samchain/econo-pairs-v1 huggingface dataset:
BIS Review 67/2006  13  The stagnation in the downward tendency of the risk premium was reflected on the real interest rate as well and real interest rates that are calculated by using benchmark securities interest rates and twelvemonth ahead inflation expectations obtained from the CBRT Expectation Survey followed a relatively horizontal course in the first quarter of 2006 (Graph 21). Graph 21. Developments in Real Interest Rates (According to ISE Benchmark Interest Rate and Twelve-Month Ahead Inflation Expectations) 35 30 25 20 15 10  Jan-06  Oct-05  Jul-05  Apr-05  Jan-05  Oct-04  Jul-04  Jan-04  Apr-04  Oct-03  Jul-03  Apr-03  Jan-03  Oct-02  Jul-02  Apr-02  Jan-02  5  Source: ISE, CBRT. The appreciation of the New Turkish lira continued in the first two months of 2006. In March, however, the New Turkish lira depreciated against the basket consisting of Euro and USD due to the rise in the risk premium (Graph 22). Graph 22.

For example, a “core” measure that relied exclusively on inflation in the services sector would have run above 2% in the pre-crisis era, when overall inflation was around 2%, in light of low inflation rates in goods prices. A “core” measure with a higher weight on goods prices would have shown the opposite. 22  For example, although they are uncertain, estimates of the pass-through of exchange rate movements to CPI inflation suggest that, on average a 1% appreciation reduces consumer prices by around 0.3%. Those effects take time, though they are mostly complete in around three years – consistent with complete but gradual passthrough of exchange rate changes to consumer prices. That likely reflects, among other things, rigidities in retailers’ pricing decisions. See the box on page 28 of the November 2015 Inflation Report for further discussion.
I would note this is something the Committee was able to anticipate before the referendum, the minutes of the MPC’s May 2016 meeting stating that “[t]he implications for the direction of monetary policy will depend on the relative magnitudes of the demand, supply and exchange rate effects.” And my colleague Ben Broadbent has recently set out in more detail what this means in the particular context of Brexit. True to this statement, the MPC has set monetary policy since the referendum on the basis of its assessment of how those effects are interacting. This is made difficult by the large, uncertain and sometimes offsetting implications of the decision to leave the EU. So it is not surprising that even though all Committee members sign up to the framework I have laid out, their individual assessment of the economic outlook has differed along the way. Decide Which brings me to the second phase of ‘end to end’ monetary policy: Decide. In the MPC’s meeting at the start of this month, a majority of its members thought that the evolution of supply and demand was such that the margin of slack in the economy now seemed fairly limited, and that underlying inflationary pressures had shown some signs of picking up. As a result, they judged that this reduced the degree to which it was appropriate for the MPC to tolerate an extended period of above-target inflation, and that a small reduction in stimulus was warranted.

In addition, inflation expectations, which may affect wage and price setting, appear to be edging lower: We see this both in survey results and in the financial markets— through noticeable declines in “inflation compensation”, measured by the difference between the yields on Treasury bonds with and without inflation protection. A third factor is productivity growth. BIS Review 52/2005  1  There have been concerns that a structural productivity slowdown was in the offing, which could put upward pressure on inflation; the good news is that structural productivity growth apparently still remains above the levels reached during the second half of the 1990s, although it may have edged down just a bit over the last few years. A final factor impacting the inflation outlook is the degree of slack in the labor market. Right now, the unemployment rate is relatively low: at 5 percent it’s near most estimates of the so-called natural rate. But other measures—such as the employment-population ratio, a survey of job market perceptions, and industrial capacity utilization—suggest that some slack still remains. Risks to economic growth and employment Now let me turn to the real side of the economy—growth and employment—and highlight some of the risks that affect my optimistic baseline projection. Even though overall growth has been respectable, economic activity has been burdened by some major drags over the past year or so. Three major ones result from the oil price shock, the deterioration of the trade balance, and a still relatively low level of business investment spending.
7  With the leaders of the industry here, we hope that today’s discussions will identify emerging risks and challenges, and explore how we can all work together to address potential vulnerabilities as we continue to build real markets for the good the people of the UK and beyond. In this spirit, before concluding, I want to briefly touch on one of the biggest challenges facing us right now – the transition to Risk Free Rates. The move to new Risk Free Rates Libor is a prime example of critical hard (market) infrastructure that has not kept up with market developments. Libor is meant to measure the short-term unsecured funding costs of banks. But the reality is that, since the financial crisis, Libor really has become the rate at which banks don’t lend to each other. Bank funding markets have changed enormously. Banks no longer take sufficient short-term wholesale deposits to form the basis for a robust transaction-based Libor benchmark. As a result Libor is overly reliant on expert judgement rather than actual transactions. And global markets remain overly reliant on Libor, a benchmark that may not exist beyond 2021. That reliance is neither desirable nor sustainable. That’s why authorities internationally have worked with market participants to identify alternative benchmarks based on actual transactions. These are overnight rates – a relatively pure read on risk-free rates in each economy. In sterling, the market has chosen SONIA, a benchmark now administered by the Bank of England.

