samchain/econo-pairs-v1 huggingface dataset:
In particular we need to establish stronger restraints on the build up of risks in the financial system over the cycle with the dangers they bring to the wider economy. That means not just increasing capital and liquidity requirements for individual institutions but relating them to the cyclical pressures in the system more broadly. One way of doing that has been developed in Spain. It is called “dynamic provisioning”. Chart 9 illustrates how it works. It requires banks to build up a general loss reserve during good times, based on past experience of likely losses on new lending. The effect is to build up reserves when loans are originated which can then be drawn down when the economy begins to deteriorate and actual losses are incurred. That would lessen the need to raise capital in downturns. And as draw downs on these general provisions would be automatic, the market should not view this as negatively as reductions in regulatory capital ratios. The second lesson comes directly from our experience with Northern Rock where even after the bank had become totally dependent on the State, there was no legal framework for resolving its future quickly and effectively. No regulatory regime can prevent all bank failures. So it is important, for financial stability, that any such failures are orderly. That is the role of the Special Resolution Regime, a key component of the Banking Bill.

The primary question today is not so much how much further we need to go with interest rate hikes, but how large is the pass-through of what is already in the pipe. Overall, evidence shows a quick and smooth pass-through of ECB decisions to broad financing conditions, which is the first step of monetary policy transmission. The growth rate of bank loans to households and firms has slowed due to a combination of higher borrowing rates, lower demand, and - for firms - tighter credit standards. Volumes of loans are decelerating, even though growth in outstanding amounts remains positive [+3.3% in the euro area for mortgages to households and +5.2% for loans to businesses]. By the way, the growth of loans in France remains significantly higher than in the euro area average. The second step of monetary policy transmission goes from the overall financing conditions to the economy and to inflation. In the textbook theory, tighter financial conditions moderate aggregate demand, and then decrease inflation with some lags. The estimated transmission lags of monetary policy in the literature vary from one year1 to more than two years2. At the current juncture several factors may bring us closer to the upper range: The current tightening cycle started from exceptionally low levels of real interest rates. It is only from the end of 2022 that we achieved positive real rates at all maturities – but we are now clearly in restrictive territory. the proportion of fixed-rate long-term loans is particularly high by historical standards.
Furthermore, greater transparency in the information provided by banks on their balance-sheet and risk position must help alleviate the informational asymmetries among shareholders, lenders and borrowers that arguably lie behind most episodes of financial distress. Yet despite the recent advances in the design of a banking supranational prudential framework, much remains to be done, especially with regard to other financial institutions and markets. From my personal experience as governor of a central bank with supervisory and regulatory responsibilities, member of the Governing Council of the European Central Bank (ECB) and member of the Basel Committee on Banking Supervision, I strongly believe that there is much merit in central banks playing an active role in the pursuit of prudential policies that rightly respond to the challenges posed by the current process of intense financial deepening. I would agree that one specific institutional model is unlikely to fit all. Moreover, the operational separation between prudential and monetary policies should in any event be preserved. However, it is in the general interest of societies to take advantage of the institutional strength and the valuable information and analytical expertise held by most central banks in order to safeguard the soundness of financial systems. Reflections on challenges in EMU The challenges faced by a central bank are certainly not smaller if it has to conduct a single monetary policy for a multinational currency area. We have seen that in the new economic and financial landscape, central banks should explore ways to fully internalise the close links between financial and macroeconomic stability.

These are attributes that we have been strengthening over time and that we must hold onto in the face of new challenges. At the same time, we must be aware that the specific scope of action of the Bank is the macroeconomy and, in particular, the control of inflation and the safeguarding of financial stability. The process of recalibration of monetary policy was triggered by the drop-in inflation measured by the CPI and the policy response boosts economic activity because it seeks to reduce gaps in activity to ensure the convergence of inflation. Estimating greater trend and potential growth was the result of an analysis of macroeconomic phenomena and it influenced the adjustment of the MPR but does not ensure all the microeconomic or institutional conditions to take advantage of all the leeway that it potentially generates. Monetary policy may provide an additional cushion against external shocks, but it cannot shield the economy completely. For this reason, it is important that, at the end of this presentation, as in other opportunities, we understand the focus of the Board’s commitment: to keep inflation low and stable, as the main contribution that the Bank makes to the well-being of Chileans. The stability that this brings to the country should facilitate the contribution of other players to the same end purpose. Thank you.
In the current situation with considerable uncertainty in the world economy, it is important, as I said at the beginning, that we are flexible and prepared to act quickly and forcefully. One expression of this is that we are expecting to all in all cut the interest rate by a relatively large amount during a short period of time. Less impact than usual to begin with The effects of the lower repo rate will probably initially be weaker than usual. As I mentioned recently, the confidence crisis and the uncertainty in the financial system have led to high risk premiums. This means that some market rates are not affected by the development of the repo rate in the same way as usual. For instance, it is not certain that the loan costs faced by households and companies will fall as much as they usually do when the repo rate is cut. To correct the problems in the fixed-income and credit markets it is necessary to implement other measures beside monetary policy. But this is, as I mentioned earlier, something we and other authorities are working on, both in Sweden and abroad. Other effects of the international financial crisis One important reason for the interest rate cut is that the crisis in the financial markets has led to higher loan costs for companies and households than we had anticipated in our assessment at the beginning of September. Access to credit has also declined.

