bankofengland.co.uk/speeches  2  Time and again, waves of investment into EMEs are sharply withdrawn (Chart 3). And more generally, financial openness has tended to amplify domestic imbalances and leave EMEs more vulnerable to foreign shocks.2 As a consequence, a fifth of all surges in capital flows to EMEs have ended in financial crises. And EMEs are at least three times more likely to experience a financial crisis after capital flow surges than in normal times. 3 Chart 3: Net private capital flows to emerging market economies and incidences of crises Number of EM crises (rhs) Net private capital flows to Non-China EMEs (lhs)  % of GDP 6  Number 6  Crises tend to occur when capital flows slow  5  5  4  4  3 3 2 2  1  1  0 -1  1980  1985  1990  1995  2000  2005  2010  0  2015  Source: IMF. Notes: Excludes China.

We are likely to meet the numerical values of the Maastricht criteria by the end of 2009 and Estonia expects to join the euro area in 2011, in full accordance with the Treaty provisions. It is clear that in order to adopt the euro, the key issue of Estonia's fiscal policy is ensuring sustainable public finances in the next years. Looking at longer-term growth potential, it would be advisable not to achieve this by excessive increases in the tax burden. BIS Review 90/2009  1  Finally, the way out from the current crisis depends critically on further strengthening of the EU Single Market for goods, services and production factors (including capital, labour and know-how). To conclude I would like to assure that Eesti Pank is always open for your inquires and cooperation. Thank you for your attention! 2  BIS Review 90/2009
BILD: But it is precisely this policy of cheap money that is not working… Draghi: Wrong – our policy is working, but we must be patient; investor confidence has not yet been fully restored. For two years, the economy in the euro area has been growing month by month, banks are lending and unemployment is steadily falling. Meanwhile, euro area countries are now able to buy more German exports again, which, for German companies, is partly making up for the decline in trade with China. But it is a slow process because the crisis was more severe than anything we’d had since the Second World War. BILD: And when will interest rates rise again? Draghi: It’s quite simple: when the economy is growing more strongly again and inflation rises closer to our objective. Low interest rates today will lead to higher rates tomorrow. BILD: Does the ECB’s policy of cheap money not make it far too easy for euro area countries like Italy and France, for example, to shirk necessary but unpopular reforms? Draghi: No. The majority of governments are acting, albeit too slowly for my personal taste. All of them would be well advised to do more. But that is not primarily dependent on the ECB and its policies. Most countries started to implement reforms when the level of interest rates was already very low. Furthermore, reforms of judicial systems, electoral laws or labour laws, for example, don’t have much to do with interest rates.

Besides, many people benefit from low interest rates as they are also homebuyers, taxpayers, entrepreneurs and workers whose companies are benefiting. BILD: In Germany the adverse effects are predominant. Making provision for retirement is becoming increasingly difficult… Draghi: Remember, what counts is what you earn on savings in real terms, i.e. interest minus inflation. This is higher today than it was on average in the 1990s. At that time you might have had a higher interest rate on your Sparbuch (savings account), but we often had an inflation rate that was higher still. So the interest looked good at first, but the real return was in fact much lower. Moreover, people can influence how much they get on their savings even in times of low interest rates. They don’t just have to keep the money in savings accounts but can invest in other ways. The Bundesbank has recently shown that the average return on all German household assets is close to 2%. BILD: So, are the German savers themselves to blame? Draghi: No. But there are alternatives when investing savings. In the United States savers had to face seven years of zero interest rates. The financial system – banks and insurers – nevertheless still worked. Money was invested in a variety of ways which in the end enabled a decent return. BILD: Of all people, German Finance Minister Wolfgang Schäuble, who has supported you for years, is now among your strongest critics, saying your policies are damaging savers and thereby strengthening populist parties.