The global FICC Market Standards Board (FMSB) is 2  The UK accounts for 40% of both global FX volumes and trades in OTC interest rate derivatives, and two-thirds of trading in international bonds. More international banking activity is booked in London than anywhere else. And finance is one of the largest sectors of the UK economy. Around 400,000 people are employed in financial services in London alone, 1.1 million across the country as whole. Their enterprise contributes £ billion to our national income, £ billion to our exports and £ billion to the Exchequer, equivalent to two-thirds of the NHS budget. 3 This is set out in more detail in the FEMR Progress Report being published today at: https://www.bankofengland.co.uk/markets/fairand-effective-markets 3  All speeches are available online at www.bankofengland.co.uk/speeches  3  establishing readily understood standards for their markets. And the global FX Committees have published the FX Global Code, the first globally consistent code of conduct for FX markets. But codes are of little use if nobody reads, follows or enforces them. This is where the UK’s Senior Managers Regime (SMR) comes in. 4  Senior Managers Regime The SMR gives teeth to voluntary codes by incentivising firms to develop, adopt and embed them. It is very welcome that the FCA is currently consulting on proposals to recognise industry codes publicly under the SMR. By requiring identification of the most senior decision-makers, the SMR re-establishes the link between seniority and accountability, strengthens individual accountability, and reinforces collective responsibility.
A large part of the improvement of banks’ risk-weighted capital ratios over the last few years has taken place as a result of banks using internal models to a greater degree to calculate lending risks, and not by building up more capital. The use of these internal models has meant that the risk weights on banks’ lending have fallen, which has contributed to a rise in equity in relation to risk-weighted assets. Our analysis shows that without this transition to internal models, the major banks’ core tier one capital ratios would only have increased by a few percentage points over the period 2006 to 2013. The banks’ equity as a proportion of total assets, or the leverage ratio, has been largely unchanged over the last few years (see Figure 10). 15 Figure 10 The major Swedish banks’ core tier one capital ratio and leverage ratio Per cent  Note. The blue line indicates CET 1 in relation to total assets and thus differs from the Basel Committee’s definition of leverage ratio. Sources: Banks’ annual reports and the Riksbank. Even though measures have been taken to reinforce banks’ capital levels, more is needed. One important measure for which the Riksbank has argued for a long time is the introduction of a leverage ratio requirement. But we have also argued in favour of raising the countercyclical capital buffer to 2.5 per cent along with raising the risk-weight floor for mortgages to 35 per cent.

Facing the deep European Investment and growth gap, we need to implement major European investment programmes to bridge that gap while tackling common structural priorities such as the fight against climate change which must absolutely not become a collateral victim of the crisis, or digitalisation which will be even more than before the key driver of future productivity. 2/ Preserving the single market while “repairing” firms is our second common goal in the recovery phase. National governments did well in the acute phase, by taking emergency measures such as providing guarantees and liquidity support to their SMEs. But, as these measures will have to be prolonged and transformed into long-term solvency measures, national differences could create an “unlevel playing field“. A single market – which is in the interest of all Member States, starting with Germany – means common rules for corporates:  Page 7 sur 10 if not, our economies risk further divergence and that would be very unfortunate. The solvency of European business is our shared challenge, and calls for shared solutions. Focusing on these two objectives is more important than arguing about public debt. But let me, for the sake of consistency, propose two basic principles: Existing debts are and will remain the responsibility of national governments. Let us stop this fruitless debate about Eurobonds and the mutualisation of past debt. Fiscal consolidation will remain a national obligation – including in France –, but with appropriate timing in order to avoid the premature and procyclical tightening of public finances.
So, imposing new trade barriers – or “bilateral deals” – on some trade partners not only has almost no chance of eliminating the overall current account deficit, but it also threatens long-run economic growth. Alternatively, it would also be misleading for countries to carry out non-cooperative domestic macroeconomic policies. Competitive devaluations first: after some unilateral and unfortunate declarations last week, several of us on the Governing Council of the ECB felt the need to reiterate that during the last IMF Annual Meetings in DC last October we committed with all our partners to a multilateral approach saying that, I quote, “we will not target our exchange rates for competitive purposes”. Any deviation from this common rule would be at the cost of breaking mutual trust and global growth. Speaking of the Governing Council of the ECB, let me say a few words on our monetary policy. It is following, with confidence and with patience, a path of gradual normalisation. But one shouldn’t focus excessively on the sole instrument of monthly net asset purchases: whether we end them in September or taper them somewhat more gradually is not a “deep existential” question… There are two more important issues: First, we prefer, as in Irish dancing, a four-hand reel rather than a solo; we will rely more and more on the entire policy package, including the sizeable stock of acquired assets, the forthcoming reinvestments and the forward guidance on interest rates. And we will follow a predictable sequence.