In the context of pricing, consumer/investor protection, distribution, dispute handling and resolution, the interests of the financial firms or intermediaries must not take precedence over those of the consumers or investors. This is a difficult mission to accomplish as it requires not only a robust and yet user-friendly regulatory regime, but also a corresponding change in the culture, values, mind-set and behaviour of the financial firms and their staff. As hard as it seems, I strongly believe that we cannot afford not to accomplish this mission. We must try harder and harder until we have got it right. I simply cannot envisage how a financial centre can thrive and sustain its competitiveness over time if it cannot build a credible reputation for treating customers and investors fairly. Conclusion 23. Ladies and gentlemen, with quality products credibility of fair treatment, trust of customers will follow naturally. Customers who use Hong Kong for their financial needs would feel safe because they know, and trust, that their moneys and wealth are in good hands and that their interests are being looked after. If you earn the trust of the customers, you have won their loyalty as well. With the reputation and words of mouth, more customers would wish to use Hong Kong as the hub for their financial transactions. However, the regulators and the Government cannot do it alone. The private sector, the industry and the practitioners must also own this mission and, most importantly, join hands with the public sector to do it together.
In order to minimize the ill effects of using a central bank’s profits for government expenditure, Exter has made special provisions in the Monetary Law regarding the application of profits of the Central Bank. Accordingly, out of the surpluses of the Central Bank, the first charges should be to build the reserves of the Bank to support the currency it issues. Any remaining balance should be utilized to retire the government’s borrowings from the Central Bank or paid into the government as a normal profit transfer. However, it has to be done collaboratively by the Minister of Finance and the Monetary Board, having taken into account the inflationary impact of each such measure. As such, the government does not have the first claim on the profits of the Central Bank, though it is owned by the government. The profit criteria that are applicable to other governmental institutions are, therefore, not applicable to the Central Bank. A general concern which has often been raised at numerous public fora has been the existence or the absence of the independence of the Central Bank. Many have found fault with Exter for making the Secretary to the Ministry of Finance a member of the Monetary Board. They have argued that this official member with his own self interest in funding the government expenditure programs would use the opportunity to dictate terms to the Monetary Board, thereby permitting the fiscal policy to override monetary policy.

In Exter’s opinion, such interests would lead to money creation, generate conflicts of interest and prevent making investment decisions based on hard-core economic principles. As such, Central Bank’s involvement in economic activities would be sub-optimal. 2  BIS Review 20/2007  A central bank, by nature, is in a position to acquire assets by creating liabilities. These liabilities take the form of new money issued by a central bank. Hence, any asset acquisition by a central bank is done at the expense of its main objective, namely, price stability. As such, a central bank should not pursue profit making as a goal. Technically, profit seeking has no meaning, because a central bank could make any amount of profits by inflating the economy. Hence, profits may arise from the central bank’s activities as a side product, but they do not form the main business of a central bank. As a result, a special procedure has to be adopted for the application of the profits of a central bank. Exter knew this requirement very well. In the Exter Report, he has argued that the Central Bank’s profits deserved special attention because of the inflationary or deflationary effects which their payment or non-payment could have on an economy. He has recognized that when such profits are paid out and spent by the government, they would find their way into the reserves of commercial banks raising their multiple credit creating capability.
Following quarter-on-quarter growth in GDP of 0.9% in the first quarter, the latest information indicates that activity is expected to maintain a strong rate of expansion, whereby a further slight quickening in output is estimated in the second quarter, to 1% in quarterly terms. Average growth in the first half of the year, in annualised terms, is thus expected to be around 4%. The projections for the rest of 2015 and for next year point to continuing dynamism, with Spain clearly outpacing most of its euro area partners. However, this momentum might be slightly contained by the weakening of some of the expansionary impulses, such as the fall in oil prices and the depreciation of the euro. For 2016, the projections estimate average growth of 2.7%, with greater uncertainty naturally accompanying the longer time ahead involved. In terms of the composition of spending, the most recent phase of the recovery has been marked by the growing weight of national demand, which has replaced external demand as the main net contributor to growth. Foreseeably, in the near future, this pattern will continue, with a contribution by the external sector to the increase in GDP that is practically neutral in net terms. Exports, particularly to the euro area, are expected to post higher growth, while the tempo of imports will slacken somewhat.

