samchain/econo-pairs-v1 huggingface dataset:
There is nothing new in central banks’ concern with the stability of the financial system. It is part of their genetic code. What is new, however, is the explicitness with which the financial stability goal has been articulated, the broader range of intermediaries and institutions that form the focus of macro prudential policy, and the range and sophistication of the tools of macro prudential analysis. All of these are of a completely different order to those of twenty – or even ten – years ago. Thank you. BIS Review 106/2006  11

On the counterpart side, there has been a further slight strengthening in the growth of loans to non-financial corporations, which rose to 1.0% in April, after 0.8% in March. The growth of loans to households was 3.4% in April, unchanged from the previous month. The latest data confirm a continued gradual strengthening in the annual growth of lending to the nonfinancial private sector. The overall size of bank balance sheets has remained broadly unchanged over the past few months, notwithstanding some volatility. It is important that banks continue to expand the provision of credit to the private sector in an environment of increasing demand. To address this challenge, where necessary, it is essential for banks to retain earnings, to turn to the market to strengthen further their capital bases or to take full advantage of government support measures for recapitalisation. In particular, banks that currently have limited access to market financing urgently need to increase their capital and their efficiency. To sum up, based on its regular economic and monetary analyses, the Governing Council decided to keep the key ECB interest rates unchanged. The information that has become available since our meeting on 5 May 2011 confirms continued upward pressure on overall inflation, mainly owing to energy and commodity prices. A cross-check of the outcome of the economic analysis with that of the monetary analysis indicates that the underlying pace of monetary expansion is gradually recovering. Monetary liquidity remains ample, with the potential to accommodate price pressures in the euro area.
As pointed out by Markus Brunnermeier, the willingness of central banks to continue making large purchases of private assets long after the end of the Global Financial Crisis has led to “a build-up of private debt, depressed credit spreads, distorted price signals, and high house prices from increased mortgage lending.” [12] The second concern is the feedback loop from these vulnerabilities constraining future monetary policy options. If these vulnerabilities are significant, the central bank may be concerned that the tightening of monetary policy necessary to bring down inflation to target could trigger financial instability – in other words, financial dominance. A practical way monetary policy could minimise the risk of financial dominance is to use inflation targeting more flexibly. A criticism of inflation targeting is that it has been too much of a straitjacket on monetary policies: for example, keeping interest rates low for long to get inflation up to the target of 2% led to a build-up of financial vulnerabilities. I think the problem is not with inflation targeting per se but with not using it flexibly enough. There are two ways in which inflation targeting can be pursued more flexibly to minimise financial vulnerabilities. One, take time to bring inflation back to target. The BIS, for instance, advocates lengthening the monetary policy horizon to take financial stability consequences of monetary policy more fully into account. [13] But allowing inflation to persist for too long away from the target runs the risk of unhinging inflation expectations.

MONETARY POLICY Third proposition: monetary policy should remain focused on inflation control but its implications for financial stability must be taken into account. Including financial stability as an additional objective of monetary policy seems attractive but may not be a good idea. In my 2014 AMPF speech, I argued that although monetary policy “flows into all the cracks, some cracks may be just too big to fill”. Today, I would add that some other cracks may be over-filled. The point is that monetary policy is simply too blunt an instrument to address excessive risk-taking and leverage at the sectoral level. Research at the IMF suggests that the net benefits of leaning against asset price bubbles using monetary policy are likely to be small, or even negative. [11] Country experience suggests caution. In 2010-2014, the Swedish Riksbank raised interest rates roughly 2 percentage points to counter rising house prices. The strategy proved unsustainable as inflation fell to zero and unemployment remained at high levels. Monetary policy needs to remain focused on price stability but should seek to minimise the risk of financial dominance. The concern here is two-fold. The first is that highly expansionary monetary policy over a prolonged period could contribute to a build-up of financial system vulnerabilities which is, in and of itself, undesirable.
Malta’s GDP per capita in PPS terms has been stuck at around 77% of the EU average since 2003. 2  1  IMF, World Economic Outlook, October 2010. 2  Source: Eurostat. BIS Review 156/2010  1  The focus must be on productivity and competitiveness Faster sustainable growth will not, however, be possible unless we produce goods and services that meet the test of increasingly competitive and discerning markets. This, as the recent Pre-Budget Document acknowledged, requires, among others, higher productivity levels, which would then raise the rate of growth of potential output. Productivity has been improving recently, but against the backdrop of a relatively poor longterm record, which leaves Malta well behind the best performers in the euro area. 3 Even more worrying, compensation levels have risen much faster than productivity. The explanation for this relatively poor outcome should be sought in the way we use productive resources, principally labour and capital. Malta’s labour resources are underused… To begin with, not enough people participate in the formal labour market. In 2009 the employment rate stood at 55%, compared with a euro area average of nearly 65%. 4 The activity rate among women and older workers in particular is especially low. Furthermore, long-term demographic projections suggest that, over time, the labour force will shrink. According to the European Commission, the working-age population in Malta will contract by more than 20% by 2060. 5 In the light of these trends, raising participation rates should be a priority.

