samchain/econo-pairs-v1 huggingface dataset:
Next in line is the Asset Quality Review by the ECB. Our hope and belief is that this time, concerns of the SEE countries regarding potential further deleveraging, will be considered more carefully and more specifically, to avoid further potential deleveraging. Let me reiterate that the economies in our region currently rely heavily in bank financing and there is a growing need to make credit flow again in the economy. To conclude, allow me to point out the importance of establishing a sound framework for macro-prudential policy, both in terms of tools and institutional approach, in order to deal effectively and timely with prevention of systemic risk. They should be accompanied however, by measures related with the strengthening of crisis management framework. If designed properly, macro-prudential policy should avoid any conflict with monetary policy, and instead should complement it appropriately. Countries in the SEE should benefit from synergies related with the adoption of the Single Supervisory Mechanism. These benefits could be larger if we manage to strengthen our regional cooperation. We are still concerned with potential further deleveraging following the forthcoming Asset Quality Review process and we hope that ECB and other authorities in the Eurozone and EU, could design it to limit these impact in maximum. Thank you very much for your attention! 4  BIS central bankers’ speeches

This shows that marginal costs – the costs of an additional unit of Swiss franc liquidity – are relevant for transmission on the interbank market. Although trading activity on the money market remains lower than before the financial crisis, it has revived somewhat. For instance, turnover on the  2  BIS central bankers’ speeches  secured money market, in particular on the Swiss franc repo market, has risen since the introduction of negative interest. As intended, negative interest has been transmitted from the money market to the capital market. The lower interest rates for all maturities have widened the traditional interest rate differential against other countries again somewhat. Previously, they had narrowed substantially. On the money and capital markets, the interest rate differential is now greater than it was without negative interest, in particular for short-term interest rates. Chart 4 shows the path of interest rates for three-month loans on the Swiss franc and euro money markets, together with the differential. The greater interest rate differential helps to ensure that Swiss franc investments are less attractive than investments in euros and other currencies. Moreover, the rise in the interest rate differential has increased the cost of hedging foreign currency positions on the forward exchange market, which is an additional factor dampening Swiss franc demand. Although the interest rate differential has risen, it is still considerably below the long-term average, particularly since interest rates abroad decreased more substantially during the financial crisis than those in Switzerland.
Sabine Lautenschläger: The banks and the market Speech by Ms Sabine Lautenschläger, Member of the Executive Board of the European Central Bank and Vice-Chair of the Supervisory Board of the European Central Bank, at a Lecture at the Florence School of Banking and Finance, Florence, 15 March 2018. * * * Almost ten years ago to the day, the world of finance was shaken by a strong tremor. On 16 March 2008, JP Morgan offered to buy the investment bank Bear Stearns. And it was time. Bear Stearns was in deep trouble: its share price had fallen by two-thirds since the beginning of that year; it was bleeding money; and it was basically shut out of the funding market. At the time, the failure of Bear Sterns was considered a major event. No one knew that the big quake was still to come. It happened half a year later, on 15 September 2008, when another investment bank failed: Lehman Brothers. It pushed the financial system close to the abyss. Trust evaporated, markets dried up, and around the globe, banks were sent reeling. All in all, it was the biggest financial crisis in decades. It dragged down the real economy, which fell into what we now call the Great Recession. In the euro area, economic output went down by almost 4.5% in 2009, while unemployment jumped by more than a quarter to 9.6%. Three years later, it reached 12%.

 While it is helpful to ask what might be the most adverse consequences of any decision taken, possible tail outcomes need to be balanced in a judicious and pragmatic way against more likely outcomes. 8  All speeches are available online at www.bankofengland.co.uk/news/speeches  8  I see these elements as being embodied in the so-called risk management approach to the formulation of monetary policy, which has been embraced by many central bank policymakers.17  At a practical level, in recent years this approach has acknowledged the need for monetary policy to be cognisant of uncertainties and risks stemming from (say) the lower bound on policy rates or the threat of a liquidity trap, while at the same time recognising that policy considerations cannot ignore the implications of decisions should the trap be avoided and inflation rise over the medium term. 18  The former aspect of risk management has justified a more aggressive response to downside shocks to price stability as the lower bound drew closer. Our discussions in the MPC now also address the latter aspect of the risk management approach: how policy should evolve as inflation rises and those asymmetric risks stemming from the lower bound recede. In undertaking this discussions, the risk management approach entails judgement and pragmatism. Engineering is not enough. The inevitable subjectivity of these judgements re-introduces some art into the science of monetary policy.
The third important factor that contributed to the overheating of the Icelandic economy was the reduction in both direct and indirect taxes which, in addition to relatively large increases in general pay, led to a rapid increase in real disposable incomes. All of this happened during a period of an international liquidity glut and historically low interest rates which further facilitated domestic demand growth. The expansion of private consumption and the investment in the aluminium production capacity and the related power sector led to a widening of the current account deficit. It  BIS Review 52/2008  1  reached the equivalent of more than a quarter of GDP in 2006, a phenomenally large deficit both in Icelandic economic history and by international comparison. The part of the deficit that resulted from the investment in aluminium and power evaporates as construction is completed and exports of aluminium picked up as of late last year. However, the larger share of the deficit, which resulted from other domestic demand, will only subside as restrictive economic policies have their intended effects. The current account deficit fell towards 15% of GDP in 2007, it will remain more or less unchanged this year but fall further in 2009, aided by the depreciation of the króna which I will touch on later. Needless to say, inflationary pressures emerged early in the expansion phase. The Central Bank began to tighten policy in the spring of 2004.

