samchain/econo-pairs-v1 huggingface dataset:
16  https://www.efrag.org/lab6  Significant headway has also been made in the strictly banking sphere. For example, the guidelines on supervisory expectations relating to climate and environmental risks published by the Banco de España17 and the European Central Bank (ECB),18 addressed to the financial institutions they supervise. These guidelines represent a clear signal from the prudential supervisors that they want banks to start taking into account the impact that these risks can have on their business. In addition, under the Pillar 3 or prudential disclosure framework, in 2023 large listed European banks will begin disclosing initial data on how climate change risk affects their balance sheets. For this purpose, they will use the templates envisaged in the implementing technical standards on the disclosure of ESG risks adopted by the European Commission on 30 November 2022.19 These templates include highly detailed information on collateral, exposures to physical and transition risks and mitigating actions, among a great deal of other information, to be reported up to 2025 under a phased-in approach owing to its high complexity. Meanwhile, the European Banking Authority (EBA) has recently published20 its roadmap on the battery of ESG regulations in progress. Over a three-year horizon, this roadmap aims to incorporate all ESG considerations into the regulatory framework for banks, supporting the EU’s efforts to achieve transition towards a more sustainable economy. In addition, over the course of this year the EBA will publish a report on how these risks should be included in banking sector prudential regulations.

Incentives on the liability side of banks’ balance sheet Having discussed how a bank can operate on the asset side of its balance sheet to improve LCR compliance, I now turn to the liability side of its balance sheet. A bank that faces the possibility of a LCR shortfall has the incentive to (i) decrease its reliance on short-term unsecured funding, (ii) decrease the 30 days net cash outflow, and (iii) to replace it by longer-term funding or, if this is too difficult or too expensive, by secured funding. Since outflow rates are zero for secured funding obtained from the central bank, but higher for secured funding obtained from other sources, the bank is more likely to borrow from the central bank by pledging non-HQLA assets, either in tender operations or in the marginal lending facility.14 As a result, this lessens the need of banks to seek funds in the short-term interbank market to ensure that the LCR requirement is met.15 A reduction in the reliance on short-term unsecured funding is an intended consequence of the LCR. However, the implementation of the LCR might then lead to an overall decline in unsecured money market activity, which could be problematic for the euro area. Money markets play a central role for monetary policy transmission in the euro area. This is because the euro area financial system is largely bank-based, and interbank money market interest rates represent the marginal cost of funding bank loans.
One is that monetary policy is likely to be particularly effective because it affects all financial markets. Another view, that has been stated most forcefully by Lars Svensson, is that monetary policy is an inefficient and potentially even harmful tool for financial stability, since it is too unfocused and may have counterproductive macroeconomic effects. This is far from a theoretical matter: there is currently a lively debate on whether the current low interest rates in major jurisdictions are leading to “search-for-yield” behavior in certain financial market segments, potentially threatening financial stability, and whether this provides an additional motivation for normalizing monetary policy sooner rather than later. The view that seems to be gaining strength, and to which I subscribe, is to use macroprudential policy to maintain financial stability and allow monetary policy to focus on price stability. However, the definitive answer to this question will depend on the progress in the development of macroprudential policy tools and frameworks. Despite some positive experiences, including in Brazil, macroprudential tools are still insufficiently tested and the theoretical literature is in its infancy. The degree of success in using these tools will help determine whether there is a role for monetary policy in helping to achieve the financial stability goal. A second issue that has been the subject of considerable debate is the nature of monetary policy regimes. Before the crisis, there was a strong consensus on inflation targeting (or IT) as the most adequate monetary policy regime, due to its flexibility and transparency.

