samchain/econo-pairs-v1 huggingface dataset:
This common transatlantic trend calls for a common vigilance from central banks, and a change from the very accommodative monetary policy rightly – and successfully – pursued in 2020 to face the Covid crisis. That said, let me stress some intercontinental differences. The US economy recovered faster and more strongly than that of the euro area, notably due to the very large fiscal stimulus after the Covid crisis. In December core inflation, excluding food and energy, was 5.5% in the United States and 2.6% in Europe, showing that the dramatic increase in energy prices in 2021 does not stand as the sole explanation for this recent surge in overall inflation. The labour market is also much tighter in the United States: the labour force participation remains lower than before the crisis, and there is a large decrease in unemployment, to 4.2% in November 2021 compared with 7.2% in the euro area. These differences explain why monetary policy accommodation is removed more quickly in the United States with the Fed seemingly contemplating three significant shifts in a row: tapering of purchases, lift off of interest rates, downsizing of the balance sheet. On the other side of the spectrum, Japan is little affected by rising inflation. Indeed, 2021 growth is lower than in Europe (1.8% vs 5.2%i), inflation returned to positive territory for the first time in a year in September but remains very low at 0.6% in November; and core inflation remains in negative territory at –0.6%.

This forum, which was held on the eve of global turmoil outburst, indicated that the Albanian banking system had significantly increased its resilience. It addressed important matters related to: •  Transparency and customer services,  •  Risks related to foreign currency credit and consumer credit, as well as  •  Interbank market functions and monetary policy transmission in the economy. Today’s forum takes place in an important moment of the banking and financial system. After a hard year, it seems that the situation is becoming eventually normal. Therefore, I am confident that, figuratively, the third forum will have the consolidation of public confidence in the Albanian banking system as the main motif. Achievements in this regard are not lacking. Statistics show that deposit level is approaching steadily to its prior-crisis level, while ALL credit livening-up is continuing. Dear participants, Today’s meeting is held after some important financial and economic events dictated by the global crisis. Now that the situation has cleared up and has entered into an improvement stage, a thorough analysis is being made about its causes, about public authorities’ reaction and about actions to be taken, in order to raise the global financial system’s resilience. Now, allow me to deal briefly with the main features of this unmatched crisis, and then continue with some arguments on the functioning of the Albanian financial system and some necessary regulations for its further perfection.
Any attempt on the part of the SNB to hedge this risk would increase the demand for francs, which would run counter to its monetary policy objectives. The SNB’s risk profile therefore differs significantly from that of other institutional investors. While the currency risk (orange shading in chart 4) represents 78% of the total risk exposure of our investments, in the case of a representative Swiss pension fund, this proportion is only 16%. Due to its particular risk profile, the SNB is exposed to significant fluctuations in its investment result from one quarter to the next. Given these fluctuations, we exploit all available room for manoeuvre in order to diversify our investments. This allows us to optimise our risk/return profile and maintain the value of our reserves over the long term. To do this, we invest in equities and corporate bonds. Equities are an attractive asset class for the SNB. Their high degree of liquidity ensures the necessary flexibility in monetary matters, while their higher return potential helps to improve the risk/return profile. The SNB differs from other central banks in that it has a relatively high equity exposure (currently 20%, cf. chart 3). Our equity portfolio, which is worth more than CHF 150 billion, is highly diversified. We invest in some 6,700 corporate securities from more than 40 countries. We hold shares in companies which together account for more than 95% of global market capitalisation. Overall, our investments are denominated in some 30 currencies around the world, including those of emerging economies.