5  European Commission, The 2009 Ageing Report: economic and budgetary projections for the EU-27 Member States (2008–2060), European Economy 2/2009, page 47. 6  Source: Eurostat. 7  Ebejer, Ivan and Ulrike Mandl, The efficiency of public expenditure in Malta, ECFIN Country Focus Volume 6, Issue 2. February 2009. 8  The tertiary educational attainment level is defined as the share of the population aged between 30–34 years who have successfully completed university or university-like education with an International Standard Classification of Education 1997 of 5–6. 2  BIS Review 156/2010  stresses, higher education drives innovation and economic transformation. 9 The University of Malta, however, is short of funds. One way of tackling this deficiency would be to limit stipend support to students who are truly in need. This would ensure that access to a university education remains open to everyone with the potential to benefit from it, while releasing funds for improving its quality. It would also address an issue of equity: since a tertiary level education is the key to better-paid jobs and higher lifetime incomes, it is appropriate that those who benefit most from it should contribute at least part of the costs involved. … while investment has not been sufficient But enhancing the supply and quality of labour is still not enough. To produce output, labour has to work with capital. Now a country’s capital stock can only grow through investment. The recent performance in this regard has been inadequate.
The aim of system oversight is to ensure that the high levels of safety and efficiency which characterise the market infrastructure of the Swiss financial centre are safeguarded for the future. Emergency liquidity assistance: a means of overcoming crises The National Bank is not only active in prevention - i.e. in the macroprudential oversight of the banking sector and in the oversight of the payment and securities settlement systems (system oversight) - but also contributes actively to overcoming crises. In a crisis, the National Bank - like any other central bank - is primarily responsible for maintaining liquidity. On the one hand, it can do this by ensuring that the market is amply supplied with liquidity. And on the other hand, as lender of last resort (LOLR) it can also provide emergency liquidity assistance to individual banks that are illiquid but still solvent. Here too we adopt internationally accepted procedures. Many central banks still prefer not to inform the commercial banks in too much detail about their role as LOLR. Quite understandably, they want to prevent the banks from being lulled into a false sense of security. The jargon term for this is “constructive ambiguity”. By contrast, the Swiss National Bank has opted - after carefully weighing up the moral hazard implications of its conduct - to communicate its terms to the banks both clearly and well in advance. The modalities are described in the Guidelines of  2  BIS Review 39/2004  the Swiss National Bank on Monetary Policy Instruments of 30 April 2004.