Conclusions Overall, the outlook for the Spanish economy has improved in the recent period. Its degree of vulnerability to potential shocks has progressively diminished as headway has been made in correcting its imbalances, strengthening economic activity and generating employment. Nonetheless, the effects of the crisis have been very serious and condition our economy’s growth capacity in the short and medium term. Accordingly, economic policy measures should be geared to shoring up the foundations of the recovery and to seeing through the correction of imbalances. The cyclical situation in the euro area and in Spain means the maintenance of a demandside policy mix supportive of the recovery is foreseeable. In the case of monetary policy, this is because of the commitments assumed by the ECB, which I referred to earlier. And in the case of budgetary policy, because adhering to the fiscal consolidation path will be compatible with a progressively less contractionary or more neutral contribution by the public sector to growth. In the current economic circumstances, it will continue to be necessary to complement these measures with reforms aimed at enhancing competitiveness and lowering the obstacles to a more rapid absorption of unemployment. Such actions take on particular significance in a situation like the present in which the aggregate level of debt in the economy is still high and further gains in competitiveness come up against a less propitious environment, given the low inflation in the euro area and the envisaged low growth in productivity.
In addition, we might choose to include effects on the payment system and on general economic performance if, for instance, we saw a significant risk of a future financial crisis. The clarification of our monetary policy that we published in 1999 states that we would explain clearly the reasoning behind our decision if this situation were to arise. Naturally, this question - of whether the risks are sufficiently large to require special consideration in the monetary policy decision - is not a simple one. It concerns weighing up difficult issues about which opinions may differ from time to time. So far, however, considerations with regard to the effects of house prices and household indebtedness on factors other than the inflation rate have only played a marginal role in interest rate policy. Inflation and monetary policy Let me conclude with a summary of my current views on inflation and monetary policy. Since the early summer, inflation in Sweden has developed roughly in line with the Riksbank’s assessment in May. Inflation is low both by Swedish and international standards, at around 1 per cent. At the same time, it is important to emphasise that the decisive factor for monetary policy is not the present inflation rate, but our views regarding future inflationary pressures. At our monetary policy meeting in May, the Riksbank judged that inflation would remain relatively stable over the coming year and then increase gradually as a result of rising international and domestic resource utilisation.

Taken together it is possible that there now, as at the time of the monetary policy meeting in August, is reason to be somewhat more optimistic about economic growth abroad this year compared with the  BIS Review 51/2004  1  Riksbank’s assessment in May. The high oil price could indeed dampen the upswing somewhat and there have been some less positive signals over the summer from the United States, among other countries. But it appears that this will be countered by growth in other parts of the world, which seemingly will be more robust than forecast in May. In this context it may be worth noting that Sweden’s trade with countries such as China and India is still relatively small, but that the countries outside the OECD area (OECD-19) together account for about 20 per cent of Swedish export markets. This can be compared, for example, with the United States, whose share of Swedish exports is just over 10 per cent. If the performance of these countries is strong, it is of course of great significance for Sweden. Financial market developments during the summer have not entirely been in line with expectations. Equity price developments have been relatively weak. Both short-term and long-term interest rates have accordingly been weaker than we anticipated. The cause of this weaker development in interest rates has been uncertainty, primarily about the strength of the US economic upswing and the effect of the high oil price on global growth.
But would making the repo rate negative and quite simply forcing the banks – and, ultimately, perhaps their customers – to pay to keep money in an account really have the same impact on final interest rates for households and companies and, if so, could it be implemented without causing problems elsewhere in the system? One objection towards negative interest rates is that people will choose the alternative of keeping cash in their mattresses. As this would be troublesome and not entirely risk-free, it can be imagined that most people would want to hold off stuffing their mattresses with cash as long as interest rates stay only slightly negative, but it is, of course, difficult to gain clarity as to exactly where such a boundary would lie. If the banks were unwilling to introduce negative deposit rates, would they then attempt to maintain their earnings by not cutting their lending rates either, in the eventuality that the repo rate was cut to below zero per cent? There are some international experiences, albeit short-lived, of  4  BIS central bankers’ speeches  negative interest rates that can be looked at – from the euro area, Denmark and Switzerland – but how would the Swedish system react? Purchasing government bonds? Another measure with the potential to push interest rates down and counteract the excessively rapid appreciation of the krona was the purchasing of government bonds. There were significantly more comprehensive historical and international experiences of this than there were of negative interest rates.