As you can see, the SNB is keen to deepen its understanding of the potential implications of climate risks for its work, and it is actively engaged at the international level to achieve this goal. Beyond its prerogatives with respect to monetary policy and financial stability, the SNB integrates its thinking on environmental sustainability into its operational activities. Environmental management at the SNB For many years now, the SNB has been fully meeting its sustainable development responsibilities in its day-to-day operations. Since 1996, the SNB has applied a systematic environmental management concept aimed at reducing its energy consumption. We publish annual reports detailing the environmental impact of our operational activities and the progress being made on this front. 9 Our strategy for reducing CO2 emissions is based on four pillars: first, avoid; second, reduce; third, replace existing solutions with cleaner energy sources; and, finally, offset. For the past eight years, the SNB’s operational activities have been carbon neutral. In other words, it offsets all unavoidable CO2 emissions by investing in a range of climate protection initiatives around the world, including wind farms, geothermal projects and photovoltaic plants. But the SNB’s commitment does not end there: we have also done pioneering work in introducing the first environmental impact assessment for banknotes. This work allows the SNB to assesses the environmental impact of a banknote over its entire life cycle, and it has inspired other central banks to do likewise.
The stress tests show that the current levels of capitalization of the banking industry would permit it to absorb an episode of sharp GDP slowdown, an increase in CLP funding cost and an exchange rate depreciation. As I said at the beginning, if some of the described risks materialize, the country can resort to its robust economic policy framework, capable of mitigating the negative effects of the external situation. The Central Bank has the necessary mechanisms and tools in place to react decisively to adverse scenarios and reduce the costs on the domestic economy, always honoring the Board’s commitment to conduct monetary policy aiming to ensure that projected inflation stands at 3% over the policy horizon. Now let me share with you some final thoughts. Final thoughts The presentation of our two reports coincides with a period where global financial tensions have increased and are posing great risks. Also with the start of my term as Central Bank governor, in which I expect not only to keep and continue to consolidate the position this Institution has achieved, but also to continue to adjust our policy framework to the challenges that impose us the deep changes that the global economy is going through. In the immediate future, our greatest challenge is to address in the best way possible the effects of the external crisis on our country. To that end, it will be necessary to use both our expertise and the tools available in the right dosage and in a timely basis.

However, its effects can be mitigated by monetary, fiscal and financial policy actions. Although the negative scenarios dominate, it is possible that Eurozone policy makers succeed in building a set of measures and reforms that soon restore market confidence. In any case, in such a scenario, given the required fiscal adjustments, the developed economies would continue to lag for a long period and would hold on to their loose monetary policies for some time. This would intensify the dichotomy between growth in advanced and emerging countries. In this context, a resurgence of capital inflows to emerging economies is a possibility. Domestically, one risk that cannot be ruled out are stronger effects from the higher external uncertainty, hitting harder the local financial markets, confidence, and consumption and investment decisions. Notwithstanding the capacity of economic policies to mitigate the effects of a more adverse external environment, it is important for the private sector to properly administer financial risks. Worth noting are the favorable financial indicators of the corporate sector (figure 10). In addition, currency mismatches continue to be stable and bounded, despite the increasing role of external debt as a source of funding. Still, it must be pointed out that financial intermediaries would be wise to keep a watchful eye on credit risk, considering its negative effects on external demand implied in the risk scenarios. 4  BIS central bankers’ speeches  As for households, on average the financial situation has not deteriorated. The recent increase in private consumption has evolved hand in hand with labor income.
Spain stands out as the euro area country where consumer lending has grown most in recent years, with year-on-year growth rates since April 2016 of between 10% and 16%, well above the euro area average of 5%. This growth is making an important contribution to economic recovery in Spain. In September, the balance outstanding of consumer lending was € billion, 6.7% of GDP. In addition, this growth in consumer lending is being achieved in a more competitive environment, with lower interest rates, accommodative conditions and narrowing margins on average loans. Moreover, default rates are below the average for lending as a whole in Spain. Another feature of this expansion is its adaptation to the new environment resulting from the entry into the financial system of firms that make intensive use of new technologies, with a particular impact on the financial sector. Your Association has attached particular importance to analysis of the challenges that these firms pose, through seminars, the work of various committees and the preparation, last year, of a comprehensive report on consumer lending and the digital society, initiatives that the Banco de España naturally applauds. Financial institutions must take up the challenge of responding to the new digital reality, with e-commerce (which is growing at rates of over 20% and amounted, in 2016, to € billion) now being used by more than one-third of consumers for their purchases. Clearly, these new firms with their strong technological capabilities pose a challenge and also an opportunity for established firms.

