samchain/econo-pairs-v1 huggingface dataset:
If the provisions for improving stability do not suffice and a crisis occurs anyway, the mechanisms that guarantee the continuation of systemically important functions will kick in.4 In their entirety, these measures help to ensure that the banks are again able to bear more of their risks themselves. What are the objections to the package of measures? So why are there still objections to the Swiss package of measures from various quarters, if the advantages are so obvious? Do these measures have any harmful consequences? 2  The proposal of the committee of experts and the message of the Federal Council can be downloaded at www.efd.admin.ch. 3  The new capital adequacy regulations for systemically important banks are to apply to risk-weighted capital and to the leverage ratio. Furthermore, they are designed to be progressive. In other words, the bigger the bank, the higher the requirement. Given the current size of Switzerland’s two big banks, the requirement would be 19% total capital of the risk-weighted assets, of which 9% can be held in convertible capital (cocos) and 10% must be held in common equity. 4  If common equity falls below the threshold of 5%, the cocos will be converted and the emergency planning for separating the systemically important functions from the rest of the bank will be initiated. 2  BIS central bankers’ speeches  Objections and doubts before the introduction of new regulations or laws are part and parcel of a thriving democracy.

So it is important to ensure the presence of suitable mechanisms that facilitate the necessary co-ordination. In the arrangements recently proposed by the new government in the United Kingdom that is to be achieved by putting both the decision makers – the Monetary Policy Committee and the Financial Policy Committee – in the same institution and ensuring that they have a number of members in common. 6. Concluding remarks  To conclude, we return to the elements of the pre-crisis policy consensus outlined in the introduction and ask what remains or how it needs to be modified. 1. The role of fiscal policy. Fiscal policy is the topic of the next session. But we should at least note that the collapse of private demand after the demise of Lehman Brothers prompted not only the operation of the automatic stabilisers but also additional discretionary fiscal policy measures in the most affected economies, with the total fiscal impulse coming in at around 4 per cent of GDP. But the effectiveness of those expansionary fiscal policies in stimulating demand remains a matter of debate, both in policy making circles and academia. On the one hand, there are those who believe the fiscal multipliers are negligible, either because of Ricardian Equivalence or because of crowding out through the impact of high public debt and deficits on long-term interest rates.
It has been used, for example, to explain and sometimes justify rapidly rising share prices for companies in the domain of information technology, known for short as IT companies. It has also featured, however, in the view that the economic laws under which we live have ceased to apply, leaving our economies in a state of bliss. Constantly accelerating productivity growth should lead to an unending boom, so that we central bank governors can sit back and stop worrying about the tensions that strong growth usually generates between supply and demand, with the risk of rising inflation. Reality, however, does not seem to have kept pace with these notions. Share prices for IT companies have fallen steeply. In the course of last year the average value of the Nasdaq exchange, perhaps the prime indicator of the aggregate value of international IT companies, was almost halved. IT shares have also fallen markedly on the Stockholm exchange as well as elsewhere. Moreover, a number of new companies in this sector have collapsed. Developments in the U.S. economy are a reminder that time-honoured relationships do still apply, even in a phase of rapid transformation with major technical innovations. An economy that is expanding rapidly will ultimately generate imbalances and rising prices. That was why the Federal Reserve had to tighten the monetary stance so that the high growth in the United States would be subdued. My attitude to talk about a ‘new economy’ or a ‘new economic era’ has been sceptical for a number of reasons.

