samchain/econo-pairs-v1 huggingface dataset:
François Villeroy de Galhau: Monitoring financial stability, with active monetary policies Speech by Mr François Villeroy de Galhau, Governor of the Bank of France, at a conference at the London Business School, London, 23 November 2017. * * * Accompanying slides Ladies and Gentlemen, Price stability and the prevention of financial imbalances are often two sides of the same coin. Indeed, price stability and financial stability are supposed to be complementary and mutually beneficial. During the recent crisis in the euro area, the transmission mechanism of monetary policy was hampered by a fragmented interbank market, as borrowing conditions deteriorated in stressed countries. The resulting deterioration in the economy in turn contributed to a further worsening of the financial stress, in what we call a real-financial feedback loop. To cope with this difficult situation, the policy response in the euro area was twofold. First, we adopted an active monetary policy and launched unconventional measures that included the credit easing package. Second, we set up a Banking Union and assigned new macroprudential powers and tasks both at the European level (the ECB, the ESRB) as well as at the national level. In France, the Haut Conseil de stabilité financière (HCSF or High Council for Financial Stability) was created in July 2013 as the French authority with the legal ability to impose binding macroprudential measures. The economy is now recovering, so the medicine seems to have worked. However, our attention is now turning to the potential side effects of our treatment.

Although we only formally make a decision on the level of the repo rate that will apply until the next monetary policy meeting, we must make an assessment of what would be a desirable level for the repo rate throughout the entire forecast period. Situations may, of course, arise where the Executive Board members have different opinions regarding, for instance, the current economic situation or how quickly inflation should be returned to target after a shock. This type of situation may be complicated. But in practice we nevertheless believe that we will be able to manage such situations, and to agree on an interest rate path that a majority of us support. We have previously managed to agree on an interest rate message that contained information on our future intentions when commenting on market expectations. Now that we are producing a forecast for the repo rate, it is important to point out that new information may be received that significantly changes our view of future interest rate developments. The publication of our own interest rate forecast does not involve any commitment from the Riksbank that the repo rate will actually follow this path. We must also, as before, make it clear that the assessments are uncertain. One way of doing this is to calculate uncertainty intervals around the interest rate path. This we intend to do.
It only helps if it is conducive to better macroeconomic performance. Volatility may be driven by fundamentals. Sharp movements in asset prices may help the financial system to serve as a cushion, an "absorber" for exogenous economic shocks. This is welfare improving since it avoids, or mitigates, adjustment in more rigid goods of labor markets. 1  I am indebted to Benoit Mojon for many useful suggestions and remarks. All remaining mistakes are mine. Opinions expressed are purely personal and do not necessarily reflect the positions of the Banque de France. BIS Review 37/2009  1  By the same token, not all procyclicality is bad. It all depends on the causal link: is the financial system the origin or the amplifier of destabilizing dynamics? Or does it simply react to cyclical evolutions in the real economy? We should only be concerned by "intrinsic procyclicality", which is created inside and by the financial system. Finally, cyclicality in the real economy can be beneficial to long term growth as it is one mechanism through which "creative destruction" can take place in the productive system. Real and significant damages occur if and when financial imbalances are allowed to build for a long time with two consequences: first asset prices significantly deviate from their fundamental value, which creates distortions in the allocation of resources; and second, those imbalances unwind suddenly and abruptly, triggering major disruptions in growth and the economic cycle. This is what is happening right now. And this closely resembles the definition of a bubble.