The new technologies are making lending more efficient, for example by enhancing the way in which information on consumer behaviour  3/4  and requirements is managed, facilitating new data management processes, or by applying automation processes to loan origination, thus speeding up its management. As these new firms make their entry, a new map will be drawn for this financial sector. The most recent trends highlight the importance of collaboration and strategic agreements between new and established firms, to harness the competitive advantages of each: the new technologies of the new firms and the sector experience and knowledge of the established ones. And here I conclude. It is now time for a toast to celebrate your 60th anniversary, in the hope that the National Association of Specialised Lending Institutions will continue its fruitful work for many years to come. I now pass the floor back to your president, who has the pleasurable task of proposing the toast. 4/4
Scotland played a very major part in that period of economic development, and in the first official history of the Bank of England, Sir John Clapham recorded that the Scots loved their banks. Banks were then important institutions supporting the industrialisation of the British economy and the trading system that fostered this growth. There is no difference today as the purpose of banks remains to support activity in the real economy, most obviously by intermediating between savers and borrowers to enable credit creation. Now an observer could easily intervene and say “yes, but, what I observe is that they have developed funny ways of going about it” – complicated products, likewise impenetrable slicing and dicing and re-packaging, all with the end of supporting bankers’ remuneration on a vast scale. There is some truth of course in that observation, but let’s not forget that there is a permanent interest of public policy to ensure the continuous provision of critical financial services to the real economy of this country, that is protecting savings, enabling payments, credit creation etc. What goes with this is a very sharp public policy interest in the state of the banking system. This will not change and nor should it – banks are too important to lose sight of them in ways that happened in the past. The job of prudential regulators is to maintain the safety and soundness of the banking system to ensure the continuity of those critical services to the economy and to the public.

The  BIS central bankers’ speeches  1  serious message from this is that institutional structures do matter for the success of public policy goals and objectives. The last major reform of the institutional structure in this field was in 1997, when the then Government reformed monetary policymaking and financial regulation. The results of these changes were very different. The MPC has in my view been a good example of a successful institutional structure. You can argue with what the MPC decides month-by month, you can debate how the framework of policymaking should put into effect the mandate in statute, but the test of a successful institutional structure of policymaking is that these debates can be had without undermining the credibility of that institutional framework. As a close observer, I would say that the MPC has passed this test very well. I make this point because the same cannot be said over the last fifteen years or so for the institutional structure around financial stability and supervision. In the 1990s in the UK there was a very determined effort to build a lasting structure of monetary policy in the wake of the difficult experiences before that. That institution building effort was about enabling good policy-making, supported by strong accountability to Parliament and the public, a determination to be transparent in making policy, and as part of that a commitment to engage with all the regions of the country. Today, we face the same challenge with financial stability and supervision.
Chart 6. NOK bonds issued outside Norway Total outstanding. In billions of NOK 100  100  80  80  60  60  40  40  20  20 0  0 2000  2001  2002  2003  Source: Norges Bank  This is reflected in the international market for bonds issued in NOK. Last year, such bond issues amounted to more than NOK 50 billion. Both foreign and Norwegian companies were issuers and a number of small and large foreign investors and Norwegian companies - primarily life insurance companies - were buyers. The relationships in the foreign exchange market are unstable. New shifts in the world economy may reduce interest in the krone. Chart 7. Relative labour costs Deviation from historical average. Per cent 20  20  31 January 2003  15  15  10  10  5  5  0  0 -5  -5  Common currency  -10  -10 -15  -15 1970  1975  1980  1985  1990  1995  2000  Sources: TRCIS/IMF, Ministry of Finance and Norges Bank  As a result of the strong krone and a high wage level, competitiveness in business and industry is close to 15 per cent weaker than the average for the past 30 years. Historically, following such substantial deviations, competitiveness has always returned to the average fairly rapidly.

