samchain/econo-pairs-v1 huggingface dataset:
May I quote from my statement again; the interest rate decision “has been taken in a forward-looking perspective focusing on the medium-term trends in inflation and the compatibility of these trends with the Eurosystem’s definition of price stability.” That is something totally different from a “konjunkturgetriebene Politik”. Question (translation): Mr. Duisenberg, this interest rate move has turned out to be unexpectedly large. Do you believe that you are now at the limit which you can justify in terms of stability policy and how long will this interest rate remain in place if economic activity in the euro zone does indeed pick up in the second half of the year? Duisenberg: This is something we have, of course, considered in depth. We wanted the move to be as convincing as possible and we were afraid that a smaller move would only have led to further expectations for the future, that this would only be a first step in a series. We have by all means possible tried to avoid that impression. In very parochial words, I am inclined to say - and I cannot say “do not quote me” here, I realise that - but I am inclined to say that we moved from 3% to 2.5% which is maybe a slightly, unexpectedly large fall, but I would like to add, and now you be sure: this is it.

We see a slowdown in economic development., We do not see, or do not yet see, a recession to be on our hands. So I will not speculate about what we would do if there really were a recession. We will cross that bridge when we come to it or, as my mother used to say: if the skies fall down, all the birds are dead. Interest rates in the United States are higher, but you have to realise that the United States is in a totally different phase of the cycle than we are and whether that will in any way induce capital flows to move differently from what they are moving today remains to be seen. And the third part of your question was, have we in any way made the conclusion that the banks, when the rate was 3 %, were not giving in enough to the demand for credit. No, on the contrary, as you know, the development of credit to the private sector has been quite buoyant over the past few months, although its bias of increase has come down somewhat. The last time I was here, I reported that credit to the private sector was growing at an annual rate of nearly 10%; the latest figure we have now is that it has come down to a rate of slightly over 9%.
It includes a number of important recommendations to ensure that we are best equipped to take forward the next stage of the work, including how the Bank as resolution authority can gain the greatest leverage possible by using the supervisory machinery of the PRA to ensure firms prepare for resolution while respecting statutory obligations requiring structural separation of supervision and resolution functions. 11  Conclusion  This transparency and public assurance should help in one other key respect. Effective resolution of a globally systemic bank will require cooperation and coordination between a range of authorities in a number of jurisdictions. These need to have confidence that an effective resolution - and one that treats all jurisdictions fairly - can be carried out by the home resolution authority. Absent that, they may need to take action that would frustrate a successful resolution for the bank as a whole. 10  Two further major pieces of the framework will be published shorty – our statement of policy setting out the requirements for internal MREL, and our final policy on valuations. 11 BRRD (DIRECTIVE 2014/59/EU) – Article 3 – states that there should be “Adequate structural arrangements … in place to ensure operational independence and avoid conflicts of interest” between the supervisors of firms and the resolution authority of firms when the two functions are carried out by same public authority.

It ensures the robust collateralisation of the remaining net exposures through the margin taken from participants. And in the event of a default, any losses that exceed the defaulter’s collateral margin held by the CCP are mutualised between the members. As the Lehman experience illustrated, the centralised, rules-based management of a clearing member’s default by a CCP, combined with the incentives created by mutualisation enhance the system’s resilience and continuity during a stress and brings greater certainty to the default management process for market participants. Central clearing also brings greater transparency – in the run up to the crisis and during the crisis itself, authorities had very poor visibility over the network of derivatives transactions. That made it much harder to identify risks and the connections between institutions. 3  All speeches are available online at www.bankofengland.co.uk/speeches  3  2  Not all derivative contracts are suitable for central clearing. Where clearing is not possible, the post crisis reforms include similar requirements to margin and report bilateral derivative contracts. But the additional mutualisation and central default management benefits of central clearing, justify in my view, the authorities efforts since the crisis to move derivatives that are suitable for clearing onto CCPs. These efforts have been successful. Reforms since the crisis have led to a very substantial increase in the use of clearing services for both exchange traded and over the counter derivatives.
Needless to say, had the debtor’s solvency and ability to pay been strictly used as the main consideration when granting credit, as proposed in the new law, this would have helped curb the runaway growth of credit before the crisis. At this point, it is worth asking where we currently stand in terms of ability to pay. We can see in the left-hand chart that, having peaked in 2007, the ratio between the price of housing and the median household income declined until 2012 and subsequently rose again after 2014. However, if we consider the red line, which represents the affordability of housing, we see that the instalments payable in the first year are currently slightly above 30% of monthly household income, in contrast to the level of over 50% reached in 2008. Admittedly, we need to treat these affordability data with caution. Since interest rates remain at historic lows, monetary policy normalisation in the medium term will inevitably have an effect on mortgage payments. 9/15  We should not forget that, although the proportion of fixed rate mortgages has recently reached 40% of all new transactions, 87% of the existing stock of mortgage loans remain linked to a variable rate, so that our mortgage market continues to be particularly sensitive to rising interest rates. Consequently, we take a positive view of the facilities to encourage conversion of variable to fixed rate loans introduced by the new law.