A cautious combination of a negative repo rate and bond purchases So how have we chosen to act, and what have the results been, so far? Up to this point, we have kept to changes to the repo rate and repo rate path, and purchases of government bonds. As it has not been completely certain how these would function in practice, there has been reason to proceed cautiously. We have combined several measures over the past year to make the combined effect sufficiently great. Over a number of stages, we have cut the repo rate and/or the repo rate path, at the same time as we have announced and initiated bond purchases in amounts that have been increased in several stages (see Figure 4 and Figure 5). In addition, in our communication, we have emphasised our preparedness, if necessary, to also rapidly increase monetary policy stimulus between the ordinary monetary policy meetings held every second month. In March 2015, we did exactly this – we took a decision on new monetary policy stimulus between two ordinary meetings. The repo rate cuts have largely worked As regards the repo rate cuts, so far we have been able to observe that lending rates followed to a normal extent, while deposit rates have stopped at zero for everybody except some larger companies.
The solution is the Nash equilibrium policy setting for the four policy instruments. 14  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  14  References Aikman, D, Giese, J, Kapadia, S and McLeay, M (forthcoming), “Targeting Financial Stability: Macroprudential or Monetary Policy?” Aiyar, S, Calomiris, C and Wieladek, T (2014), “Does Macro-Prudential Regulation Leak? Evidence from a UK Policy Experiment”, Journal of Money, Credit and Banking, 46(1): 181–214 Ajello, A, Laubach, T, Lopez-Salido, D and Nakata, T (2016), “Financial Stability and Optimal Interest Rate Policy”, Finance and Economics Discussion Series 2016-067. Washington: Board of Governors of the Federal Reserve System. Berrospide, J, Correa, R, Goldberg, L, and Niepmann, F (2016) “International Banking and Cross-Border Effects of Regulation: Lessons from the United States”, Board of Governors of the Federal Reserve System International Finance Discussion Papers No. 1180. Brooke, M, Bush, O, Edwards, R, Ellis, J, Francis, B, Harimohan, R, Neiss, K and Siegert, C (2015), “Measuring the macroeconomic costs and benefits of higher UK bank capital requirements”, Bank of England Financial Stability Paper No. 35. Bush, O, ‘Keynes, Kant and Capital Flows’, The World Financial Review. Cerutti, E, Claessens, S and Laeven, L (2015) “The Use and Effectiveness of Macroprudential Policies: New Evidence”, IMF Working Paper No.15/61. Cesa-Bianchi, A, Eguren Martin, F and Thwaites, G (forthcoming), “Foreign Booms, Domestic Busts: The Global Dimension of Banking Crises” Drehmann, M, Borio, C and Tsatsaronis, K (2011), “Anchoring Countercyclical Capital Buffers: The Role of Credit Aggregates”, International Journal of Central Banking 7(4): 189–240.

With no reciprocity, although 𝜙𝑠𝐻 = −6, the foreign banks’ market share and leakage are calibrated jointly as 𝜙𝐹 𝑓  1  𝑠 ( 𝐻 (1−𝑓) = − ), a leakage of one-third, in line with the estimate of Aiyar et al (2014). And 𝑘1𝐹 = 0, so that the  𝜙𝑠  3  13  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  13  increase in resilience is proportional to the amount of domestic credit provided by domestic banks: this is set as 𝑓 = 0.11, also in line with Aiyar et al (2014). Both channels make the CCyB less effective without reciprocity. The credit leakage makes the leaning channel one-third smaller, while the assumption that resilience is lower when foreign banks hold less capital against domestic credit makes the resilience channel 11% smaller. In both the models with and without reciprocity, both countries are assumed to minimise loss functions analogous to those in appendix 2, containing only their own national objectives of inflation and output deviations, and the domestic crisis probability. 1  9)  𝐿 = (𝜋12 + 𝜆𝑦12 ) + (1 − 𝛾1 )𝛽𝐸1 𝐿2,𝑁𝐶 + 𝛾1 (1 + 𝜁)𝛽𝐸1 𝐿2,𝐶  10)  𝐿∗ = (𝜋1∗2 + 𝜆𝑦1∗2 ) + (1 − 𝛾1∗ )𝛽𝐸1 𝐿∗2,𝑁𝐶 + 𝛾1∗ (1 + 𝜁)𝛽𝐸1 𝐿∗2,𝐶  2  1 2  Domestic loss function Foreign loss function  Each policymaker takes the setting of the other’s policy as given when optimising according to their own individual loss function.