The Japanese economy has been in a deflationary recession for a long period. Chart 4. Krone exchange rate and the interest rate differential Per cent  Index  5  90  Interest rate differential (left-hand scale)  4  95  3  100  2  105  Krone exchange rate,TWI (right-hand scale)  1  110  0  115  1999  2000  2001  2002  2003  Source: Norges Bank  In recent years, the krone exchange rate has shadowed the difference between Norwegian and foreign short-term rates. This is why the krone has appreciated to its current strong level. In addition, high oil prices have had an influence. The effect of the interest rate differential on the krone has been intensified by conditions in capital markets. Investors have been favouring carry trades. Risk premiums in major currency markets have been low, which seems to indicate that investors have been less prone to speculate in exchange rate fluctuations. Chart 5. Krone exchange rate and US equity prices 110  1500  105  1300  100  Krone exchange rate (left-hand scale) Equity prices (right-hand scale)  1100  900  95  1999  2000  2001  2002  Sources: EcoWin and Norges Bank  As equity prices fell, investors started seeking alternative vehicles. This made the krone market more attractive. The krone appreciated at the same time that foreign stock markets and domestic equity prices fell. Bonds and other interest-bearing securities have been of particular interest.
A few days prior to the monetary policy meeting we have another formal Executive Board meeting where we go through the text of the report in detail and where the report is tabled. However, the forecast can be changed as late as during the monetary policy meeting. It is not until the monetary policy meeting that the text and forecasts of the Monetary Policy Report are finally determined. The Executive Board makes interest rate decisions through a majority vote The Executive Board holds six monetary policy meetings a year. If necessary we can meet more often. The number of meetings is not stipulated by law, but is determined by us Executive Board members. We make decisions on the current level of the repo rate at the monetary policy meetings. We also agree on which interest rate path is most appropriate at the present time. The decisions are made through a majority vote, where the Chairman of the Executive board has a casting vote, and they are announced in a press release. In addition to the Executive Board members, a number of employees from the Monetary Policy Department and the Communications Secretariat take part in the meeting, as well as some advisers and legal advisers. In addition, the Chairman and Vice Chairman of the General Council regularly take part in the meetings and thus obtain a good insight into the work of the Executive Board. They both have the right to express opinions, but not to put forward proposals or take part in any decisions.

The main change being that we now base our forecasts on our own view of the future repo rate path and we give this forecast relatively large significance when communicating our monetary policy. We have also worked extensively on bringing in new, larger models, such as general equilibrium models, into the forecasting work. The forecasts are the result of an interplay between models and assessments Our toolbox for making forecasts consists of assessments, theories, empirical studies and models. These tools complement one another and have different roles in the work. They are all important and necessary to make as good forecasts as possible. As the economy is so extremely complex, we use various macroeconomic models to help us piece together a coherent picture of the economy. These models are based on modern economic theory, empirical studies and practical experience of different correlations in the economy. This makes it easier for us to make a consistent assessment of how the different parts of the economy will develop. If one merely studies individual correlations one misses the interdependence existing between the different parts and sectors of the economy. There is a considerable risk that the different parts of the analysis will not hold together. 3  Pollard (2004) shows that 79 out of 88 central banks have committees which make interest rate decisions. 4  See Blinder and Wyplosz (2004). FOMC stands for Federal Open Market Committee. 2  BIS Review 77/2008  But models are merely simplifications of the reality.
They may also, however, reduce market discipline and increase the overall scale of leverage assumed by those funds. We don’t have the capacity to assess with confidence the balance of these effects on the probability of crisis and the severity of market dynamics in conditions of stress. What should be the focus of supervisory efforts in this new context? Clearly, capital supervision and market discipline remain the key tools for limiting systemic risk. The emergence of new market participants such as leverage institutions does not change that. I am going focus on three broad policy priorities - risk management, capital and margining practices, and the financial infrastructure. Risk management We should focus more attention on parts of the risk-management process where uncertainty is greatest and materiality of the risks that we can’t readily quantify is highest. This means more attention on the risk factors where the measurement challenges are most complex. It means more attention on assessing potential exposure in extreme events that lie outside past experience, not just those outside of the recent past. These challenges require using a mix of different analytical tools to help illustrate the range of possible outcomes and the dimensions of uncertainty that apply to the measurement of exposure. The focus should be not on the specific estimates produced for various types of asset price movements or stress events, but the uncertainty that surrounds those estimates and the magnitude of the potential underestimation of losses.

We have very limited ability to predict the sources of stress to the financial system, but if the cushions at the core of the system are robust, the risk of a systemic crisis will be diminished, and central banks will have greater ability to mitigate the risk of broader damage to the economy. The pace and extent of the changes in financial markets requires supervisors to work harder to understand the consequences of changing market practice for the incentives and constraints we impose on financial institutions. Let me give two examples of evolving market practices that may help alleviate one concern only to exacerbate another. Collateral plays an increasingly important role in counterparty credit risk management, particularly for highly leveraged counterparties. The increased importance of variation margining plays a critical role in counterparty credit risk management. These changes help limit the exposure of the core financial institution to losses among their leveraged counterparties, but they also act to exacerbate volatility, with asset price declines forcing further margin calls, adding for further market declines. Where initial margin is thin in relation to potential exposure, counterparties are more exposed to adverse movements in asset prices, and in a situation of stress the actions they take to reduce their exposure to further losses are likely to have a greater negative impact on market dynamics.