Moreover, from 12 at the start, the number of participating countries has risen to 19 today: 7 countries decided democratically to join the euro, and none has wanted to leave it. These are the concrete economic benefits that make the 340 million citizens of the euro area attached to their currency, to our currency. This attachment, which has been measured since the outset, has remained strong throughout the crisis. 70% support the euro today, i.e. the highest level since 2008; a large majority of French citizens support the euro (68%). Support remains strong in Italy, albeit at a lower level (53%). The euro is not a technocratic utopia: it is a political and democratic decision, supported 25 years on – with hindsight – by a clear majority of citizens. II. However, there are four doubts about the euro. I will address them seriously, even though I think that these ideas are erroneous. a) The euro is enemy of growth and employment Some say that the euro acts as a brake on growth, employment, and competitiveness. However, at 1.7% in 2016, growth in the euro area was higher than US growth (1.6%) and above all there are major economic successes among euro area countries.
This means positions that are less liquid under stress conditions will receive larger shocks. And, we have developed a new approach to stressing counterparty credit risk, which focusses on capturing losses from exposures that would become large under the stress scenario and for counterparties that would be most vulnerable in the stress scenario. Second, the Bank of England, working with the FCA and HM Treasury has set up the Fair and Effective Markets Review to restore trust and confidence in the fixed income, currency and commodity (FICC) markets in the wake of the serious wave of misconduct seen since the height of the financial crisis. The Review is taking a fundamental look at the root causes of these abuses, the steps that have already been taken by firms and regulators to put things right, and what more is needed to deliver less vulnerable market structures and raise standards of behaviour in future. The Review will publish its recommendations in June 2015. Out of this assessment, and based on consultations to date, will I believe come priorities on market structure “standards” and transparency, effective competition, professional culture within firms and effective, pre-emptive supervision which reduces the drama of ex-post enforcement. The third area of action concerns initiatives to improve the functioning of markets to support activity in real economies. Resilient market-based financing will help to support sustainable economic growth.

The reason for this is that those investing our money today are to a greater extent assessed – and thereby also rewarded – in relation to other agents and on a shorter-term basis than was the case in the world of traditional banking. It is also simpler to follow in others’ footsteps, as there is more information on what others are doing. The crises we have experienced in recent years have recurrently shown that events assessed as almost improbable can nevertheless occur sometimes and will then have a severe impact. To use Tage Danielsson’s words, this type of risk could be described as follows: Before the event occurred, it was extremely improbable that what happened could actually happen. There are still those who believe that what happened was so incredibly unlikely that it probably did not really happen. And one can understand that they have their doubts, because according to their probability calculations, this sort of event happens so rarely. And if what happened was really true, the risk of it happening  2/5  again is ridiculously slight. Actually, it was lucky it did happen. Because now we know that it is almost definite that it will not happen again. It is possible that there are some inherent mechanisms in the agents’ ways of acting that may lead to these risks being undervalued. One such mechanism could be the fact that they are evaluated in the short term.
Since summer 2012, Target balances have shrunk by about a third. Spreads on long-term sovereign bonds vis-à-vis Germany have fallen by around 350 to 450 basis points for Spain, Italy and Ireland, and by more than 600 basis points for Portugal. Spreads in corporate debt markets have fallen by more than 150 basis points for some important market segments, and thus have made it easier for firms to raise funds in the market. What challenges are yet to be tackled? Despite these achievements, several challenges remain. Let me focus on three challenges for the ECB. One of them relates to a prolonged period of low inflation. Since the review of the ECB’s monetary policy strategy, which took place in 2003 under the auspices of Otmar Issing, the ECB has aimed at inflation rates below, but close to, 2% over the medium term. To be sure, current HICP inflation, which stood at 0.8% in January, can clearly not be considered close to 2%. Is this a reason for concern? With the average euro area inflation rate standing at 0.8%, we are clearly not in deflation, which is defined as a self-reinforcing fall in prices that is broad-based across items and across countries. Moreover, inflation expectations for the euro area over the medium to long term continue to be firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2%.

The objectives, transmission mechanisms and effects are still being established, and this is an area where the ESRB’s systemic macro-prudential oversight is playing an integral role. Conferences such as today’s can provide crucial input here. 4  BIS central bankers’ speeches  Overall, I am optimistic that macro-prudential policies, if properly coordinated at the European level, will strengthen our defences against future financial instability in the euro area, while also addressing some of the side effects that come from a single monetary policy. Conclusion Let me conclude. With the three challenges of: (i) ensuring price stability in the face of a prolonged period of low inflation, (ii) setting up the SSM and rebooting the banking system to support credit and growth, and (iii) establishing an effective macro-prudential policy framework to increase resilience in the face of future financial turbulence, the ECB will have its hands full in the coming year. We are committed to doing our job, but do not expect us to do the job of others. It is more important than ever that, in parallel, governments continue to pursue their structural reform agenda. The return of confidence in the euro area is evidence that the reform efforts will eventually pay off. This is visible from the return of market confidence. But, more importantly, it is visible from the return of political confidence – as expressed, for example, in Prime Minister Helle Thorning-Schmidt’s assessment that joining the euro would be in Denmark’s best interest.
Mark Carney: Winning the economic marathon Speech by Mr Mark Carney, Governor of the Bank of England and Chairman of the Financial Stability Board, at the Commonwealth Games Business Conference, Glasgow, 23 July 2014. *  *  *  Accompanying charts can be found at the end of the speech. It is a pleasure to be in Glasgow for the opening of the 20th Commonwealth Games. For the athletes, the games represent the culmination of years of training. For fans they are a chance to witness great sporting achievements. I remember attending the 1978 games in my hometown of Edmonton and being mesmerised by one of its stars: Scotland’s Allan Wells. At just 26, Wells burst onto the scene, winning silver in the 100 metres, beating the reigning Olympic champion in the process. He spurred Scotland to gold in the 4x100 metres, won the 200 metres outright and set the stage to become the fastest man in the world two years later at the Olympics. The UK economy has also had some sprint success of late and is the current holder of the “fastest growing advanced economy in the world” title. That is welcome after some difficult years, but what really matters is what comes next. The bigger prize is winning the economic marathon by achieving a durable expansion.

