samchain/econo-pairs-v1 huggingface dataset:
The black line shows that the average 5th percentile GDP draw in the UK historically is 0% growth. Estimates of GDP-at-risk for any time period t utilise the full series of data available (and not just the data that would have been available had it been estimated at t). 11 See Aikman, D, Bridges, J, Burgess, S, Galletly, R, Levina, I, O’Neill, C, and Varadi, A, (2018) ‘Measuring risks to UK  financial stability’, Bank of England Staff Working Paper No. 738; and Bridges, J, Jackson, C, and McGregor, D, (2017) ‘Down in the slumps: the role of credit in five decades of recessions’, Bank of England Staff Working Paper No. 659. 12 See Aikman, D, Bridges, J, Hacioglu Hoke, S, O’Neill, C, Raja, A, (2019) ‘Credit, capital and crises: a GDP-at-Risk approach’, Bank of England Staff Working Paper No. 824. 13  All speeches are available online at www.bankofengland.co.uk/news/speeches  13  Chart 5 estimates the whole forecast distribution of GDP in t+3 years’ time, conditional on the financial risk environment. The red area shows the steady growth in GDP-at-risk from 1997 to the crisis. Chart 5: Risks grew during the Great Moderation but are now standard  [Chart 5 shows the expected distribution of the cumulative change in the level of GDP in t+3 years’ time, given the macro-financial risk environment at time t. Historical distributions are estimated using the full sample of data.]

The FPC’s responsibilities are encoded in the Bank of England Act and the Chancellor’s annual FPC remit letter.7 The FPC’s primary objective is to identify, monitor and take action to remove or reduce systemic risks with a view to protecting and enhancing the resilience of the UK’s financial system.8 Subject to meeting their primary objective, the FPC has a secondary objective to “support the economic policy of Her Majesty’s Government, including its objectives for growth and employment”. The emphasis on supporting economic growth over the medium to long term is underpinned by the so-called “stability of the graveyard clause” in the Bank of England Act, which does not “required or authorised the Committee to exercise its functions in a way that would in its opinion be likely to have a significant adverse effect on the capacity of the financial sector to contribute to the growth of the UK economy in the medium or long term”. The FPC’s actions support its secondary objective in several ways. The FPC minimises the negative impact of financial stability policies on growth including in the near-term by implementing financial stability policies gradually, and by choosing targeted policy tools. The FPC’s remit letter also tasks the FPC with taking actions to promote actively productive finance and growth as long as these actions do not compromise the primary objective of financial stability. These actions 7 The Chancellor’s annual “Remit and Recommendations” letters to the FPC, alongside the FPC’s responses, are  available here.
Crisis prevention  Turning to my last financial stability issue, that of crisis management, in my view this is mainly a question of being prepared. Or as prepared as possible, I should say, because how can you adequately prepare for the unknown? There are basically two types of crisis: a slow crisis and a fast crisis. By a fast crisis I mean single but severe events like fraud, major loan losses or general events that quickly lead to loss of market or creditor/depositor confidence. These cases call for quick action. Normally the central bank takes the lead because of its ability to provide emergency liquidity assistance and because of its access to updated information on the liquidity situation in the market. But close cooperation is required, especially with the supervisory authority, which has information on individual banks, and with the Ministry of Finance, if there is a need for solvency support. In my experience, there are many possibilities for such a process to fail. Misunderstood information, unclear leadership or conflicts of interest may delay the process until it is too late. The chances of solving a fast crisis increase enormously if all institutions involved have prepared for it, e.g. through crisis management drills. Such drills tend to uncover the shortcomings or conflicts that may prevent smooth cooperation when really needed. A slow crisis, on the other hand, may be detected but not always prevented by financial oversight.