The liberalisation of the economy did not reduce its characteristic fluctuations. We are now coming to the end of a period of very rapid expansion. It started back in 2003 when construction commenced of a large aluminium smelter in the eastern part of the country and an associated power plant. The overall size of this investment was equivalent to over 30% of GDP in 2003, the year that construction started. It therefore gave a very large boost to the Icelandic economy. In the latter half of 2004, the Icelandic banks began to compete head on with the State Housing Finance Fund (HFF) which had traditionally been the main provider of mortgage loans to households. The banks’ entry into the market was no doubt the result of the HFF’s ambition to increase its market share in the provision of mortgage finance. The banks had normally provided only a limited share of mortgage finance. They were in that respect different from banks in many neighbouring countries which have traditionally provided mortgage loans and thus have a stable portfolio of such loans on their balance sheet. The entry of the banks into the market led to significant changes. Households could now borrow against collateral in their existing real estate, that is, they could take equity out of their investment. This they did with vigour. The overall result was that credit grew briskly, real estate prices rose rapidly and private consumption expanded sharply, leading to inflationary pressures and a widening current account deficit.
Government finances were quite healthy, with low public debt and a low deficit to GDP ratio. The turning point came with the collapse of the housing market starting in 2007. A drop in banks’ share prices led to a deposit run on the banks. The scale of the problem snowballed after the Irish government guaranteed all the obligations of the largest banks. This transformed the house price crash into a sovereign debt crisis, with the evaporation of the markets’ confidence in Ireland’s ability to honour its obligations. Irish borrowing costs rose abruptly, requiring an EU/IMF bailout. 4  4  Ioannis Sarmas, ibid. BIS central bankers’ speeches  Strengthening governance As I have already mentioned, the ECB played an important role in the policy response to the crisis. In addition to the conventional interest rate tool, the ECB introduced a number of nonstandard measures (such as the three-year LTROs that I mentioned earlier, and a reduction in the required reserve ratio) to facilitate the transmission of monetary policy to the economy. The events of the last few years have provided important lessons for the construction of a whole new approach to European economic governance. The aim is to go beyond the shortterm responses, such as the Greek bailouts, and tackle the problem before the situation has become critical. To provide better support where necessary, the European Financial Stability Fund will be replaced by the European Stability Mechanism, which will be a permanent rescue fund with added firepower and a stronger mandate.