After the crisis began, major central banks were soon forced to lower interest rates to the effective zero lower bound. Or so we thought at the time: some central banks are now testing the bound by bringing interest rates further and further below zero. Even so, it is clear that there must be some effective lower bound on interest rates. Furthermore, negative rates, if maintained over a significant period of time, may result in financial market distortions; for example by causing lasting damage to the money market fund business model. Central banks responded to this new challenge through a variety of unconventional measures which included what is known now as quantitative easing (or QE). However, there is still no full agreement about the effectiveness and the collateral effects of these unconventional policies. (I will speak about some of its side-effects a bit later). Even before the debate about the limits of IT frameworks at a zero-lower bound, many economists, particularly in academia, proposed innovative monetary policy regimes such as price-level or even nominal GDP targeting. These regimes were seen as more powerful in the zero lower bound because they would effectively require central banks to make up for periods of below-target inflation or nominal GDP growth by keeping rates lower than required under IT after the economy recovers.
In 2012, these imbalances intensified further reaching levels that pose a risk to the stability of the banking sector, and hence to the Swiss economy. Here, two facts stand out. First, real estate prices in Switzerland have been persistently increasing since 2000, at accelerated speed since 2008, reaching levels estimated to be 40 to 60% higher than 12 years ago (see Figure 1).1 Second, the growth of credit volumes has been significant with the consequence that credit volumes relative to gross domestic product (GDP) have reached new historical peaks (see Figure 2a and 2b). The fact that these two developments have progressed hand in hand spells out conditions that may lead to subsequent financial instability. Indeed, historical evidence – widely documented by the Bank for International Settlements (BIS)2 – shows that such a twin development – elevated residential prices and dynamic credit growth – constitutes the prime advance indicator of financial instability. We only have to look outside our borders, to the US and various regions of Europe, or back through Switzerland’s own past to get a feel for the devastating consequences on the real economy of financial crises originating in real estate excesses. 2.  Credit: is the sky the limit? Today I would like to focus on one of the two critical elements mentioned above, the growth of credit volumes. Figure 2b easily explains the question asked in the title: is the sky the limit? The answer is just as easy.

Today, the medium-term growth and inflation risks are unbiased, although in the short-term there are greater inflation-related risks. Our monetary policy is based on an inflation target two years ahead, so it requires having an opinion with respect to the most likely evolution of the macroeconomic scenario and associated risks. We are continually on the lookout for news about the local and international economic environments, checking them for consistency with our vision of the most likely or other alternative scenarios. To do so, we need to permanently adapt our vision on the economy and conduct monetary policy with flexibility, being careful not to overreact to onetime news that could trigger excessive pessimism or optimism that occasionally affect the expectations of consumers, businesses or investors in the financial markets. This prudence  BIS central bankers’ speeches  1  in our assessment of the state of the economy and related risks is vital for us to properly meet our obligations. At the same time, it is our job to provide grounds for our vision about the macroeconomic scenario and its consequences on the orientation of our monetary policy. The developments of recent months exemplify this. Many market agents’ opinions pointed at the Chilean economy being severely hit by the external situation. However, incoming data have shown us, as I said, that the risks coming from abroad are smaller than we thought before.
Further turbulence in the oil markets could have a negative impact on economic activity throughout the world and, therefore, on euro area employment as well. These  BIS Review 8/2003  1  concerns could weigh adversely on confidence. In addition, the accumulated macroeconomic imbalances outside the euro area have led to uncertainty surrounding the strength of the recovery in other major economies. By way of conclusion, there are still downside risks to the outlook for euro area economic activity. Turning to prices, HICP inflation has remained slightly above 2% in recent months. On the one hand, there was upward pressure from oil prices and from various increases in indirect taxes and administered prices. On the other hand, the strengthening of the euro, together with base effects, helped to limit year-on-year consumer price increases. Looking ahead, given the outlook for moderate economic growth, the gradual pass-through of the appreciation of the euro should contribute to a dampening of inflationary pressures. Overall, the most likely outcome remains that inflation will fall and eventually stabilise at a level below 2% in the course of 2003. However, the volatility in oil prices makes it very difficult to forecast prospects for inflation movements accurately, especially in the short term. Moderate wage developments are a major prerequisite in order for price stability to prevail in the medium term. This will also help to improve the prospects for economic growth and further employment creation. When looking back we see that wage growth followed an upward trend until recently, despite the economic slowdown.

This is because our local currencies are generally correlated with each other. Also, there will be less reliance on currencies of advanced countries which last year account for over 85 percent of Thailand’s trade with Indonesia and Malaysia. 2  You may recall that earlier this year, Bank Negara Malaysia and the Bank of Thailand implemented a ringgitbaht arrangement in March as a pilot project. Since then, we have seen a noticeably narrower spread between the ringgit and the baht. Moreover, we have noted an increasing number of businesses applying this local currency scheme in their day-to-day business conduct. Today, I am very delighted that Bank Indonesia is carrying on this initiative by signing the MoUs with both Bank Negara Malaysia and the Bank of Thailand. I really hope that this scheme will continue to expand to other countries in the region. Ultimately, this would be one important step closer to having greater regional financial integration in ASEAN. On this note, may I invite Governor Agus to say a few words, and followed by Governor Muhammad Ibrahim. Thank you. 3
One such question could be: Why must the Riksbank spoil the party? The Swedish economy has finally begun a period of good growth, rising employment and decreased unemployment, while inflation is low. So why do central bank representatives have to talk about the need to raise the interest rate in such a situation? May it not lead to a renewed increase in unemployment? Another question is how strongly the Swedish economy can expand without risks for inflation. Can it be the case that even the Swedish economy is displaying new tendencies, as certain observers argue has happened in the United States, that is, that growth can be higher without inflation taking off? If so, why is the Riksbank talking of a need to raise interest rates? Let me begin with the first question. Why spoil the party? History teaches that when the growth of demand outpaces the economy’s long-term output trend, this leads in time to risks of capacity shortages and bottlenecks that result in turn in rising prices and wages. At the same time, as it takes one to two years for an adjustment of the instrumental rate to affect the economy, the central bank’s monetary policy decisions have to be based on assessments of the future. Faced with the risk of a situation of this type occurring, it is therefore better to try to slow BIS Review 92/1999  2  things down with a small interest rate increase at an early stage.

