samchain/econo-pairs-v1 huggingface dataset:
In my speech today, I will highlight three grounds for optimism that a healthy, business-led recovery can be sustained in the UK while public spending is restrained and the deficit is brought down: the progress of the recovery so far; the resilience of UK businesses through the recession; and the experience of the previous recovery in the mid-1990s, when there was also a significant rebalancing of public finances. However, for a healthy recovery to be sustained, it also needs to build on a platform of low and stable inflation. And this, in my view, has implications for the way in which the MPC should be responding to the current economic situation – an issue I will come back to later in this speech. Progress of the recovery so far Since the second half of 2009, the UK economy has been recovering from recession. This recovery has not been uniform across different sectors of the economy, with manufacturing growing faster than services. There has also been some variability in growth rates from quarter to quarter, with relatively weak growth through last autumn and winter, but much stronger growth over the spring and summer of this year. GDP has risen by 2.8% over the last year, a faster pace than the 2% or so seen in the first year of the previous two recoveries.

Company failure rates are normally pushed up by a recession and in the early 1990s the liquidation rate peaked at close to 3% of the number of UK companies. However, as Chart 5 shows, the failure rate of businesses has remained below 1% in this recession and has recently turned down as the economy has begun to recover. Even adjusting for changes in the legal framework for insolvencies in the mid-2000s, the rate of company liquidation is lower than in the last recession and the increase during the recession has been much lower than expected when the recession first hit. With the pressures on the banks following the financial crisis, we might have expected the opposite result. If the banks had quickly sought to realise value from bad loans made in the global credit boom, we might have seen more business failures. One reason that this has not happened is because of government interventions in the banking sector which have encouraged UK banks to sustain lending to companies from which they might otherwise have withdrawn support. Another mitigating factor against business failures in the recent downturn has been the willingness of the government to allow greater flexibility for companies in  9  The Bank of England Agents’ Report for November shows investment intentions back to the level last recorded in late 2007 and early 2008, before the recession. For more details, see the Bank of England website: http://www.bankofengland.co.uk/publications/agentssummary/agsum10nov.pdf.
Risks from leverage: how did a small corner of the pensions industry threaten financial stability? − speech by Sarah Breeden Given at ISDA & AIMA  Published on 07 November 2022  Sarah Breeden explains how leverage in non-banks can pose risks to financial stability and so to the economy as a whole. She sets what needs to be done by participants, by regulators and by financial stability authorities - to ensure those risks to financial stability are reduced. Speech On the afternoon of 28 September, I found myself in a rather unusual position: having to explain to journalists why a part of the pensions industry, unheard of to most of their readers, had posed such a large threat to financial stability that it warranted intervention in the gilt market from the Bank of England. Financial markets globally had been volatile for months. But in the days leading up to that fateful Wednesday and following the announcement of the Government’s growth plan on 23 September, long-dated gilt yields in particular had moved with extraordinary and unprecedented scale and speed. Now volatility itself does not warrant Bank of England intervention. Indeed, it’s essential that market prices are allowed to adjust to changes in their fundamental determinants efficiently and without distortion. However, some liability-driven investment (LDI) funds were creating an amplification mechanism in the long-end of the gilt market through which price falls had the potential to trigger forced selling and thereby become self-reinforcing.