The prices of commercial properties and private housing are also analysed not least because they reflect the value of the major part of the collateral that is pledged for loans from banks and mortgage institutions. Insofar as your banks conduct activities in foreign countries, stability surveillance also needs to encompass developments in these countries to ensure that negative developments will not destabilise your banks. Second, the major banking groups are analysed in various respects. Profitability trends illustrate the ability of the banks to build up reserves for future unexpected losses. Moreover, there is always the strategic risk that a bank with weak profitability will be tempted to try out new, bold but risky lines of business in order to generate a higher return on equity. Our analysis of the banks’ credit portfolios provides an indication of how loan losses are likely to develop in the coming year or two. Another aspect of the analysis relates to banks’ liabilities. Traditional banking involves accepting deposits and using the funds for making loans. People’s growing propensity to save in other instruments than bank accounts has forced the banks to finance a major part of the growth in credit by borrowing, mostly short-term funds, in the capital market. The structure of bank funding provides an indication of the risks in bank liquidity. Monitoring this is perhaps the most difficult part since the liquidity situation is liable to change very rapidly. 3.
Transparency in monetary policy cannot mean that the central bank conveys more confidence in the outlook for growth and inflation than it can reasonably have, and it cannot provide more assurance about the likely future course of policy than it actually has. This seems self evident. And yet as central banks have moved to communicating more and disclosing more about monetary policy, transparency in monetary policy has been associated with rising expectations for clarity about the path of target interest rates over time. It might seem desirable in an ideal state of the world for expectations in financial markets about the future course of policy to closely track in real time those of the central bank. But given the degree of uncertainty that surrounds monetary policy making, this is unlikely to be possible, except in special circumstances. There will be circumstances when it is appropriate for the central bank to send a signal about the target rate that extends well beyond the immediate horizon. These circumstances are not likely to arise frequently, and will be appropriate in particular conditions when the benefits afforded by the effect on expectations clearly outweigh the cost imposed by the loss to flexibility. Central banks should be clear about what they are trying to achieve. They should be open with the knowledge and insight they possess. And they should provide the public with clarity where it is attainable.

In the current crisis, monetary policy is said to have played a role in contributing to excessive risk-taking behavior in the period leading up to the crisis, but monetary policy is also powerful in handling the economic and financial downturns through aggressive actions on interest rate and the provision of liquidity. This shows that it is crucial to get the stance of monetary policy right early by formulating monetary policy in a forward-looking manner. This, of course, is easier said than done. And the last lesson is communication. One lesson we learnt clearly from the crisis is that policy actions alone cannot ensure a successful outcome without the support of an effective communication strategy. In this crisis, the Fed has demonstrated the importance of this to the highest level through its ability to articulate its understanding of the situations, to communicate the rationale for the use of unconventional measures, its approach to making the results of the stress-testing exercise public, as well as its ability to manage market expectations while maintaining policy credibility. All these have been instrumental to the success so far of the Fed’s policy response. It is, therefore, clear from the crisis that wellexecuted and credible communication can help anchor market expectations. Let me now turn to my second remark on strengthening the monetary policy framework. I agree much with what has been said about the need to improve bank regulation and supervision going forward, especially to reduce procyclicality in the financial system.
The five-year T-bond rate moved down from about 8 per cent to just over 3.8 per cent, or by 4.2 percentage points. Falling interest rates can stimulate economic activity and thereby lead in time to higher inflation as the level of resource  1  BIS Review 61/1999  utilisation rises. In the short run, however, the effect on inflation, measured with the CPI, is downwards as a result of lower house mortgage interest payments. So although inflation may ultimately rise as a consequence of lower interest rates, the initial effect is the opposite. In these years, moreover, the effect on interest expenditure was substantial in that inflation expectations dropped from high levels as the low inflation regime gradually gained credibility. The downward effect of the lower interest rates on the CPI actually averaged as much as 0.7 percentage points a year. Altered indirect taxes and subsidies In this period there were also fairly large changes in indirect taxes. In the longer run this can influence inflationary pressure via fiscal policy’s impact on demand but there are also more direct effects. In 1996 changes in indirect taxes had a downward effect on CPI inflation of 0.6 percentage points, followed in 1997 by an average upward effect of 0.5 percentage points. In 1998 as a whole the impact of altered indirect taxes was marginal; after the summer, however, various measures, including the reduction of tobacco tax, lowered the rate of CPI inflation by 0.5 percentage points.