The recent IMF report that I mentioned earlier noted the strong performance of Malta’s financial sector but also stressed the importance of strengthening the resilience of the sector. 8  BIS central bankers’ speeches  The elevated levels of credit and concentration risks call for stronger financial buffers, through higher provisioning and retention of profits. Such measures would strengthen the banks’ ability to absorb potential shocks and would also allow them to prepare themselves for compliance with stricter Basel III regulatory requirements. On the positive side, credit risk is being mitigated by prudent credit standards and cautious lending behaviour on the part of the banks. On the funding side, the resilience displayed by the banking system in the face of adverse international conditions is explained by the business model that has been a traditional characteristic of domestic banks, which rely strongly on retail deposits. Another indication of the overall prudent bias of the Maltese domestic banks is evident in the first chart presented earlier, which shows that leverage ratios of Maltese banks are considerably lower than in euro area in general. While the euro area average has declined on account of widespread deleveraging, the ratio remains significantly higher than the Maltese ratio, which has been quite stable. A further indication of the traditional funding model is the loan to deposit ratio, as shown in Chart 8, which is significantly low when compared with the major economies. This business model has served the domestic banking sector well.
Using as a starting point the observed heterogeneity and by analysing the experiences of several countries, we can draw certain broad conclusions on the effectiveness of the macroprudential toolbox. The design of Borrower and Capital Based Measures is a decision of authorities. For example, based on information from the ESRB, Belgium introduced a Loan-to-Value on both owner-occupied and buy-to-let properties. Cyprus, in order to deal with a specific sectoral exposure, further to the Loan-to-Value cap, recently introduced an even stricter Loan-to-Value for luxurious properties. However, by observing the real estate cycles registered in a number of countries, it is evident that even the idiosyncratic design of these measures does not always stop real estate cycles from materialising. The Netherlands and Slovenia are examples of countries that have recorded vulnerabilities despite the implementation of such measures. Analysis performed at the Central Bank of Cyprus verifies this observation. Using an econometric model, we explain the growth rates of housing loans and house prices considering the implementation of macroprudential measures2. 1/3  BIS - Central bankers' speeches  The analysis indicates that the Loan-to-Value ratio seems to be effective in containing housing loans, for 10 out of 12 countries in our sample and effective in containing house prices in only in 3 out of the 12 cases. Income based measures (such as DebtService-to-Income) and Capital Based Measures were found to be effective in around half of the countries that use them. We can therefore conclude, that there is no "one-size-fits-all" type of macroprudential tool.

Andrew G Haldane: Haircuts Remarks by Mr Andrew G Haldane, Executive Director, Financial Stability, of the Bank of England and member of the Financial Policy Committee, summarising a forthcoming paper in the Journal of Monetary Economics “Complexity, Concentration and Contagion”, 1 August 2011. *  *  *  The views are not necessarily those of the Bank of England or the Financial Policy Committee. I would like to thank Marnoch Aston, Benjamin Nelson, Sujit Kapadia, Vasileios Madouros, Priya Kothari and Andrew Mason for comments and contributions. During the summer months, I have my hair cut slightly shorter than during the winter months. This helps keep my head a little cooler in the summer heat and my ears a little warmer in the winter cold. Anyone who has seen them will know this is a smart strategy for my ears, to say nothing of my head. This strategy is explicitly counter-cyclical. When the temperature goes up, my hair-length comes down and vice-versa. I am not alone. National statistics show that expenditure on haircuts increases as temperatures rise. The financial system also makes choices about haircuts. The haircuts in question are the amount of collateral a borrower places with the lender over and above the face value of borrowing. But collateral haircuts tend to behave rather differently to personal haircuts. They fall when the financial temperature is increasing and rise when the chill sets in. This strategy is explicitly pro-cyclical.
Although the latest news on the U.S. economy is somewhat more encouraging than that from earlier in the year, we should not take much solace from that. After a very weak first half, when GDP growth was less than 1 percent, economic activity has strengthened somewhat and inflation pressures are starting to ease. Growth in the third quarter is currently estimated to be 2.5 percent, and recent indicators suggest growth in the fourth quarter could be somewhat higher. This modest rebound reflects in part the passing of transitory factors such as the damping effect on household and business spending power from rises in energy and food prices as well as the supply disruptions related to the earthquake and tsunami in Japan. However, as we look toward 2012, the U.S. economy continues to face several obstacles to a robust recovery. Accordingly I expect growth of about 2.75 percent for 2012. Consumer price inflation has begun to moderate. This moderation is just starting to become evident on a 12-month time horizon – in which consumer price inflation as measured by the consumer price index (CPI) is rising at about a 3.5 percent annual rate. Given current expectations for the path of energy prices – taken from futures markets – consumer price inflation on a year-over-year basis should continue to fall over the next few months. We cannot be satisfied with the current state of the economy or the outlook for the next few years.