As a result, the downward spiral, which was triggered by the collapse of Lehman Brothers last September and which, for a short while, even threatened to bring the global financial system crashing down, has come to halt. After having climbed to unsustainable highs in recent years, the prices of many investments fell to extremely low levels during the turmoil this past winter. The rapid recovery in the financial markets since March must also be partly regarded as a correction of previous excesses. Furthermore, the extremely expansionary monetary policy being pursued worldwide is likely to have also contributed to calming the situation. However, the recovery in the financial markets should not conceal the fact that uncertainty is still high. How sustainable the shift in market sentiment really is remains to be seen. The risk of suffering a setback remains correspondingly high. The SNB’s unconventional monetary policy measures At our quarterly assessment in March, we were confronted by the need to once again significantly expand our monetary policy. Since the repo rates were already practically at zero, we had to resort to unconventional monetary policy measures. We decided to conclude longer-term repo transactions on the one hand, and to purchase foreign currencies and Swiss franc bonds on the other. By simultaneously intervening in the money, foreign exchange and capital markets when necessary, a strong and broad-based monetary policy impact can be generated, without leading to any major distortions in the markets concerned. Allow me here to add a few remarks on our foreign currency and bond purchases.
Against this backdrop, consumer price inflation, with an unchanged key rate of 6.5 per cent and an unchanged krone exchange rate from the average exchange rate for the second quarter, was projected at 2¾ per cent from the summer of 2004. 1  Cf. Cournot-Nash equilibrium in game theory  2  2 Cf. Stackelberg equilibrium in game theory  4  BIS Review 59/2002  Projections showed that price inflation could be lower than 2½ per cent in the short run. If we had tried to reach the inflation target in the short term, i.e. strict inflation targeting, we would have lowered the key rate. We know that would probably imply a weaker krone and higher inflation. A more pronounced increase in interest rates than the increase we actually implemented would then probably have been necessary in a year’s time. This would have led to unnecessary fluctuations in output and employment. Nor did concerns about stabilising output and employment warrant an easing of monetary policy. Had we placed greater emphasis on these variables, i.e. a strict output target, monetary policy should have been tighter and the interest rate higher to prevent a borrowing and spending spree, resulting in wider variations in the inflation. On the basis of an overall assessment, the key rate was raised by 0.5 percentage point to 7 per cent at the monetary policy meeting that same day.

Higher interest rates make it more attractive to take krone positions and borrow in foreign currency. As a result, higher interest rates normally lead to an appreciation of the krone. This reduces prices for imported goods. We call this the exchange rate channel. Interest rates also influence inflation indirectly via domestic demand. When interest rates rise, it is more profitable to save and more costly to borrow. This has a dampening impact on consumption and investment. Lower demand in turn curbs the rise in prices and wages. In addition, a strong krone reduces activity, profitability and the capacity to pay in the internationally exposed sector. This is what we call the demand channel. In addition, changes in inflation expectations influence price and wage inflation. Inflation expectations are, for example, important for wage negotiations. Enterprises do not want to change prices too often. Hence, they take inflation expectations into account when they set prices. Interest rate changes may influence expectations and thereby inflation itself. This is the expectations channel. Monetary policy channels are further described in Svensson (2002). It is important to be aware of the relationships between employment, output and inflation. If there is a shortage of labour and other economic resources, a tight monetary policy stance will reduce inflation by affecting aggregate demand. Conversely, when unemployment is high, low interest rates stimulate  2  BIS Review 59/2002  demand, which will contribute to stable wages and prices.
This will lead to increasing the confidence in the financial system. The Basel Committee on Banking Supervision and the Board for International Accounting Standards have already undertaken certain activities. •  The regulation on determining and measuring banks' solvency deserves special attention. The appropriate level of capital is the main anchor for a stable banking system. When this issue is discussed internationally, primarily a reference is made to the New Capital Accord, the so-called BASEL II. It is being criticized even before its full implementation and therefore it is inappropriate to refer to it as one of the reasons for the current crisis. However, it is important to mention that draft amendments have already been prepared as a response to the new developments. Those are, inter alia, the following: -  Improvement of the manner of covering the risks arising from the use of structural financial products. -  Changes in determining the capital necessary for covering the risks from banks' trading portfolio, especially of those instruments characterized with lower liquidity on the market. -  Measures for reducing the effects from the economic cycles on the level of the capital requirement. The purpose is: to allocate more reserves in periods of expansion in order to provide sufficient capital for covering the losses in times of crisis. This is Spanish experience, known as "dynamic provisioning". -  Expanding of the type of data which the banks will be obliged to disclose.