Factors such as indirect taxes have effects on consumer prices that are transitory; they normally disappear after a time unless long-term inflation expectations have been affected. Conclusion The CPI is the target variable for monetary policy. Measured with the CPI, inflation is to be 2 per cent in a longer, annual perspective. There are grounds, however, for sometimes departing from this target. Short-run deviations from the target should not be attributed automatically to a faulty formulation of monetary policy. This presupposes, however, that clearly identifiable, transitory price movements are involved that monetary policy neither can nor should aim to counter. It is therefore important to look at the factors behind the CPI figures when appraising monetary policy. 7KHUHDVRQIRUOHWWLQJGHYLDWLRQVRFFXULVWKDWRWKHUZLVHWKHHFRQRP\ZRXOGEHGHVWDELOLVHG OHDGLQJVRRQHURUODWHUWRXQQHFHVVDU\HFRQRPLFFRVWVWKDWLVWRVD\H[DJJHUDWHGIOXFWXDWLRQV LQERWKWKHUHDOHFRQRP\DQGWKHILQDQFLDOPDUNHWV  11  BIS Review 61/1999
Stress tests provide an assessment of whether the capital buffers held by banks are sufficient to absorb losses in a stress. So they are well suited to guide the calibration of countercyclical capital buffers. The Bank of England is developing a countercyclical approach to annual stress testing of banks. Rather than applying a constant level of stress from year to year, the severity of the stress would vary with the cycle. It would increase as risks build up and decrease after they have abated or crystallised. The parameters of the scenario – falls in GDP, asset prices, employment etc – would be most severe during periods of exuberance when credit and asset prices were growing quickly and the financial system was least concerned with risk. The parameters would be less severe when exuberance had evaporated and prices had corrected, which is often the time when the system is most risk averse. We aim to develop this approach over the next three years, starting with the 2016 stress test. Along with a regular assessment of data and indicators it will be a key part of a forward looking, data driven approach to setting the UK’s countercyclical capital buffer for banks. We have set out more details in a recent Bank paper.2 As always, one issue will be assessing the costs and benefits through time in so far as that is practicable. Another is where to set the countercyclical capital buffer in different parts of the cycle to enable it to be relaxed at times of stress.

Since this is not the main topic of our discussion today, I will simply give a brief reminder of the facts.   The role of central banks in markets stems from their objectives, the primary one incontestably being to ensure price stability. But this is not their sole objective. As we know, the Fed operates under a “multiple mandate” that is, and I quote, “to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates” whereas most other central banks, and in particular the ECB, have a “hierarchical mandate” that places the price stability objective above all other policy goals. More specifically, the Maastricht Treaty states that “without prejudice to the objective of price stability, the ESCB shall support the general economic policies in the Community with a view to contributing to the achievement of the objectives of the Community”. In that perspective, one of the objectives of the Community that we must support is to “promote solidarity among Member States”.   In order to fulfil its mandate, central banks must be credible and thus independent. If economic agents have the least doubt or the least suspicion that the institution might have an incentive to surprise them by allowing high inflation, they might adjust their behaviour as a precaution and thus “create” higher inflation by increasing their wage claims, thereby triggering a wage-price spiral; or by demanding greater returns on their savings, which pushes up long-term interest rates and weighs on growth.
6  In the case of portfolio investment and direct investment, Switzerland has high net assets abroad which, together, make up 84% of Swiss net wealth. However, in some years, the increase in the net international investment position attributable to current account surpluses has been cancelled out by currency-related losses on asset holdings abroad. 7  Since 2011, reserve assets have been a further important component of the net investment position. Switzerland has a net liability position in the “other investment” category, reflecting the strong linkages between the Swiss financial center and the rest of the world. 8  See “Merchanting in Switzerland”, in Swiss Balance of Payments 2012, Swiss National Bank. 9  See the discussion in Beusch, E., Döbeli, B., Fischer, A., and Yesin, P. (2013): “Merchanting and Current Account Balances”, Federal Reserve Bank of Dallas Globalization and Monetary Policy Institute, WP 140. BIS central bankers’ speeches  3  investment position, the special role of our country as an international financial center, and merchanting business. Consequently, Switzerland’s current account surplus did not arise because the Swiss franc was too weak. The real exchange rate does not play a decisive role in the structural factors responsible for this surplus. Narrow current account ranges: a bad idea In the context of resolving global imbalances, some would argue that each country’s current account should lie within a narrowly defined range.

