samchain/econo-pairs-v1 huggingface dataset:
In recent public discussion the claim has often been made that the exchange rate of the króna is far too high and that the Central Bank needs to take steps to bring it down again. The fact of the matter is that the Bank’s means of controlling the exchange rate are overestimated and the power of the market underestimated when the claim is made that the Central Bank can, through its actions, direct the króna to a specific level. The proposal has been made, for instance, that the Central Bank cut its interest rates substantially with the aim of lowering the exchange rate. In this context it should be pointed out that the Bank has cut its policy rate substantially, from 10.4% only a year ago (11.4% two years ago) to 5.3% at present. The Bank’s nominal policy rate has not been lower since 1994 and the real policy rate is at its lowest since 1996. The domestic and foreign interest rate differential has narrowed significantly. In addition, the Central Bank’s interest rate is now below the estimated equilibrium interest rate and thus has a stimulating effect on the economy. The impact of interest rate changes generally is only visible after a certain time lag, prompting one to conclude that the effect of the major decrease in interest rates during the past year has yet to be fully felt.

The stance of each central bank will respect local economic conditions, but the absence of a coordinated action on a global scale cannot be an excuse for a lenient stance on the domestic inflation front. More specifically, the Brazilian Central Bank has not waited and will not wait for other central banks to act in order to start fighting domestic inflationary pressures. Not acting promptly would enable initial specific price pressures to contaminate inflation dynamics permanently, due to deteriorated inflation expectations of both price and wage setters. BIS Review 108/2008  1  In the beginning of 2008, the Brazilian Central Bank stressed in its regular publications that inflation risks had mounted, a fact that could require an adjustment in its monetary stance. This assessment surprised many analysts that expected inflationary pressures to be contained by a spontaneous slowdown in economic activity, an expectation that did not materialize. Other analysts seemed to believe that increases in commodity prices were temporary and that the Central Bank should wait for the complete materialization of inflationary pressures to finally start acting. It is clear now that this complacent approach would have had deleterious and long-lasting consequences for the economy. As repeatedly stressed by the Central Bank, the balance of risks for inflation became less favorable, not only due to external factors, but also – and more importantly – due to domestic factors. On the external front, the contribution of imports to sustain a benign inflation scenario has become less effective.
The Central Bank of Iceland has recently issued a report called Prudential rules following capital controls, which includes all of the above. These rules are foreseen to be in place as long as Iceland is not a part of banking union and the eurozone. The problem is that it is not clear it this point whether these rules are compatible with the EU single market, of which Iceland is a member. They would certainly not be so if pre-crisis interpretations still prevailed. But times are changing. Let me then move to the EU level. As a response to the crisis on the eurozone, the EU is currently considering banking union that will include common supervision and deposit insurance and a common resolution mechanism to deal with failing banks. This makes very good sense and will, with time, take care of the flaws for eurozone countries. However, it will  4  BIS central bankers’ speeches  only solve part of the problem for EU countries outside the eurozone, as it will leave the currency problem – or, in other words, the LOLR problem. The same applies to single market participants that are not members of the EU, such as Iceland and Norway, and even more so if they cannot opt into the banking union. This raises the crucial question of how the banking union will affect the single market more generally, and here the UK seems to be an important case. What should happen at the global level is somewhat less clear to me.

The Financial Supervisory Authority was granted broad-based powers to intervene in failing institutions, and the Government was authorised to inject capital into new domestic banks. This so-called Emergency Act thus allowed new domestic banks to be created when the old cross-border banks failed and were placed in special resolution regimes followed by winding-up proceedings. The new banking system amounted to around 1.7 times GDP, compared to 10 for the old banking system. As a result of these measures, the domestic payment system functioned more or less seamlessly throughout, and customers had continuous access to their deposits. I have expanded at some length on the measures taken when the banks failed, as there are still a number of misconceptions about the process in international discussions. There have been claims that Iceland allowed its banking system to collapse, with what now seem reasonable results, and that others should consider doing the same. The fact is that Iceland kept the domestic part of the banking system running throughout; otherwise, the consequences would have been dire. Some have claimed that the banks were nationalised. They were not. The old banks are private companies. They are in winding-up proceedings governed by law; they are not under the control of the Government. The Government has a majority stake in only one of the new banks. Others have claimed that Iceland defaulted and got away with it. The opposite is true. The credit of the sovereign was preserved, and all debt obligations have been paid on time.
In theory, the choice of optimal regulatory rule depends importantly on the environment. The simpler the environment, the more robust are likely to be sophisticated regulatory rules. To assess that, consider a sample of simpler banks – FDIC-insured banks in the US. This covers 8,500 institutions, the majority small regional banks. How well did solvency metrics, simple and complex, perform in predicting pre-crisis failure among this very different bank cohort? Charts 6 and 7 plot the pre-crisis Tier 1 capital and leverage ratios of these banks, with the failed institutions again identified, while Table 5 shows the results of a formal logit regression. Failure is defined here as those banks entering receivership. Since 2007, this totals 442 institutions, almost all of which had assets below $ billion. Both solvency metrics enter with the right sign: lower capital and leverage ratios signal a higher probability of bank failure in a univariate regression. In general, however, the ranking of the solvency metrics is reversed. Risk-based capital ratios are significant at the 1% level, while the leverage ratio is not significant at the 10% level. There are two potential explanations for this finding. One is that, during the sample period, US banks were already subject to a leverage ratio. This may have encouraged them to seek higher-risk assets which would tend to be better reflected in risk-based capital ratios. An alternative explanation, consistent with the complexity literature, is that risk-based rules are more robust in an easier to calibrate risk environment. Which explanation is more likely?