Large current account imbalances, in particular deficits, pose significant risks for external debt sustainability and raise the possibility of sudden stops.6 Gross positions are now 3 to 4 times larger than their 1995 level, ranging from 150–300% of GDP (150% in the case of the US and 300% in the case of France, for example). Net positions are considerably smaller [Slide 8, table on right-hand side], but have widened by a factor of 5 to 10 with respect to their level in 1995. The counterpart of persistently large current account imbalances is large net external asset positions [as already shown in Slide 3], but also continued accumulation of external assets and liabilities. In this respect, the composition of the financial account (FDI, equity and debt portfolio flows as well as the other investment category, which largely comprises banking flows) matters. Examining the different financial instruments, one notices that the volatility in overall flows is largely driven by banking flows [Slide 9]. Given the large pre-crisis expansion in cross-border banking flows, especially within the euro area, the “low” level observed in recent years could 2/5  BIS central bankers' speeches  simply be interpreted as a return to normal. Indeed, in the aftermath of the Great Financial Crisis, banking flows retrenched the most, followed by debt portfolio flows.7 Portfolio equity flows have been much more resilient than debt flows, which have halved between the pre- and the postcrisis periods.
This will become increasingly important when it involves strategies and positioning of the “ummah” in the economic sector. Shariah assessments that include input and findings of multiple disciplines as well as variations of insights will provide more added values to a particular Shariah research. This effort can be implemented through active involvement of professionals in the  BIS central bankers’ speeches  1  process of researching Shariah issues. I am confident that through this approach, we will be able to formulate a collective ijtihad that is comprehensive, in comparison to ijtihad that is peripheral and exclusive. In the Malaysian context, we have decided to encourage the combined expertise and experience between Shariah members and professionals through the Shariah committees of Islamic financial institutions. In fact, we also encourage qualified Shariah scholars to be appointed as members of Board of Directors at Islamic financial institutions, specifically to form a “bridge” or point of connection between the Board and the Shariah Committee members, and to allow them to gain greater exposure to the operational situation in the management of Islamic financial institutions. The process of knowledge sharing and discussions on Shariah as well as on other realms of Islamic knowledge among the Board members of a particular financial institution will enrich the justifications of a particular deliberation before a decision is made. Another key aspect is the importance of Shariah scholars to thoroughly understand the impact of ijtihad on the growth of the Islamic finance industry and society at large.

4 T. Padoa-Schioppa, “Capital Mobility: Why is the Treaty Not Implemented?”, Address to the Second Symposium  of European Banks, Milan, June 1982. 5 Pietro Catte, The Reform of the International Monetary System, Background note prepared for Conference in  Memory of Tommaso Padoa-Schioppa, Rome, 2011. 6 T. Padoa-Schioppa, “The European Monetary System: A Long-Term View”, in F. Giavazzi, S. Micossi, M. Miller,  The European Monetary System, Cambridge University Press, 1988. 7 Banque de France, « Coût des carences de coordination des politiques économiques dans la zone euro »,  Bulletin de la Banque de France, n° 211, Mai-juin 2017. English version: “Cost of the lack of coordination of economic policies in the euro area”, Quartely Selection of Articles no. 46 (Banque de France Bulletin), to be published in Summer 2017. 8 T. Padoa-Schioppa, “Capital Mobility: Why is the Treaty Not Implemented?”, Address to the Second Symposium  of European Banks, Milan, June 1982. 9 7/8  BIS central bankers' speeches  9 See for instance: speech at Bruegel in Brussels on 22nd March 2016 or speech before the Committee on  Economic and Monetary Affairs of the European Parliament on 28 September 2016. 10 W. Churchill addressing the crowd on place Kléber in Strasbourg on 12th August 1949, day of the First Session  of the Consultative Assembly of the Council of Europe. 8/8  BIS central bankers' speeches
If you are able to trust the other party to the contract, you do not have to hedge against all possible outcomes.10 The wheels of business turn faster and more smoothly. The 1800s were characterised by upheaval and a change in the pace of economic development. In the old society, safety lay in close-knit networks and small institutions: the family, relatives and neighbours. Once the pace of development picked up, however, these networks and institutions were no longer sufficient. New ones were needed. Local savings banks are a good example. Specialisation, a market focus and new tools demanded more financial muscle than the old, family-based networks could mobilise. The solution was for villages to join forces to create savings banks, an institution rooted in the local community but reaching beyond the old networks. Løten savings bank opened in 1855. A good public school system is a prime example of an inclusive institution. In May this year, I had the pleasure of visiting Stavanger Cathedral School. The head teacher, Turid Myhra, showed a portrait of one of her predecessors, Johannes Steen; schoolmaster, statesman and nation-builder.11 Steen was notably a key driving force behind what was to become an important milestone in the construction of Norway’s collective identity: the adoption of the Primary School Act in  Andenæs found this to be an interesting statement.