In August 2011, in a first step to counter the excessively tight monetary conditions, we announced, almost on a weekly basis, an expansion of the monetary base, initially from CHF 30 billion to CHF 80 billion, then to CHF 120 billion and finally to CHF 200 billion. Even when the monetary base reached close to 40% of GDP, this was ultimately insufficient to halt the appreciation of the franc. As a consequence of these developments, on September 6, 2011, the SNB announced that it was introducing a minimum exchange rate of 1.20 against the euro. Since the announcement, the franc has never traded below this minimum. At the zero lower bound, the minimum exchange rate has become an important monetary policy tool for us. Yet despite the introduction of the minimum exchange rate, Switzerland has experienced almost two years of negative inflation. I just received the latest inflation data this morning: After having been at zero for two months, inflation turned negative again in September. In this context, it is also crucial to note that the introduction of the minimum exchange rate is not a beggar-thy-neighbor policy. It must be remembered that Switzerland has always had a negative goods trade balance with the euro area. The trade balance was negative before the implementation of the minimum exchange rate, and continues to be negative today. Swiss exports in goods have not gained market share in the euro area at the expense of others. Allow me to perform a simple thought experiment with you.
Innovations that integrate payment solutions into firms’ accounting systems could yield considerable gains. More efficient solutions are also needed for cross-border payments. Among the newcomers to payment services we find tech giants like Apple, Google and Alibaba. They have strong market power in other markets and many users, giving them a potential advantage as payment service providers. If they become dominant payment service providers, some of the gains from stronger competition may be eroded. Privacy considerations may also be challenged. Our payment histories contain personal, and potentially sensitive, data. For some of the new payment operators, it is precisely such personal data that form the core of their business. Sensitive data must not fall into the wrong hands. Today, most of us trust that Norwegian banks take privacy seriously. Perhaps this trust will be the banks’ most important competitive advantage ahead. 6 For more information about developments in the payment system, see Financial Infrastructure Report 2018. Norges Bank. 12  In recent years, various forms of electronic money and digital currencies have emerged that differ from traditional forms of money, in particular in that they have no institutional backing. NORGES BANK ECONOMIC PERSPECTIVES 14 FEBRUARY 2019  An example is electronic money used on closed digital platforms, which are operated by commercial companies. Even though these platforms are subject to government regulation, this money may be lost if the company behind it goes bankrupt. This may be what Kristoffer experiences in 2030.

Finally, I should mention the agreement reached to introduce a new supervisory instrument, the leverage ratio, which is not directly linked to a bank’s level of risk; for this reason, it counters to some extent the potential shortcomings present in internal models for calculating capital needs. That leads us to one of the major issues currently under consideration: the use of internal models for evaluating the weighting of risks. There is known to be wide-ranging variability in the calculation of risk-weighted assets across different banks. The Basel Committee itself has published a report on this matter, and increasing numbers of experts and regulators deem it advisable to study the implications of the use of internal models in terms of how they affect the lack of transparency in the calculation of capital requirements and in order to ensure a level playing field for all banks. The prudential regime of systemic banks: more capital and a resolution framework A further aim of the FSB has been to eradicate, or at least alleviate, the externalities created by systemic “too-big-to-fail” institutions. Systemic banks are those which, given their interrelatedness, size and complexity, might entail, in the event of bankruptcy and disorderly liquidation, serious difficulties for the rest of the financial system. The systemic repercussions of the collapse of a bank of such characteristics, as evidenced following the Lehman Brothers bankruptcy, was the driving force behind the authorities having subsequently to bail out other institutions, with the ensuing burden on public funds.
Central banks can always issue new money, but they can lose control of monetary policy if their financial position becomes too weak. The circumstances surrounding the Riksbank's asset purchases have varied. The asset purchases during the initial phases of the pandemic were very important. Without the extensive support measures quickly announced by central banks and other authorities, the pandemic would probably have resulted in a prolonged recession, where problems in the financial markets would have made the recovery more difficult. However, the Riksbank's asset purchases more recently seem to have had minor effects on inflation and real economic developments.

Michael C Bonello: The banking environment in Malta Speech by Mr Michael C Bonello, Governor of the Central Bank of Malta, at the Raiffeisen Economic Forum, St Julians, 21 May 2004. *  *  *  The history of banking in Malta goes back at least to the earliest decades of the nineteenth century, when the island’s strategic importance as a centre for entrepot trade encouraged the establishment of banking institutions. Among the better known foreign names before World War II was that of Barclays Bank DCO. This was a time when Malta was a British colony and part of the sterling area. Barclays remained in Malta after independence and the subsequent break with sterling in 1972, and contributed to the development of a cadre of bankers trained in the British banking tradition. It left only when the larger banks were nationalised during the 1970s. This coincided with the adoption of a policy of economic autarchy. The major banks were publicly owned and lending rates were set by the Minister of Finance, while the Central Bank controlled deposit rates. Nominal interest rates were kept artificially low, often resulting in negative real rates. Strict exchange controls were imposed to sustain the value of the Maltese lira. In the absence of money and capital markets, the banking sector dominated the financial system. In the circumstances, however, the sector did not operate efficiently.