It is clear, in retrospect, that our attempts in the spring of 2013 to provide guidance about the potential timing and pace of tapering confused market participants. Market participants seemed to conflate the prospective tapering of asset purchases with monetary policy tightening, and pulled forward their expectations about the likely timing of liftoff and raised their expected paths for policy rates. Lately, we seem to have done better: the tapering down of the Fed’s asset purchase program went smoothly and market participants now seem to share the assessment embodied in the FOMC’s March Summary of Economic Projections that lift-off is likely to begin sometime later this year. As you know, we’ve taken a number of steps in recent years to increase transparency and improve our communications. This includes regular press conferences by the Fed chair following FOMC meetings; the publishing of growth, inflation and short-term rate forecasts of FOMC participants; and a concerted attempt to lay out the guideposts that the FOMC will look at to assess progress toward our mandate. We also have explained in considerable detail what tools we will use and how we will likely use them to ensure to ensure a smooth lift-off. A second area we have focused on is doing a better job safeguarding financial stability. Simply put, we failed to act both early enough and decisively enough to stem the credit excesses that spawned the financial crisis and the Great Recession.
The insurance sector has not been left out. The entry into force of the European regulatory reform Solvency 2, also on 1 January, marks a profound break. We all know that “Solva 2” may still be improved; but it is a significant step forward. In this respect, it is important that all institutions continue their efforts to improve governance and enhance the quality of estimates and data submitted to supervisors, in order to ensure an adequate monitoring of risks, in  2  BIS central bankers’ speeches  particular those linked to the persistence of very low interest rates. At the international level, other challenges lie ahead, notably the definition of systemic groups – it must be similar on both sides of the Atlantic, like you I am sensitive to this–, harmonised capital requirements and resolution strategies. However, the soundness of the financial system does not depend solely on prudential regulations. It also depends on the confidence that economic players and the public, households and businesses, have in their financial system. In this respect, the efforts of financial institutions to protect their clients are essential. In 2016, what is needed is a firm implementation of the Eckert law on dormant bank accounts and unclaimed life insurance policies, and greater freedom of choice of loan insurance on real estate loans. And, of course, more than ever, we need to step up the fight against money laundering and terrorist financing. New measures have already been taken, some are being strengthened.

Moreover, banks generally have more extensive branch network that makes it easier to reach out to their customers. But there is no free lunch. While banks enjoy clear advantages in marketing and distributing financial products, they must also understand that they shoulder a higher level of responsibility to take care of their customers’ interests. This is why the HKMA has required banks to put in place safeguards on top of what is generally required by the SFC, the lead regulator in the sales of securities and investment products. For example, banks are required to set up the so-called “red zone” for the purpose of selling investment products or investment-linked insurance products. Another example is that banks need to audio record the conversations between their sales staff and the customers in conducting the suitability assessment and in the sales process. There are many other examples and I do not propose to go down the full list here. Some people have argued that banks are facing more onerous requirements when selling financial products, hence being put on an unlevel playing field when competing with securities brokers, investment advisers and insurance agents. I don’t agree with this view. As I have just explained, banks enjoy a special relationship with their customers. That special relationship is one of the cornerstones of modern banking and should not be abused. Additional safeguards are necessary to provide bank customers with protection that is appropriate in the unique circumstances of a banking environment.
Of course, attention will have to be paid to these aspects in terms of the implementation of the new framework as well. C.3  Responses to further integration  Let me talk next about the challenges caused by the third development, progressing financial integration. I will first discuss some of the relevant European issues and then turn to global issues. EU/euro area issues In the EU there is first of all the challenge of increasing the efficiency of the complex regulatory process to meet the pace of innovation sustained by the markets and to increase regulatory convergence across countries in order to support integration and reduce the burden on financial institutions operating in several countries. The so-called Lamfalussy procedure - where some experience has already been gained in securities supervision - will seek to do precisely this, and will also improve the state of affairs in banking and insurance supervision. The deepening market integration experienced in the EU has given rise to the need for enhanced supervisory cooperation and common financial stability surveillance. As regards pure, micro-level supervisory cooperation, cooperation is being gradually stepped up through the “Lamfalussy procedure” and the establishment of the so-called level three committees, where supervisors exchange views - the primary aim being to achieve a consistent implementation of the existing legal framework. We need adequate cooperation between central banks and supervisory authorities as well as a safeguard in relation to crisis prevention.