Near-term developments in nominal and real interest rate will be determined by economic developments and the inflation outlook. The MPC attempts at all times to keep interest rates no higher than they must be in order to hold inflation at target over the medium term. Based on these considerations and assuming that there are no major unforeseen changes in the current situation, the scope for further reductions in nominal interest rates could develop in the near future. The Government has initiated a review of the monetary policy framework. The Central Bank of Iceland supports this process and will participate actively in it. It is important both to take into account what monetary policy can achieve and to acknowledge what it cannot do. It is also important to bear in mind that significant changes have already been made in monetary policy conduct since the pre-crisis period, as I have discussed in detail in this setting in the past. Nevertheless, various additional changes need to be considered, and the Central Bank cannot change the most important element of the equation: that monetary policy, fiscal policy, other economic policy, and decisions taken in the labour market must pull together to the maximum extent possible. I would also like to emphasise the importance of preserving the monetary policy achievements that I have discussed. 6  Honoured guests: The Central Bank’s foreign exchange reserves totalled over 810 b.kr. or 7½ billion US dollars, at the end of February. This is equivalent to about one-third of GDP.
As a result, when Northern Rock got into trouble and a buyer could not be found, the Government had no alternative but to nationalise it – shareholders were wiped out and subsequently the Government was forced to inject £ billion of capital into the bank. A year later, when faced with the much bigger challenges of RBS and HBOS, the Government likewise had to step in.8 The situation was similar in other countries. While the US had a resolution regime, this only covered the insured deposit-taking entities within a banking group and proved unable to deal with the failure of large, interconnected groups. Similarly, SEC-regulated investment banks were outside of the scope of resolution regimes. While some European countries had bank-  8  4  Existing shareholders were not fully diluted in either RBS or HBOS. In the case of RBS, for example, they retained 16% of RBS’s total share capital (30% of voting shares). BIS central bankers’ speeches  specific insolvency regimes, they too did not have regimes that satisfy modern standards for bank resolution that would have guaranteed the continuity of critical economic functions. The shortcomings in terms of public institutions and powers have now been addressed in the key jurisdictions. We have, of course, yet to see how the new resolution powers operate in practice. But we now have a crucial, far reaching capability that we lacked entirely eight years ago. We need to be clear at this point what we mean by ‘resolution’ powers and authorities.

Tripathy et al, “Macroprudential Policy, Mortgage Cycles and Distributional Effects: Evidence from the UK” show that constrained banks issued fewer high LTI mortgages after the FPC’s policy was introduced. They also find evidence supporting the macroprudential benefits of the policy. The local areas with greater exposure to constrained lenders experienced smaller declines in house prices in the aftermath of the EU referendum in June 2016, when house prices fell across most UK regions. 15  11  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  11  The distinction between expectations effects and credit constraints matters in another way. To the extent that demand for housing is simply subdued by dampened household expectations about the future, there is no ‘loss’ to households. If however, demand for housing is held back by credit constraints, transactions which are desired are ‘lost’. One needs to be careful however about assuming that relaxation of credit constraints will lead to all otherwise ‘lost’ transactions taking place. The thought experiment I carried out earlier suggested that almost 10 million additional transactions would have occurred from 2007 to 2020 had transactions remained at their-pre financial crisis level. But this assumed that house prices remained at the actual levels we saw over the period. In the absence of increased supply, the evidence suggests that much of the additional demand would have fed into higher prices, raising indebtedness in the short term but eventually choking off the additional demand.