In 2003 it was able to raise its profits substantially in spite of a mixed macroeconomic and financial environment. Thanks to these profits, banks were able to bolster their capital significantly, thus enhancing their capacity to absorb shocks. The resulting capital ratios in the banking sector are high both in historical terms and by international standards. This impression of pronounced robustness in the Swiss banking sector is corroborated by the relatively low level (in historical terms) of the stress indicator. This is a new indicator calculated as a synthesis of different stress symptoms. The indicator considers in particular the capital ratios, profits, share prices and risk premiums on bonds in the Swiss banking sector. As far as the outlook is concerned, we believe that the macroeconomic environment and the financial markets do not present any significant threat to the stability of the Swiss banking system. The forecasts for 2004 point to a rebound in economic growth in Switzerland and the European Union along with a continuing upswing in the United States. Moreover, the rise in prices on the Swiss real estate market has remained moderate by both historical and international standards. It is thus unlikely that this market will see any abrupt downward adjustment - traditionally a major stress factor for the banking sector. And finally, the available indicators suggest that the major global banking sectors are  BIS Review 39/2004  1  also relatively robust. At present, therefore, the risk of contagion - i.e. of a crisis having repercussions on Switzerland - is remote.
In some situations where unexpected events lead to an inflation rate that is too high, it may be appropriate to apply a longer time horizon than two years. For example, reducing inflation to 2½ per cent within this time horizon may be associated with unnecessary real economic costs. A precondition for applying a longer time horizon is that there is clear evidence of strong confidence in low and stable inflation over time on the part of economic agents. As experience with setting interest rates using an inflation target is gained, the scope for placing emphasis on stability in the real economy will probably increase. Low and stable inflation is a necessary precondition for stability in the foreign exchange and financial market and the property market. However, there have been episodes where bubbles have accumulated in these markets, in the form of sharp increases in asset prices in an environment of low inflation. Price increases in property and financial markets can have a considerable impact on wage growth and consumer price inflation after a period. When the bubbles burst, the result may be an economic downturn. Developments in financial markets and property markets can be a source of a more unstable inflation environment. In principle, it would be appropriate to use the interest rate to counter this. In practice, however, it is difficult to assess whether price trends in property and financial markets are sustainable. When Norges Bank concludes that a change in the key rate is appropriate, the change will in most cases be made gradually.

The more established the surplus target is perceived to be, the higher will be the credibility of Swedish fiscal policy and the lower will be the future interest rates on Sweden’s central government debt. There is a clear parallel here with the Riksbank’s inflation target. 5 The more certain households and companies are that inflation will be close to the inflation target, the less time and energy they will need to devote to adapting their savings, investments and wages to inflation, and the fairer price setting in the economy will be. From the Riksbank’s perspective, it is also clear that monetary policy will be more efficient the more predictable developments in public finances are, and the greater the confidence in the sustainability of fiscal policy. Predictability is important to us as our forecasts for fiscal policy affect our assessments of resource utilisation and future inflationary pressures. Confidence in the sustainability of fiscal policy is important as otherwise it will be the market participants’ demands for risk premiums, which often vary substantially, rather than our repo rate path, which determine interest rates. For these reasons the Riksbank has, in its response to a consultative document from the government in March this year, expressed its support for making the surplus target obligatory by incorporating it into the Budget Act. We have also declared that we share the assessment that general government net lending over the next 10 years should once again average 1 per cent of GDP.
The transfer of the operating subsidiaries to the bridge company would allow critical operations to continue and provide time for the FDIC to move the systemically important operations back into private hands. 8  The DFA orderly liquidation authority is viewed as to be used only as a last resort under a very well-defined set of circumstances. To resolve a firm under the FDIC’s orderly liquidation authority, a number of determinations must be satisfied. First, the troubled firm must be designated a covered financial company (CFC) and that it is in default or danger of default and a resolution under bankruptcy would result in adverse consequences. The determination to use OLA authority requires the assent of the Treasury Secretary after consultation with the President  BIS central bankers’ speeches  7  Finally, the OTC derivatives market is being reformed with the aim of reducing bilateral exposures between firms and, thus, the systemic impact from any one firm failing. All standardized OTC derivatives in the interest rate, credit default, and equities markets will soon have to be centrally cleared through central counterparties (CCPs). The clearing of standardized derivatives trades through CCPs should reduce risk in the overall financial system by facilitating the netting down of OTC derivative exposures. Such trades will also have to be reported to trade repositories and information about the trades will be made available on a post-trade basis. This should make the OTC derivatives market more transparent and, thus, reduce the risk of contagion.