Closer to home in this country, the Euro area economy is a good deal better placed to withstand the US slowdown, although we are all bound to be affected to some degree. For most of last year the Euro area economy performed relatively strongly, with overall output growth well above trend, and unemployment in the area as a whole continuing to fall from its earlier chronically high level. A problem, of course, was the persistent weakness of the Euro in foreign exchange markets, despite strong "fundamentals" in terms of conventional analysis. This was largely the result of an outflow of capital, much of it drawn into the US by the magnetic attraction of prospective corporate earnings growth – and apparently continuing despite the US slowdown. The euro's weakness gave rise to widespread – but in my view unjustified – criticism of the ECB. The task of a central bank operating an independent monetary policy is necessarily a limited task, not least because it effectively has only one instrument – its control over short-term interest rates. Its role – as I said earlier – is essentially, to use that instrument to influence aggregate demand in the economy, with the aim of keeping demand broadly in line with the supply-side capacity of the economy. The measure of its success is consistently low inflation. Against that criterion the ECB has been relatively successful.
Importantly, this development will be critically dependent on insurance and takaful companies building strong internal underwriting and risk pricing practices to ensure the sustainability of the business, particularly in the highly competitive motor insurance segment. Let me re-emphasis the importance this development to our market and the criticality to remove the current market distortions that undermine the long term sustainability of motor insurance. The industry cannot afford to take a short term view; it must keep its sights on building the foundations for operating in a more diverse and mature market, with stronger value propositions for consumers. Presently, with the high volume of vehicles referred to by the industry, the Malaysian Motor Insurance Pool has a life of its own and I was told the MMIP is the 9th largest general insurer in Malaysia. This was never the intent. Let’s revert to its original mandate as a mechanism to insure the highest risks motor vehicles. In tandem with these developments, insurers and takaful operators must be fully accountable for the conduct of their intermediaries in ensuring that customers receive proper advice and quality service throughout the duration of the policy. It is important that adequate training is provided and the right remuneration and incentive structure is implemented to promote a committed and professional agency force. With this expectation there is increased demand for a full time and professional agency force.

In facing them, we need a visionary industry and creative solutions that will lift our economic potential and improve lives of our people. Such solutions must be built on the strongest foundations the strength of our technical capability, our financial strength and our uncompromising stance towards professional ethics and standards. With these foundations firmly in place, the industry can bridge new horizons and expand beyond traditional borders. BIS central bankers’ speeches  5
This was the result of weaker cyclical developments in the world economy and a sharp drop in interest rates internationally. In addition, the Norwegian business sector has felt the effects of the high Norwegian cost level and the strong krone exchange rate. Public agencies have also had to adapt activities as a result of last year’s wage settlement. The weak prospects abroad and at home have in turn had an impact on the Norwegian labour market and the outlook for wage growth and inflation in the years ahead. The mandate implies that the interest rate must be adapted to the outlook for the Norwegian economy. If it appears that inflation will be higher than 2½ per cent with an unchanged interest rate, the interest rate will be increased. If it appears that inflation will be lower than 2½ per cent with an unchanged interest rate, the interest rate will be reduced. Normally, this orientation of monetary policy will also contribute to stabilising output and employment. The impact of monetary policy occurs with a lag. The current inflation rate does not provide sufficient information to determine the level at which interest rates should be set now. Our analyses indicate that a substantial share of the effects of an interest rate change will occur within two years. Thus, two years is normally a reasonable time horizon for reaching the inflation target. The interest rate influences inflation indirectly via domestic demand for goods and services and via its effect on the exchange rate.