Stock Markets enable firms to acquire the much needed capital at relatively lower cost, hence facilitating capital allocation, investment and growth. The stock market also plays a resource mobilisation role by encouraging savings through the purchase of equities that meet investors risk preferences and liquidity needs. The provision of information on the stock market and its activity such as contained in the CASE handbook is therefore one way of promoting investor awareness and participation on our local market. This will no doubt enhance the development of the stock exchange and its contribution to our economy. Chairperson, as you may be aware, the Government of the Republic of Zambia has been implementing a comprehensive Financial Sector Development Plan (FSDP) since 2004, whose main objective is to broaden and deepen the financial sector in Zambia. Under the FSDP, the need for a well-developed capital market as an engine for economic development is emphasised as it among other things would enable investors have access to a wide range of investment options. It is for this reason that the Bank of Zambia together with stakeholders introduced a number of initiatives aimed at further developing the capital market. This includes the introduction of long term Government bonds, which among other purposes, was aimed at providing an appropriate platform for pricing corporate bonds. Furthermore, the Bank of Zambia in collaboration with LuSE and Bankers Association of Zambia is in the process of extending the services of RTGS to settle stock exchange transaction.
So, in other words, not only will banks get lower capital requirements in respect of lower risk credits; but they’ll also get lower capital requirements if they can demonstrate that they manage risk well. It is for this reason that Basel II might perhaps be better thought of not as the second “Capital Accord” but rather the first “Risk Management Accord”. Because it focuses attention not only on the more accurate measurement of risk, but on the management of risk. Banks looking to reduce their capital charge will have two choices: either reduce the risk, for example by substituting better risk credits for lower risk credits, or by reducing positions; or simply manage the risk better. And this will apply not only to credit risk. Again, to take the example of operational risk, banks will have the option of investing in more advanced approaches which will translate into lower capital charges. You may have noticed that I just mentioned banks having options, having choices. This is another key feature of Basel II. No longer will there be a “one size fits all” approach whereby banks of varying shapes and sizes are shoehorned into one inflexible system of capital charges. Instead, banks will be able to choose what approach they take; for example, whether they adopt the standardised approach or IRB approach for credit risk, and which of the various approaches to operational risk they adopt.

Having said that, the HKMA will of course have its own views on what levels of sophistication of risk management we would expect to see in different types of banks. While we won’t mandate particular approaches, we will expect to see levels of risk management that are commensurate with the types and levels of risk being run. So, for example, we won’t necessarily expect even a large bank with significant credit risk to implement advanced IRB. But we would expect a bank of such a type to have a fairly advanced internal credit rating system. As another example, we would generally expect banks with a significant level of market risk to implement a models based approach to measuring the risk. BIS Review 31/2003  1  This flexible approach - in contrast to the approach being adopted by some other supervisors, who are mandating that particular approaches be adopted by particular types of banks - is, we feel, the most appropriate approach for Hong Kong. In Hong Kong we have a wide variety of banks, RLBs and DTCs. We have different nationalities. We have different sizes. We have banks that focus on the retail market, and ones that focus on the wholesale market. We have banks that specialise in mortgage lending, ones that specialise in SME lending, and ones that are jacks of all trades. It’s perfectly appropriate, therefore, that with such a wide variety of banks there should be a wide variety of credit risk management and other risk management practices.
2  ...and have led to major differences between the banks, so now the framework will be changed... Around three years ago, the Basel Committee published several reports where they analysed several globally-active banks’ capital requirements calculated using internal models.3 One conclusion from the work was that there are major differences in the banks' risk weights that cannot be explained by differences in underlying risk. As a result of this, among other things, the Basel Committee has discussed reducing the degree of freedom given to the banks with regard to some of the models. This concerns, for instance, the banks’ exposures to large corporates and other banks. In addition, they have discussed further measures in the framework for the banks’ internal models to reduce the differences in risk weights and capital requirements 2  See Finansinspektionen’s report ”Stability in the Financial System, December 2014”, http://www.fi.se/upload/43_Utredningar/20_Rapporter/2014/stab2_2014ny.pdf 3 See for instance the BIS publication “Analysis of risk-weighted assets for credit risk in the banking book”, http://www.bis.org/publ/bcbs256.pdf  6 [12]  between different banks. Let me make myself clear here. There is no doubt that the banks’ internal models will continue to be an important component when determining the banks’ capital requirements. The constraints I have mentioned here will, if they are introduced, limit the banks’ freedom with regard to using internal models. At the same time, they will increase confidence in the banks’ capital levels and make it easier to compare the banks.