I am more sure-footed on tussocky ground than on paved streets. A good doctor once told me that the reason people end up going in circles in a blizzard or a blind fog was that our feet differ in length and therefore walk at differing speeds. But then, it is possible to find scientific explanations for virtually any problem without being much closer to solving it. Monetary policy can never be a private affair belonging only to economists or experts. I would like to close today by quoting the late Jóhannes Nordal, former Central Bank Governor and the nation's most influential official of the twentieth century, who died a scant month ago at age 99 – bless his memory. In an article published in Fjármálatíðindi back in 1990, when enhanced independence for the Central Bank was in the offing, he said this: "Conferring significant monetary independence on a central bank is hardly a realistic option unless the economic objectives the bank must pursue are laid down clearly in the law and enjoy broad support in the community." The fact is that central banks can never operate in a societal vacuum. Twelve times I have had to face the nation and announce an increase in interest rates, and I have to admit that it has sometimes been a strain to be the bearer of bad tidings. There has been vigorous exchange of opinion about these decisions.
And with the recent introduction of the Mandatory Provident Fund schemes, the demand for bonds has been building up quickly. In 1991, the bond market has a size of only about 4 per cent of GDP. This has grown to 35 per cent last year, and the share of private sector debt is now at around 77 per cent. We have come a long way but there is still a lot of room for expansion, as evidenced by comparisons with bond markets in the G-3 economies. But our bond market has grown big enough and has been robust enough for it to provide some meaningful back-up in times of financial stress. In 1998-99 when, as property prices fell sharply and the financial turmoil led to deteriorating asset quality, the banks adopted a conservative stance in their lending, corporate bond issuance increased significantly. Positioning for the future Our present pre-occupation in the development of the Hong Kong bond market is to bring in the international dimension. As an international financial centre, we of course aspire to play a role in international financial intermediation. To achieve this, our efforts have been concentrating on two fronts. First is the establishment of bilateral linkages of the appropriate elements of our financial infrastructure with those of other jurisdictions wherever it is compatible to do so, and whenever the counterparts are willing. This basically is for the purpose of facilitating the cross border investments in debt securities.

It is essential for this supply of government debt to be organised in such a way as to enable demands of different natures to be met. This requires a well structured, transparent and predictable programme, with a wide maturity spectrum. Thus, my eighth point concerns the interaction of demand and supply to discover price reliably and efficiently. This is relevant to both the primary and the secondary markets, and is best achieved respectively through well-structured tender and market making arrangements. These may involve last resort support from the regulators. There are many successful models of such arrangements and there is ample literature on them. The common objective is to ensure a high level of liquidity to facilitate reliable and efficient price discovery, thereby providing a benchmark yield curve upon which other issuers can confidently and accurately price their own, hopefully much bigger volume of, private sector debt. That is what we should aim for in the development of the bond market if it is to play a meaningful role in financial intermediation. 2  BIS Review 94/2001  My ninth point concerns the market infrastructure, and by that I mean the payment, clearing and settlement systems. This is regrettably the most neglected aspect in the development of financial markets, not just the bond market. Imagine how general investor confidence would be damaged if the financial instrument that an investor had bought got lost in delivery.
In the past, the major part of the chain of manufacturing and services used to be located in a given country, which meant that, from the monetary policy perspective, the domestic demand was of great importance, and in particular - the size of output in relation to its potential level i.e. the so-called output gap. The impact of the global economy, on the other hand, was observed mainly due to changes in the terms-of-trade i.e. the ratio of export to import prices, which in turn was affected by, among others, commodity prices and changes in external demand. Nowadays, inter alia as a result of globalisation of production and services, the role of the domestic output gap in explaining inflation has decreased significantly, as shown by the BIS research 6 . As in the case of the model applied by the NBP in forecasting inflation, the role of the output gap as a factor that determines inflation is much smaller than it used to be. In old books on macroeconomics inflation is treated largely as a local development, i.e. dependent in a great measure on domestic factors (such as the domestic output gap and inflation expectations). Today, inflation is becoming increasingly less local, and in turn, becomes more and more dependent on global factors, i.e. the relationship between global demand to global supply. Research that analysed the course of inflation in 22 OECD countries between 1960 and 2003 has shown that 70% of inflation volatility may be explained by a common factor 7 .