The MPC can also be expected to accommodate with lower risk-free rates the higher spreads that are likely to result from new regulatory requirements. All of these factors likely mean that, even when spare capacity is used up, Bank Rate will need to be materially lower than in the past in order to keep the economy operating at its potential and inflation at its target. The Bank is well aware that a prolonged period of historically low interest rates could encourage other risks to develop. In the UK, the biggest risks are associated with the housing market, which is why last month the Bank’s Financial Policy Committee (FPC) took graduated and proportionate actions. The Bank’s role is not to control house prices. Nor can the Bank do anything to address the severe structural problems across the UK caused by a chronic lack of new housing supply. Our job is to mitigate the risks to the broader economy that arise from these underlying challenges. It is the prospects for household indebtedness that concern us. UK households start from a vulnerable position, with debt at 140% of disposable income and the share of riskier mortgage lending rising markedly over the past year. Housing debt can represent a major risk because mortgages are both the largest asset of UK banks and the largest liability of UK households. 2  BIS central bankers’ speeches  The FPC does not believe that household indebtedness poses an imminent threat to stability. Underwriting standards are more responsible than in the past.
President Dudley: Well, I think we – as I said before, I think we have a lot of uncertainty about what’s going to happen on immigration and trade. Most economists – the overwhelming number of economists – think that open and free trade is a good thing, comparative advantage, you want to produce the goods and services that you’re best at producing and let other people produce the goods and services that they’re best at producing, and that actually generates gains for both sides. That’s really the theory of trade. So I think that’s – so I think we don’t want to lose sight of that. Obviously, to the extent that we – I think it’s very – it’s way too soon to sort of see how this is going to evolve. It could evolve in the direction where we negotiate hard and we get somewhat better trade deals for the U.S. and trade barriers around the world don’t go up very much at all, if at all. That’s probably not a bad outcome for the U.S., and I don’t think it’s a bad outcome for the world. Or you could go down the path that was quite a bit more pessimistic than that. So, I think it’s just too soon to sort of see which direction. You know, the Federal Reserve is going to obviously take the world as it is. I mean we – our objectives are set by Congress. Very clearly, maximum sustainable employment in the context of price stability.

As Andrea mentioned, the focus today is our approach to encouraging diversity in our financial market intelligence contacts, and the networks we engage with. Our priority is to speak to a diverse group of people from a broad range of financial institutions. Our discussions with market participants help us understand market developments, and the implications for our Policy Committees. So all of the arguments about why diversity is important internally here at the Bank of England hold just as firmly when we engage with you externally. We are embedding that approach into our core market intelligence framework, to underscore our commitment. So why is this a priority for us? First and foremost, it’s the right thing to do. As a public institution, we need to represent the diversity of the country in what we look like, who we talk to and the impact of our decisions. But, just as importantly, it helps us achieve our objectives. Our mission is to promote the good of the people of the United Kingdom by maintaining monetary and financial stability. And diversity in its many forms is a critical part of delivering that mission. Improved cognitive diversity helps make for better decision making. The lack of such diversity has been highlighted as one important factor in the bank and regulatory failures of 2008.5 Having a diverse range of institutions and business models brings positive benefits for financial system resiliency6 – something that you will not be surprised to hear matters a great deal to the Bank of England!
One popular area recently is, of course, the use of Hong Kong’s stock market for raising funds by Chinese state-owned enterprises. Up to late October, 38 enterprises from the mainland of China have made their initial public offerings in Hong Kong in the form of the issue of “H” shares. These shares were bought by investors both BIS Review 112/1997  -3-  in Hong Kong and overseas. It is important to note that when mainland enterprises sought to be listed on the Hong Kong Stock Exchange, they are required to comply with all the listing rules and other relevant regulations in Hong Kong. No favouritism or preferential treatment has been or will be given to mainland companies. Thus, in addition to fund raising, the listing of mainland companies in Hong Kong facilitates the upgrading of corporate governance of these listed companies in line with the international standards practised in Hong Kong. Through this process, Hong Kong has also played a strategic role in the reform of the state-owned enterprises in the mainland. 11. The third area concerns the management of systemic risks arising from but not limited to financial liberalization in this region. There is clearly identified a need for much greater monetary cooperation in this region, and here Hong Kong has been actively playing, and hopes to continue to play actively, a promotional role.