This regulatory framework was incorporated into Swedish law and in many other countries at the beginning of 2007. One of the main differences with regard to Basel I, was that Basel II made it possible to apply different methods to calculate risk-weighted assets and capital requirements. As you probably know, some banks were able, after approval by the financial supervisory authority, to use so-called internal models to calculate their risk-weighted assets. This reform was intended to increase the link between the banks’ capital requirement and their actual risks, which was also largely the case and thus generally improved the banks’ risk management. 4 [12]  However, the use of internal models also entailed a risk that the banks’ calculation of the capital requirements would not reflect the actual conditions. The risk that the banking system would not have sufficient capital to manage the risks arising from the banking operations thus increased. As the banks themselves were given the opportunity to influence their capital requirements, their incentives to underestimate the risks and thus reduce the capital requirements, increased. It is also difficult to determine how much capital a bank actually needs to manage a crisis situation. Soon after the Basel II Accord had been reached, the major international financial crisis broke out with the bankruptcy of the US bank Lehman Brothers. It then became clear that many banks lacked sufficient resilience to the sudden changes in the financial markets.
But ultimately, it is the repo rate’s effect on overall economic development and the prospects for inflation that are the decisive factor for monetary policy. I would also like to point out that household indebtedness in a broader perspective constitutes a vulnerability for the Swedish economy, as households with large debts are not just sensitive to higher rates but also to other types of changed economic circumstances, such as falling housing prices and weaker economic activity with higher unemployment. 15 A study by the IMF from 2017 with data up to 2012 indicates that saving among Swedish households is very unevenly distributed; for example, the 50 per cent of households with the lowest income do not save at all. See IMF (2017), “Sweden: Selected Issues”. 11 [13]  Several factors can affect our forecasts – no “auto-pilot” towards higher interest rates So far, I have talked about the Riksbank’s monetary policy in terms of our best assessment or main scenario. But, as the world-famous physicist and Nobel Laureate Niels Bohr is reported to have said: “Prediction is very difficult, especially if it’s about the future”. We have most certainly not switched on an “auto-pilot” towards higher interest rates. As always, we are prepared to reassess monetary policy if developments were to justify it. So, what factors could affect our forecasts and future monetary policy? We can divide them into four different categories: economic developments abroad, the domestic economy, the development of inflation and structural changes.

But obviously, it is also important for us to continuously assess how the Riksbank’s earnings will be affected during the course of the journey. This is something we have discussed in different contexts. 4 Our latest estimate indicates that the effect on earnings from the bond holdings could be quite close to zero seen over the entire holding period. But how earnings will be ultimately affected depends on how the interest rate develops in the future. Can households cope with higher interest rates? Swedish households current have record-high debts in combination with a large proportion of variable-rate mortgages (see Figure 7). As you are no doubt aware, the Riksbank has been concerned for many years about the high level of household indebtedness and the potential negative effects on the Swedish economy of rising interest rates or falling house prices. 5 From our horizon, it is therefore important to carefully analyse the interest-rate sensitivity of households. We have also returned to this issue on a number of occasions, most recently in the Monetary Policy Report in December. 6  4 See, for instance, “The Riksbank’s bond purchases affect government finances”, speech by Martin Flodén on 9 November 2016. 5 For example, we published an extensive inquiry into the risks on the Swedish housing market as early as in the spring of 2011. See Sveriges Riksbank (2011), “The Riksbank’s inquiry into the risks on the Swedish housing market”. 6 See “How are household cashflows and consumption affected by rising interest rates?” article in Monetary Policy Report, December 2018.
By handling more financial flows, a centre will be able to further improve and innovate on its risk management capability. The process is interactive and there would be a clustering effect once a centre has established the leading position in risk management and client servicing. 5. Here I should mention several important developments in the last decade that are highly relevant and instrumental to Hong Kong’s rise to become the risk management hub in Asia. Internationalisation of Renminbi (RMB) 6. From 2009 onwards, Hong Kong has rapidly developed into the biggest offshore hub for RMB businesses in the world. Hong Kong is the source of around 50% of the global offshore 1/4  BIS central bankers' speeches  RMB liquidity. On average, Hong Kong’s RMB Real Time Gross Settlement system clears and settles over RMB1 trillion a day. Moreover, over 70% of the global RMB SWIFT settlement goes through Hong Kong. All these figures suggest that Hong Kong is already the largest centre for RMB loans, Dim Sum bond issuance and RMB-related products and financial derivatives. The availability of a wide range of banking products, investment and hedging instruments in Hong Kong has made us the undoubted leader in risk management in the offshore RMB market. Stock Connect 7. The launch of the Hong Kong-Shanghai Stock Connect in 2014, followed by the Hong KongShenzhen Stock Connect in 2016, has opened up the most important part of the Mainland capital market to the world’s investors through Hong Kong.