The choice made was  2  BIS Review 100/2006  imposed by the circumstances: lack of developed financial instruments and institutional financial structure; absence of the interest rate transmission mechanism, and high interdependence between the aggregate demand and money supply. In October 1995, NBRM made a shift towards monetary strategy of targeting the nominal exchange rate against the German Mark, and later against the Euro, with the Denar exchange rate stability being the intermediate monetary policy objective. Such a strategy, applied in a small and open economy such as ours, has proved to be very successful for maintaining the price stability until present day. All reforms in the monetary policy instruments since the independence have been directed towards introducing indirect, market-oriented instruments for enabling efficient monetary policy conduct. Therefore, in 1993 deposit and credit auctions were introduced, and at the end of 1994 CB bills auctions were introduced. The initial development and strengthening of the financial system of the Republic of Macedonia, especially of the government securities market, enabled us to include new instruments, following the example of the modern central banks. In April 2005, we promoted the overthe-counter market for government securities. In the same year, we launched the general repo agreement and we started with repo operations when concluding lombard credits. In March this year, together with the Ministry of Finance we introduced Treasury bills for monetary policy purposes. The transition of the monetary strategy and of the monetary instruments would not have been successful without adequate banking reforms.
In particular, this is the role of the two new liquidity ratios: –  The one-month liquidity ratio or Liquidity Coverage Ratio (LCR) has the two-fold objective of preventing short-term liquidity shocks and requiring institutions to selfinsure against liquidity shortages in order to limit refinancing exclusively via the central bank. Institutions should in no way consider that they have a guarantee of permanent access to such refinancing. In this respect, the use of foreign currency funding is not always justified by the need to fund assets denominated in these currencies in the absence of a sufficiently broad customer base in the countries concerned. Such strategies are also used for arbitrage purposes. They contribute to overall market liquidity but they must remain of a magnitude that allows institutions to unwind positions in stressed market conditions. However, during complete liquidity dry-ups some institutions became largely dependent on swap lines between central banks, as was the case from the end of 2007 to the start of 2010. It is also clear that the use of swap lines between central banks cannot be considered a natural market adjustment. In this respect, it is advisable for banking supervisors to have indicators that enable them to measure possible foreign currency mismatches, without necessarily imposing a specific currency matching requirement. –  The one-year liquidity ratio or Net Stable Funding Ratio (NSFR), for its part, aims to limit the risk of excessive maturity transformation such as illustrated by the failure of Northern Rock.

Participant deposits in the ALF are backed by a fund of high quality securities – sukuk –  3/5  BIS - Central bankers' speeches  complemented as needed by cash deposits at the Bank. The return from these instruments, net of hedging and operating costs, may be paid to depositors in lieu of interest. Deposits held with the ALF help enable participant banks to meet regulatory requirements to hold a buffer of high quality liquid assets to meet obligations as they fall due. Using our convening power as a central bank we collaborated with and learnt a lot from numerous institutions in the Islamic finance sphere from around the world, whose experience and input was essential in helping us create the facility. Since launching the ALF in December 2021 we have seen strong usage of the facility and received, and continue to receive, positive feedback on its design. We are pleased with progress in meeting the challenge. First from the perspective of fairness, but also in the support that it gives to the real economy, be that through lending to businesses, or as the focus of today's event, supporting sustainable investment. The approach we took in developing the ALF can be extended to efforts beyond the world of central banking.