To recapitulate this train of thought, Kohn was very sceptical whether the three above-mentioned conditions can be sufficiently met; however, he did not preclude that in the future, the understanding of economic processes will improve as much as to enable running the extra action policy where reasonable. Numerous statements following the presentation have indicated that the proper supervision is much better a response to the asset bubbles and many people have stressed that this is why the financial markets supervision should be independent of politicians, as it may be necessary to take actions aimed to restrict the speed of the speculative bubbles build-up , when this does not suit certain politicians due to the elections cycle. The majority of lectures which are delivered over the series of seminars by the Centre for European Regional and Local Studies and the UNESCO Chair at Warsaw University apply to the issues vital for local communities. The title of today’s seminar might suggest that we have discussed problems vital for the global economy and not for a local community, a city, a region or a university/higher education institution. This is not the case, however, as in the years to come the globalisation of manufacturing, services, investments, finances, the labour market and knowledge will progress, irrespective of the scale of national protectionism. The globalisation results will be thus felt by all: countries, regions, local communities and individuals. If we want to succeed, both as a country and as each and every one of us, we must be well prepared for globalisation.
First, particularly where OTC markets predominate, a central bank can bring together market participants to discuss and address issues collectively. There is a rich history of collaboration between the official sector, the academic community, and industry participants to analyze existing issues, identify emerging risks, and develop guidance for financial markets. Over time, the New York Fed has led a number of such efforts. For example, the OTC Derivatives Supervisors Group addressed emerging risks of inadequate infrastructure for the growing credit derivatives markets. The New York Fed and the Board of Governors convened the Alternative Reference Rates Committee, which is currently working to identify a set of alternate reference interest rates for financial products and contracts that are more firmly based on transactions from a robust underlying market and that comply with international standards. 6, 7 Similarly, the U.K. official sector worked with a panel of market participants in developing the recommendations in the Fair and Effective Markets Review. The New York Fed also sponsors two industry groups that have long-term missions focused on best practices. The TMPG is, as you know, a group of market professionals committed to supporting the integrity and efficiency of the U.S. Treasury, agency debt, and agency MBS markets. To that end, the Group develops guidance to promote market liquidity and transparency, robust control environments, efficient market clearing, and managing large positions with care. 8 The New York FXC examines similar issues in the FX market.

As indicated on several occasions, the overall aim of the comprehensive assessment of banks is two-pronged: on one hand, the exercise seeks to offer a high degree of transparency concerning the situation of banks whose supervision will be conducted by the single supervisory mechanism as from November; on the other, it intends to promote the recapitalisation of those viable institutions that show insufficient levels of solvency. Both  2  BIS central bankers’ speeches  avenues will help reinforce the credibility of European banks ahead of the transfer of the supervisory function to the new authority. I should emphasise that it would be mistaken to quantify the value of the stress test in terms of the capital requirements it brings to light; and even more mistaken to measure its success on the basis of the proximity of the final result to the relatively sizeable estimates in the analyses published so far which, often, have been lacking in information and rigour. Experience shows that, beyond the size of the capital shortfall identified, these analyses are only credible if they manage to provide rigorous and consistent information on banks’ real situation and their ability to withstand adverse scenarios. Accordingly, the strategy to pursue can be none other than to ensure the methodological soundness and consistency of the exercise, and to provide the market with sufficiently accurate information on the results obtained and the process followed. In this respect, what should reasonably be expected from the comprehensive assessment under way?
Household wealth  Household gross financial assets have increased more than debt in recent years (measured in NOK). This financial buffer reduces some of the concern related to debt growth. Debt as a percentage of gross financial assets is lower today than at the end of the 1980s. Insurance claims account for a substantial share of household wealth. Insurance claims are illiquid, however, and cannot be utilised if payment problems arise. However, debt as a percentage of liquid financial assets, i.e. financial assets minus insurance claims, is also lower now than it was at the end of the 1980s. The strong increase in wealth indicates that the debt growth in recent years has not led to a reduction in saving. This contrasts sharply to the situation in the 1980s. At that time, debt growth was also high, but it financed consumption and not investment, and overall saving fell sharply. BIS Review 39/2005  3  In addition to financial assets, households also have housing wealth. There is considerable uncertainty attached to the estimates for housing wealth. A cautious estimate indicates that household housing wealth is 11 per cent higher than financial assets and more than 40 per cent higher than debt. Total debt is unevenly distributed One worrying aspect of these developments is that debt and wealth are unequally distributed across different household groups. Compared with the 1980s, the debt burden has increased in low- and middle-income households (deciles 1-6). Households with higher income (deciles 7-9) have the highest debt burden.