The northbound Stock Connect has presented a huge opportunity for Hong Kong to develop risk management capability for understanding of the risks and the pricing of such risks for offshore investors interested in the A share markets. Apart from helping to channel foreign investments into the Mainland market, the Stock Connect has also contributed to the inclusion of bigger weights of A shares in the global stock market indices such as the MSCI. Asian Equity Derivatives Hub 8. Another recent trend that is relevant is that several international financial firms have decided or are planning to relocate their Asian equities derivatives booking hubs from Europe to Asia. This is very logical as the underlying securities and clients are based in Asia. The HKMA welcomes these moves and stands ready to facilitate such moves, on the condition that the booking business must be accompanied by the necessary risk management functions. Again, this will enhance Hong Kong’s position as the risk management hub for Asian equities and derivatives, particularly Mainland related stocks. Bond Connect 9. By the same token, the launch of the northbound Bond Connect in 2017 has opened another window of opportunity for Hong Kong to enhance its risk management functions for offshore investors wishing to invest in the Mainland bond market. It is still early days yet, but I am confident that Bond Connect offers attraction to those investors who prefer using a nominee holding structure through the Central Moneymarkets Unit of the HKMA.
I would like to offer some observations, from my perspective at the Federal Reserve Bank of New York, on some of the broad considerations that should guide this process. Changes to the structure of the U.S. financial system It is useful to start with a brief review of the changes in the structure of the financial system that should motivate reform. Our system was once organized around banks—defined narrowly as institutions that take deposits and make loans. Over time there has been a gradual but pronounced decline in the  BIS Review 95/2008  1  share of financial assets originated and held by banks, and a corresponding increase in the share of financial assets held across a variety of non-bank financial institutions, funds and complex financial structures. The lines between banks, investment banks and other institutions have eroded over time, as have the lines between institutions and markets. Loans made by both banks and non-banks were increasingly sold by the originating institution and packaged into securities. And these securities were repackaged into even more complex instruments and products, many of which resided off the balance sheets of the major financial institutions. Innovations in credit derivatives over this period made it easier to trade and hedge credit risk. Access to credit was extended on a dramatic scale to less creditworthy borrowers, without a commensurate increase in the risk premiums on the securities that embedded this more risky credit.

A second basic conclusion is that, if the economy is close to the effective lower bound, it is vitally important to adopt especially forceful or persistent monetary policy action to avoid negative deviations from the inflation target becoming entrenched. In turn, this may also imply a transitory period in which inflation is moderately above target. In particular, the review identified forward guidance, asset purchases and longer-term refinancing operations as instruments in the monetary policy toolbox that can help to address the constraint of the effective lower bound on policy rates. At its 21 July monetary policy meeting, the Governing Council revised its forward guidance on policy rates in line with this new strategic orientation. In particular, the new forward guidance specified three conditions that need to be met before we would start raising our policy rates. The first condition is that the Governing Council “sees inflation reaching two per cent well ahead of the end of its projection horizon.” The second condition is that the two per cent target is reached 1/2  BIS central bankers' speeches  “durably for the rest of the projection horizon.” The third condition is that the Governing Council “judges that realised progress in underlying inflation is sufficiently advanced to be consistent with inflation stabilising at two per cent over the medium term.” Let me highlight today two key features of this rate forward guidance.