William C Dudley: The national and regional economic outlook Remarks by Mr William C Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the University at Albany, Albany, New York, 18 November 2011. *  *  *  Good morning. I am pleased to be at the University at Albany. It is always a pleasure to speak with students and faculty because of the intellectual leadership role you play in your communities. I also welcome the addition of business leaders to this gathering because you shape the economic landscape in the region. So, I thank you all for coming today and helping make this such a rich audience. Over the past 20 months, I have been engaged in a series of outreach meetings all across my Federal Reserve District. I consider these visits just as important as my trips to Washington, D.C., to help formulate monetary policy or to Switzerland to shape international bank regulation. The understanding of issues and concerns that I gain today will help ensure that my policy decisions reflect the public interest in the broadest sense. Each visit within the region helps me deepen relationships with the people I represent. As you may know, the New York Fed’s District includes all of New York State; 12 counties in northern New Jersey; Fairfield County, Connecticut; Puerto Rico; and the U.S. Virgin Islands. In August, I met with community leaders, businesses and elected officials in Newark, Patterson and Jersey City.
Market-based finance has grown rapidly and not been subject to the same regulatory scrutiny as banks. And as monetary  Page 9  policy makers gradually implement QT, financial markets will adjust, perhaps in unexpected ways[26]. This is a key motivation for our upcoming non-bank exploratory stress scenario, and an ongoing area of focus for us and international counterparts. How we work – and the need for diverse policymakers Finally I’ll say a bit about the different ways the two committees work, and how you might fit in. As I said, the MPC is older with more measurable objectives. That is reflected in the kinds of analysis it uses. It has a well-established forecasting process, which takes in new data to update its projections for the economy. Supporting the forecast are many models, some of them fancy ‘general equilibrium’ setups that account for interaction between different parts of the economy[27]. Of course that’s not to say there are no unsettled questions in monetary policy, but there is a good deal more theory and practice around its conduct. The FPC is not quite in the same position. We certainly receive lots of in-depth analysis from Bank staff, often drawing on data and models. But our objective is harder to measure, and we have fewer models that tie everything together. Partly that’s because the ‘science’ of financial stability is still in its early years. We need to focus on worst-case outcomes, so have less data to work with than monetary policymakers.

And there’s the breadth of issues the FPC covers. It’s not easy to build models that can incorporate banks, insurers, investment funds, households, corporates and all the markets they operate in. But we are working towards more joint analysis and models. We look at measures of ‘GDP at risk’[28] to help judge future risks of financial instability and help measure our progress[29]. In addition, Bank staff have developed some early ‘system-wide’ models[30] to think about how stress might propagate between different parts of the financial system. This is an area where we plan to do more and push our capabilities forward. We’re also exploring how we can more formally model some of the interactions between monetary policy and financial stability, and how these may vary in different states of the world and in response to different types of shocks. My hope is that we can eventually create tools that will help both committees think about issues which span both objectives. As well as aggregate supply, aggregate demand, inflation and interest rates, our models would more richly cover the impact on the economy of developments in the financial system, including the FPC’s actions to build the financial resilience needed to avoid crises. In this way, our analysis would cover not just the central case but tail risks too. This is potentially complicated stuff – it seems to me like moving policy making from lines to planes. But it is necessary if we are to maintain and build on our coordinated approach.
The real need is to convey our reaction function, which publishing a path for Bank Rate would not obviously accomplish. We need to communicate how we are likely to react to the different types of shock that can drive the economy away from its steady state path. A complete specification is not feasible. We do not have a 100% correct model of the economy. And policy cannot sensibly be described by a simple mechanical rule but, rather, is determined by the judgment of policy makers, with the composition of the one person/one vote committee evolving over time. But at any particular time, some possible shocks – and so sources of risk to the inflation outlook – seem more important than others. As the Governor has announced, 29 the MPC is therefore planning to do more to explain our collective assessment of risks. 27  Before I was a member of the MPC, I was on the secretariat, so I have attended nearly every MPC meeting since 1997. 28  See response to question 285 in oral evidence to the House of Commons Treasury Select Committee inquiry on “the Monetary Policy Committee of the Bank of England: Ten years On”, April 2007. 29  King, M. A. 2007, “The MPC ten years on”, lecture to the Society of Business Economists, May. BIS Review 66/2007  7  Communications about the transmission mechanism, and the place of money within it Grasping our reaction function requires an understanding of how we think the economy works.

As well as providing transparency to commentators and the markets who are in the business of forming views about our future actions, the letter has proved a useful focus for public debate, which has almost universally underlined UK society’s continuing commitment to price stability. The “open letter” mechanism is important to the political economy of monetary policy in the UK. A one member/one vote committee The open letter was an instance of the MPC acting as a collective, represented by the Governor. Much of the time, most obviously when reaching our monthly decisions on Bank Rate, we are in one person/one vote mode. Although now well established, a committee that truly adheres to one person/one vote, and at the same time pursues its mandate with dedication and integrity, needs nurturing and skilful maintenance. After all, four of the MPC’s nine members also have executive duties for which they report to the Governor of the day. And the four other, “external” members expect to renew their careers outside central banking after a few years of service to the MPC, and so might be thought to have an interest in maintaining an appropriate profile. But – maybe alone amongst central banks, I’m not sure – no one doubts that the MPC does decide Bank Rate by a free vote. That this should be so owes a great deal to the culture of the Committee itself; a culture engendered by its first Chairman and his successor as Governor, but also by the rest of the membership.