In Oslo in particular, the level of residential construction activity has been high. Increased housing supply will in isolation reduce the pressure in the housing market and contribute to reducing house prices. In the last Inflation Report, house price inflation is projected to slow towards 2008. The main explanation for this is higher interest rates, but increased housing construction will also be a contributing factor. Lower unemployment has the opposite effect. Growth in household debt is expected to slow as a result of lower house price inflation. Nevertheless, growth in household debt will be higher than growth in disposable income until 2008. As a result, the debt burden, i.e. debt in relation to disposable income, will rise to a level that is appreciably higher than the level prevailing at the end of the 1980s. The debt burden for Norwegian households is relatively high compared with other countries. Structural factors such as the percentage of owner-occupied dwellings and differences in tax systems are important to explaining the differences in debt burdens. The transition in monetary policy from an exchange rate target to an inflation target has probably made it less likely that households will be exposed to a “dual shock” in the form of higher unemployment and higher interest rates, as was the case during the banking crisis. As a result of the change in monetary policy and more stable macroeconomic developments, households may also have chosen to adapt to a higher debt burden than before. II.
Foreign exchange purchase auctions would be resumed in line with our strategy to increase reserves moderately when favorable conditions occurred in the foreign exchange market. The second transaction that is conducted by the Central Bank in foreign exchange markets comprises foreign exchange interventions. They are made in order to prevent any excessive volatility that might occur in exchange rates and depending on the reasons for this volatility and potential developments. In this framework, the Central Bank may intervene directly to curb excessive volatility in either direction and use announcements and warnings. Let me elaborate on a point related to the excessive volatility interventions. As opposed to the auctions held in the framework of our strategy to build up reserves, these interventions do not have a mechanical nature. Each situation is analyzed according to its conditions and the decision for an intervention is made accordingly. Therefore, such interventions do not have a symmetrical nature. In this framework, in order to prevent excessive volatility, the Central Bank intervened directly in the foreign exchange markets 21 times (15 purchase auctions and 6 sale auctions) under the floating exchange rate regime. In the framework of both strategies, the Central Bank has made a net purchase of foreign exchange amounting to USD 43.7 billion from the foreign exchange market since 2002.

Andrew Bailey: Defining the objectives and goals of supervision Speech by Mr Andrew Bailey, Deputy Governor of Prudential Regulation and Chief Executive Officer of the Prudential Regulation Authority at the Bank of England, at the New York Fed conference “Defining the objectives and goals of supervision”, Federal Reserve Bank of New York, New York City, 18 March 2016. *  *  *  First of all, many thanks to the New York Fed for organising a conference on supervision of banks. This sounds a strange thing to say in one sense – not in another because the gratitude is genuine – but strange in the sense that surely supervision is such an important part of what we do that we shouldn’t be particularly surprised at the idea of having a conference on it. But in my experience, it is surprising how little time we spend being more reflective about supervision. I want to start with some important definitions. Frequently, and mistakenly, “supervision” and “regulation” as terms are used interchangeably. That’s wrong. Regulation is to do with the framework of rules and guidance that put the structure around the objectives that as authorities we are usually given in statute. In the UK, the PRA has a primary objective in terms of the safety and soundness of firms we authorise to do business, and safety and soundness are expressed in terms of the stability of the financial system. There is then a rulebook that tells us what safety and soundness means. That’s the framework of regulations.