This should enhance their stability, and provide some protection against the fire sale externalities we saw during the crisis: forced asset sales, falling asset prices, leading to rising capital losses at other firms that led, in turn, to further funding difficulties, asset sales and so on. On the supervisory side, firms are now increasingly being evaluated on a cross-industry basis in order to identify best practices and to identify laggards that need to upgrade areas such as MIS, governance, model validation, and risk management practices. Activity restrictions are another potential means to reduce the risk of failure. The biggest initiative in this area is the Volcker Rule. By limiting proprietary trading activities, the Volcker Rules seeks to reduce trading risk and the likelihood of failure. 4  Earlier this month, the Financial Stability Board published a list of 28 global systemically important banks or G-SIBs that will be subject to capital surcharges. The firms were arrayed in four buckets, with an increasing capital surcharge as a percent of risk-weighted assets imposed as one ascended upward to the higher buckets. BIS central bankers’ speeches  5  In addition, the Financial Stability Oversight Council (FSOC) is in the process of identifying those non-bank financial firms that are systemically important. These firms will be subject to tougher prudential standards and supervisory oversight by the Federal Reserve. Some argue that this designation process merely creates more TBTF firms. I see it differently. The system risk externalities do not depend on whether we label them systemic or not.
Dwellings completed in newly constructed buildings (units) 80000  70000  60000  50000  40000  30000  20000  10000  9  0  1  2  3  4  5  20 0  20 0  20 0  20 0  20 0  20 0  8  19 9  6  7  5 19 9  19 9  4 19 9  19 9  3 19 9  19 9  1  2  0  19 9  19 9  19 9  8  7 19 8  9  6 19 8  19 8  5 19 8  19 8  3  4 19 8  2  19 8  0  9 19 7  1  8 19 7  19 8  7 19 7  19 8  6 19 7  19 8  5 19 7  0  Source: Statistics Sweden  BIS Review 105/2006  7  5.

Prices thus do not appear to have been driven by fundamental factors such as rents and vacancies, but instead by investors lowering their rate of return requirement. The size of this requirement depends  BIS Review 105/2006  1  partly on long-term interest rates, but also on how much risk investors are willing to take, what risk premium they require. As long-term interest rates have not fallen - they have more probably risen during the period, this indicates that falling risk premiums have pushed up prices. While this in itself is no great surprise – risk premiums on all kinds of high risk assets around the world have fallen in recent years, and it would have been surprising if Swedish commercial property had been an exception from this trend – there is reason to question whether the current low risk premiums are reasonable. If they were to be adjusted upwards to the earlier more normal levels, this would create downward pressure on commercial property prices. The Riksbank thus has reason to continue closely following developments in this field. Nevertheless, earnings and payment capacity in the property sector are good. Unlike the early 1990s, the property companies have on the whole sufficient capital to be able to manage a reasonable fall in property prices. My assessment is therefore that the commercial property sector does not constitute a threat to the stability of the financial system at present. The housing market Let me now move on to the housing market.
We have been helped by good luck, in terms of favourable terms-of-trade shocks and a relatively flexible labour market, which has allowed labour supply to grow. The economy was fairly robust when the financial crisis hit in 2008, in sharp contrast to our situation back in the 1980s. A more robust policy framework has improved the functioning of the economy. The Act relating to the Government Petroleum Fund was passed in 1990. At the time, in the midst of a deep recession, many doubted that any petroleum revenues would ever be saved. Projections indicated that offshore petroleum production would peak in the early 1990s. However, the government’s cash flow from the petroleum sector started to increase sharply, and a strategy for the management of the fund was needed. The policy guidelines were  BIS central bankers’ speeches  1  clarified in 2001, and rules governing the interaction between Norway’s petroleum wealth and fiscal policy were established: •  All government revenues from the oil sector are to be transferred to the fund. •  According to the fiscal rule, the government must only spend, on average over the cycle, the expected real return on the fund – stipulated at 4 per cent – in the annual budget. •  All of the fund’s capital is to be invested in international markets. After nearly three decades of spending the petroleum revenues more or less as they came in, the fiscal rule enabled the government to save for future generations.

And to prepare for Basel II, we will be asking our banks to begin reporting their capital under the new standardized approach from the third quarter of this year onwards, in parallel with the usual calculation under Basel I. This, I think, will be an important exercise for our banks before we formally begin Basel II at the end of next year. This year will also see financial firms in Thailand adopting the IAS39 accounting rules for the valuation of collaterals, which will affect their loan provisioning. We will see the Bank of Thailand implementing consolidated supervision, and we will see the whole financial system going through a formal FSAP assessment with the IMF. All these will happen this year, and all these will be positive developments for our financial system. So, 2007 should be another active and positive year for the global markets and for Thailand. But given the uncertainties that still loom in the global markets, I think maybe we should move to meet the optimism and the challenge of this year cautiously. But this is the words coming from a central bank, which probably and usually sounds too careful. So, I guess now you may want to hear something different from Michael Spencer and his team. So, on this note, let me end my brief remarks and wish you all a successful conference. Again I want to thank Deutsche Bank for the invitation, and a happy new year to all of you. Thank you. 2  BIS Review 11/2007