There was a great deal of surplus capacity, particularly in the major iron and steel sector. Together with the oil crisis and the collapse of Bretton Woods, the post-war international currency system, this plunged many industrial countries into an acute structural crisis. The extent of the crisis was, of course, influenced by economic policies; I say that as a reminder that the development I have described is not predetermined. The crisis for this former development cluster is sometimes seen as being connected with what we could accordingly call the third industrial revolution, namely the coming of the microprocessor. This has launched a new phase of transformation as the emergence of a new development cluster leads economic developments in new directions. Temporary setbacks not unusual when times are changing The setbacks, however, are not necessarily confined to traditional industries. Other types of economic reversals may also occur in periods of structural change. They may take the form of financial problems of varying severity. During the transformation process, investors and creditors perceive new profitable opportunities. Share prices rise and banks are willing to lend to new enterprises and novel projects. However, as share prices and the supply of credit are governed by expectations of future gains, undue optimism may sometimes cause them to rise too fast. Sooner or later, such bubbles based on expectations will burst and this tends to be associated with problems in the banking sector. The years 1907, 1920 and 1990 are three examples of this.
An important element in improving financial stability is to reduce the expected loss associated with the failure of any financial firm to the point where default does not imperil the financial system and the real economy. A holistic approach is needed that both provides a credible resolution process for large, complex and interconnected banks, uses enhanced prudential standards and initiatives to further reduce the probability of default and the social losses associated with a default, and that incents management to intervene early to address incipient problems before they threaten the viability of the firm. Relying solely on resolution is not sufficient. Until the Title II resolution process is used, there will remain uncertainties regarding how well this approach will work in practice – especially in a time of market stress. For this reason it is also important to continue to pursue a number of alternative approaches. Thank you for your kind attention. I would be happy to answer a few questions. BIS central bankers’ speeches  7

In some cases they have lent money for fifty years at around 4%, and the interest rate on long-term UK government bonds is at its lowest level for over 50 years. Low and stable inflation clearly explains much of the fall in long-term interest rates which fell sharply when the Bank of England was made independent in 1997. But over the past three to four years long-term interest rates around the world have fallen further to remarkably low levels. In the UK, the annual interest rate on 20-year index-linked government bonds, after allowing for anticipated future inflation, is now around 1%. For most of the past 25 years, that so-called “real” rate of interest has varied between 2% and 4%. Long-term real interest rates of no more than 1% would normally be a signal to spend more, save less, and to invest in physical as well as financial assets. But it is not at all clear that rates will persist at such low levels. So is this particular signpost reliable? There are broadly two types of explanation for the fall in long-term real rates around the world. The first explains low interest rates as the outcome of an increased propensity to save and lower willingness to invest in the world as a whole. The second explains them as the result of rapid growth in money and credit which, in a “search for yield”, drives asset prices up and interest rates down.
Retail business is the natural area for regulators to want to have an increased level of oversight, and the PRA has therefore set limits based on the level of retail insurance liabilities. Our expectation remains that those insurers with very large exposure to the UK retail market will establish subsidiaries to operate here, giving the UK more direct oversight over their operations.5 For EU insurers, the UK’s unilateral decision to find the EU equivalent for group supervision purposes should still go some way to reducing the regulatory burden that subsidiarisation represents, and reflects our confidence in the approach taken by our EU counterparts. Co-operation with these counterparts will remain key to the supervision of these subsidiaries. Actions we can take to facilitate effective competition in UK insurance sector domestically and internationally in conjunction with high prudential standards  Of course, branching is not the only route by which international participants access the UK insurance sector. As part of our broader consideration of the position of UK insurance post-Brexit we are considering all aspects of this issue, and the role that we as the regulator can play, with one area of focus being the removal of unnecessary barriers to new entrants to the UK insurance market. Parts of the UK insurance market are already extremely competitive, and simply increasing the number of insurance providers in a market will not in itself bring additional benefits.

I would argue that far from being in conflict, competitiveness and high prudential standards complement each other – you cannot have one without the other. The UK’s status as a pre-eminent, global insurance market depends heavily on the robustness of the infrastructure within which it operates: a reliable legal system, for example, and a robust regulatory regime that allows policyholders, reinsurance cedants, and other counterparties to transact with confidence. I know that different parts of the market have different priorities. For some parts of the UK insurance sector – particularly life insurance – the priority is to address areas of Solvency II that you feel do not work as well as they could, whilst for others of you the primary focus is on maximising international market access. Some of the changes to the prudential regime that we are considering within the review of Solvency II should result in changes across the sector: such as the reform of reporting requirements, and streamlining our approach to approval of internal models, all which should affect a wide range of firms; others, such as reviewing the design of the risk margin and the matching adjustment, will focus more on the life insurance sector. At the same time we remain open to international participation in the UK insurance market, engaged more than ever in international policy making and active supervisory co-operation and fully supportive of the international activity of insurers based here. We are maintaining strong, cooperative working relationships with regulators in other jurisdictions, bilaterally and through colleges.
It is crucial that investment in equipment should gain in momentum and that its greater vigour be accompanied by more expansionary, export-led net external demand. The improvement in these components would then provide for a situation in which the necessary moderation in household spending, especially on house purchases, did not lead to a loss of dynamism. It should not be forgotten that some of the factors behind the buoyancy of expenditure may tend to lose steam or even disappear The most patent case here is that of the prolonged expansionary influence exerted by lower interest rates. The current scenario of exceptionally low interest rates is the result of a very particular economic situation at the European and international level. And although EMU membership ensures moderation in rates, it is likely these will return to more neutral levels as the recovery in the area takes hold. Nor is it conceivable that the exceptional intensity of employment generation per unit of output in recent years can become a permanent feature. Probably, once the labour market has been fully adjusted to a situation of price and wage stability and to a more flexible regulatory framework, the relationship between job creation and growth in the economy will resume a pattern more in step with long-term trends.