Notably, the 1994 cycle was associated with a large increase in U.S. long-term bond yields, and appears to represent a case in which there was a considerable gap between what the Fed did in terms of monetary policy tightening relative to initial market expectations. A similar gap was apparent during the taper tantrum in the spring of 2013, when our attempts to provide guidance about the potential tapering of asset purchases ended up confusing market participants, causing many to anticipate an earlier start and more rapid rollout of actual policy rate hikes. These episodes are reminders of the importance of transparency and clear messaging in how the Fed is evaluating the evolving economic landscape, a point I’ll return to shortly. Third, the stance of Fed policy will be far from the only factor affecting external financial conditions for EMEs. Even as the FOMC considers the appropriate timing and pace of moving to a less accommodative policy stance, the ECB and the Bank of Japan are implementing additional easing measures. As a result, external conditions will remain more supportive than would be indicated by a narrow focus on Fed policy alone. Finally, EME fundamentals are likely to be the most important determinant of how their financial conditions respond to Fed policy normalization. This was one of the key lessons of the taper tantrum. At first, market pressure was somewhat indiscriminant across countries.
Average prices (weighted by transaction)  2001 NOK 8 7 6 5 4 3 2 1 0  Weighted average price giro transactions  Weighted average price all transactions  94  95  96  97  98  99  00  8 7 6 5 4 3 2 1 0  01  For most services, customer prices are lower than banks’ unit costs. The exception is giro services at the counter. The unit cost for EFTPOS has declined so that transaction prices nearly covered costs in 2001. Prices have fallen because the transaction volume has increased and costs related to developing and introducing the system have been repaid. The price for using a card in a POS terminal has not risen appreciably in recent years. The unit cost for paying bills over the Internet is still high. This is probably because development and introduction costs are still not repaid and because there is excess capacity in the banks' solutions. Customer prices cover less than one-fourth of the costs reported by banks in connection with this service. It appears that banks are pricing this service on the basis of a long-term strategy that low prices during the introduction phase will encourage customers to use new, more efficient payment instruments earlier. If the pricing strategy actually increases use, it may contribute to increasing efficiency in the payment system in the long term because economies of scale will be exploited at an early stage.

The safety of new payment systems must also be satisfactory. This means that customers must feel confident that they will not be exposed to misuse when they use a payment instrument and that they can be sure that their payments reach the payees at the agreed time. This places stringent demands on the technical design of the services and on operational reliability and back-up solutions provided by those responsible for operations. Vis-à -vis customers, it is always the banks that are responsible for the payment services' compliance with safety and operational reliability requirements. Regardless of whether the services are purchased from a subcontractor, it is the banks that are responsible in relation to the customers. In other words, it is not possible to outsource the responsibility even though the operation has been outsourced. Conclusion International fora are interested in the Norwegian payment system. We receive praise for the efficiency of the system. The banking industry must be given the credit for this because they have sought out efficient solutions and have cooperated on system development both within the industry and with the central bank. The cooperation between the central bank and the banks on gathering transaction, price and cost data is considered unique and extremely valuable. We hope that Norway will continue to be a leader in developing the range of services and that the effective cooperation will continue in the pursuit of our common goal: An efficient payment system. Thank you for your attention. 10  BIS Review 66/2002