Yes, a big step forward has been made thanks to Next Generation EU, financed by a shared debt instrument. Before thinking of possibly increasing its size, we should accelerate its implementation: speed, even more than weight, is what is currently lacking in Europe. But our real leap forward will come when the existence of a permanent common fiscal capacity, – although less limited in amount, although different from a standing budget because not systematically activated, – allows genuine countercyclical action to be taken. Conversely – and not contradictorily –, adequate fiscal discipline is key to cope with economic reversals. Look at Germany, which fixed the roof while the sun was shining, and made appropriate use of its financial leeway during the crisis. There will be a debate, to be concluded most likely next year after the German and French elections, on the Stability and Growth Pact, following three years of warranted suspension between 2020 and 2022. We should avoid a fruitless confrontation between “illusionists” – who plead for debt cancellation, which is completely out of the question – and “traditionalists” – who want to keep the same old rules as if nothing had changed, including on the level of interest rates. We do still need rules, but revised and simplified ones. Indeed, the current low interest rate environment (with r<g) does not mean that public debt sustainability issues have become irrelevant: it only implies that governments have more time to ensure debt sustainability.
This indigenous population growth has been reinforced in recent years by the phenomenon of immigration, and has been an essential explanatory factor of our recent growth. In addition to the foregoing causes, which can be quantified, there are others that are more difficult to measure since they refer to qualitative aspects, but which are equally relevant. Thus, for instance, Spanish trade unions have progressively adopted a bargaining strategy more in keeping with the requirements stemming from Spanish euro area membership and with the challenges posed by globalisation, and that has been conducive to employment generation and the growth of the Spanish economy in recent years. 2  BIS Review 32/2007  Something similar may be said of the substantial continuity over time of the broad thrust of economic policy, irrespective of the different governments that have successively been in power. Such continuity has also impregnated the natural debate under democracy between the various policy options. Underpinning this debate has been a degree of agreement on the importance of stability-oriented macroeconomic (fiscal and monetary) policies and the microeconomic policies geared to improving the workings of markets. And this is not something that is found in all developed countries. Specifically, continuity in privatisation and market liberalisation policies, which has placed Spain in a leading position in continental Europe and has contributed significantly to the growth in the past 20 years, would not have been possible without this underlying agreement.

And from a broader medium-to-long-term perspective, we also see encouraging potential that likewise merits a favourable judgment. However, in order to project ahead a positive growth differential relative to the prevailing pattern in the industrialised countries, we must not lapse into complacency and must keep reform firmly on the agenda. Evidently, reforms will have to be different from those adopted to date, but should be based on a similar philosophy: to maintain fiscal soundness against a background of macroeconomic and financial stability, to push ahead with liberalisation and market flexibility, and to give weight to education and training. If I had to opt for just one of these messages, highlighting what I consider to be the main task needed to anchor the dynamism of the Spanish economy in the long run, I would not hesitate to say that it is to improve the levels and quality of education. Thank you. BIS Review 32/2007  5
Comparability is key, because it allows policymakers to assess how different proportionate regulation approaches affect intended outcomes in different jurisdictions. The goal here is to identify and disseminate tested and proven proportionate regulation best practices, well supported by empirical evidence. The evidence on proportionality in practice facilitates regulators and financial institutions in implementing innovative solutions because they have the confidence that there would be no adverse unintended consequences to financial stability and integrity. Empirical data can also support Standard-Setting Bodies in designing differentiated guidance for financial services for low-income households and SMEs. While the importance of data collection is obvious, there tends to be under investment and an ‘attention deficit’ among decision makers on such a critical matter. Second, it is crucial to build the capacity of regulators, supervisors and financial institutions so that the ecosystem has the requisite capacity to implement proportionality in practice. The Basel Range of Practice Survey highlights supervisors’ unmet demand for capacity building, as only 30% of supervisors globally had received training on supervision of banking services for the low income segment. The Basel Meeting with Standard-Setting Bodies on 2 October 2014 chaired by Her Majesty Queen Maxima, the United Nations Secretary General’s Special Advocate, also highlighted the importance of technical assistance programmes to build up local knowledge and capacity of national supervisors, so that experience in applying proportionality can be shared.

Fernando Restoy: Europe in the aftermath of the crisis Closing address by Mr Fernando Restoy, Deputy Governor of the Bank of Spain, at the seminar “Europe in the aftermath of the crisis”, organised by the Association of Economic Information Journalists (APIE), at the Menéndez Pelayo International University (UIMP), Santander, 20 June 2014. *  *  *  Introduction Thank you very much, Miguel Ángel, for your introduction. And thanks again for inviting me to close the course organised by APIE at the UIMP. As in previous years, it is a real pleasure to be among you. I will take the opportunity to offer some thoughts on the situation of the Spanish banking system and the challenges it has ahead, two years after the approval of the financial assistance programme for Spain, and five months after the conclusion of this programme once its objectives were met. In particular, after discussing the macroeconomic environment and reviewing the transformation of the banking sector over the past two years, I shall focus on the public cost the process has entailed and highlight the main challenges facing both the financial industry and the financial authorities. 1.