The difficult times of past years, during which most institutions showed notable resilience, led many of them to undertake reforms designed to reduce costs, such as the sale of non-strategic assets, and these decisions should now be bearing fruit. The improved situation of financial institutions at the international level seems to be borne out by the favourable outlook for their future performance that agents operating in the markets have. In 2003 this perception was reflected in rising stock market prices, reduced implied volatilities and narrowing risk premia. Spanish deposit institutions, thanks to their sound initial position and the fact that the Spanish economy outperformed the EU average, were less severely hit by the difficulties of past years. They were thus in a position in 2003 to benefit from the favourable international financial situation, from the rebound of the securities markets, and from the continued strong relative performance of the Spanish economy. In particular, Spanish deposit institutions enjoyed higher growth of earnings and profitability in 2003. This allowed the effects of a more competitive environment and low interest rates to be offset by larger business volumes and tighter control of operating expenses. Also, lower doubtful assets allowed bad debt provisioning to be reduced thanks to the smaller need for provisions to the specific fund (partly counteracted by changes in the statistical and general funds), thereby boosting the institutions’ profit and loss accounts. Solvency ratios held steady and default ratios stood at historical lows.
Despite the headwinds from continuing debt-overhang and recent financial distress, European authorities in 2011 judged that the eurozone economy was emerging from recession and headline inflation was at risk to rise persistently above target. The European Central Bank (ECB) responded by raising policy rates in 2011. The ECB soon had to backtrack as output in the eurozone fell again and inflation began to march down below target. Today, the eurozone faces continued economic weakness and an inflation rate that is just about 1/2 percent. As a result, the ECB recently lowered policy rates to the ZLB, has started undertaking additional unconventional monetary policies, and is now encouraging fiscal expansion among eurozone countries that are able to do so. These lessons from monetary history strongly suggest that there are great risks to premature liftoff from the ZLB or near-ZLB conditions. Unless economic conditions are fundamentally strong and the previous impediments to growth have receded sufficiently, the odds remain high that monetary authorities will need to retreat right back into the ZLB. And the costs of being mired in the ZLB are simply very large. The ZLB prevents using our very best policy tools to address negative shocks. The ZLB means that interest rates cannot fall low enough to equate the supply of saving with the demand for investment, which, of course, significantly impedes capital formation, future economic growth, and the health of labor markets.

8  BIS central bankers’ speeches  To summarize, I am very uncomfortable with calls to raise our policy rate sooner than later. I favor delaying liftoff until I am more certain that we have sufficient momentum in place toward our policy goals. And I think we should plan for our path of policy rate increases to be shallow in order to be sure that the economy’s momentum is sustainable in the presence of less accommodative financial conditions. I look forward to the day when we can return to business-as-usual monetary policy, but that time has not yet arrived. References Aaronson, Daniel, Luojia Hu, Arian Seifoddini and Daniel G. Sullivan, 2014, “Estimating and forecasting trend labor force participation,” Economic Perspectives, Federal Reserve Bank of Chicago, Vol. 38, forthcoming. Aaronson, Daniel, and Andrew Jordan, 2014, “Understanding the relationship between real wage growth and labor market conditions(pdf),” Chicago Fed Letter, Federal Reserve Bank of Chicago, No. 327, October. Aaronson, Daniel, and Daniel G. Sullivan, 2001, “Growth in worker quality(pdf),” Economic Perspectives, Federal Reserve Bank of Chicago, Vol. 25, Fourth Quarter, pp. 53–74. Acemoglu, Daron, and David H. Autor, 2011, “Skills, tasks and technologies: Implications for employment and earnings,” in Handbook of Labor Economics, Orley Ashenfelter and David Card (eds. ), Vol. 4B, Amsterdam: Elsevier / North-Holland, pp. 1043–1171. Autor, David H., 2011, “The unsustainable rise of the disability rolls in the United States: Causes, consequences, and policy options,” National Bureau of Economic Research, working paper, No. 17697, December.
William J McDonough: The foundation of financial stability  Speech by Mr William J McDonough, President and Chief Executive Officer of the Federal Reserve Bank of New York, before the 50th Anniversary Symposium of the Bank of Korea, held in Seoul, on 8 July 2000. *  *  *  It is a true honor to address you today on the occasion of the 50th anniversary of the Bank of Korea. I regret that I am unable to join you personally in your celebration. The past half-century has been one of tremendous challenges and outstanding achievements for Korea, to which even a short list of developments testifies: national rebuilding after the devastations of the Korean War, the economic miracle, democratization and the emergence of a modern, urbanized and well-educated population. Indeed, given initial conditions, Korea might be considered the biggest success story of the last 50 years. This record reflects the long Korean history of resilience in the face of external threat, the hard work and energy of the Korean people, and the adoption of new models in response to environmental change. The Bank of Korea has played a key role in Korea’s economic success. In the early stages of development, the Bank acted to facilitate the state-led growth model. The Bank’s role evolved as the economy became more market-driven over time, and the amended Bank of Korea Act further enhanced the independence of the central bank and enshrined price stability as the primary objective of monetary policy.

The recent price increases of agricultural products should make it easier for the EU to make some concessions on the Common Agricultural Policy, in order to eliminate the subsidies which tend to distort international prices. This would be an advantage for European producers and consumers alike. Regarding currencies, it is important to continue talking with those countries which still peg their currencies to the US dollar, although their economies show a higher growth rate and a strongly positive balance of payments. Pegging to the US dollar slows down the adjustment of global imbalances. A speeding-up of the appreciation of the exchange rate of the yuan visà-vis the US dollar as well as the euro would be in the interest not only of the international community, but of China itself. In the past 12 months, the exchange rate of the Chinese  BIS Review 61/2008  5  currency has gained approximately 9% vis-à-vis the US dollar, while losing about 3% vis-àvis the euro. Only in the past months have markets experienced the inverse process, with the yuan gaining also against the euro. The appreciation of the yuan would allow China to effectively counteract internal inflationary pressures and to reduce the balance of payments surplus, which fuels the accumulation of global imbalances. The increase in food prices should ease fears that an appreciation of the yuan could penalise the income of rural areas, which are still quite sizeable.
Some firms have established their regional headquarters here. These companies have helped to broaden the range of products here beyond plain vanilla equity mutual fund products and develop more sophisticated skills and expertise. MAS has decided to place out an additional $ billion to external fund managers. The funds will be invested in Asian equity and fixed income markets. This recognises the investment opportunities in Asia and will also help to anchor and grow specialist skills in Asian investments in our financial centre. This will be on top of what GIC recently announced it will place out for external management. Liquidity and depth in Singapore’s treasury and capital markets is another critical success factor for our financial centre. Singapore can serve global issuers and investors as the gateway to ASEAN markets. We want to promote the ASEAN region as an asset class for capital markets investments. We will work with key players, including the Singapore Exchange (SGX), to forge regional exchange linkages, integrate market infrastructure, harmonise regulatory frameworks and promote regional electronic bond trading. SGX already has a link with the Australian Stock Exchange and is in discussions with Bursa Malaysia and the Tokyo Stock Exchange. The ASEAN Finance Ministers agreed at their meeting in April to explore alliances and linkages among ASEAN securities markets to facilitate access to these less mature markets by international investors. A Linkages Task Force, chaired by MAS, will make its recommendations next year.

BIS Review 72/2004  5