samchain/econo-pairs-v1 huggingface dataset:
This surcharge amounts to additional loss-absorbing capital of between 1.0% and 2.5% of riskweighted assets, with the specific requirement depending on the degree to which an institution is systemically important. Second, it introduces a countercyclical buffer ranging between 0.0% and 2.5% of total risk-weighted assets, to increase the system’s resilience to cyclical systemic risk. This buffer can be temporarily imposed when credit growth is judged  1  Cf. for instance Borio, C. (2012) or Schularick, M. and Taylor, A. (2012). BIS central bankers’ speeches  1  excessive. These new rules are being phased in over several years and will come into full effect in 2019.2 Regulation in Switzerland: Framework and progress so far Switzerland is well advanced in the process of introducing a new regulatory approach in line with this international framework. There was, and still is, an urgent need to proceed faster and to go beyond the global minimum standards. First, the size of Switzerland’s two major banks, Credit Suisse and UBS, relative to GDP is very large by international standards (8:1 in 2007 and 4:1 today). It is worth recalling that, back in October 2008, in order to prevent a breakdown of our financial system, the Swiss authorities had to take measures to strengthen UBS, putting a large amount of public funds – up to USD 60 billion – at considerable risk. Despite the favourable turn of events since then, we have to take all means necessary to avoid such a situation in the future.

A stable financial system cannot be based on questionable and opaque risk assessments. To regain confidence in these calculations, banks should make sure that their RWA calculations are transparent and traceable. In particular, they have to ensure that changes in RWAs over time, and differences in published RWAs between institutions, can be explained and economically accounted for. Third, the ongoing work on recovery and resolution plans should be pursued with total determination. If required for the guaranteed maintenance of systemically important functions, changes in the current organisational structure should be explored and initiated without delay. Fourth, on the regulatory side, further progress in defining the key elements of a viable resolution and recovery strategy for globally active banks is needed. In the absence of global bank insolvency legislation, this necessitates close coordination among regulators across borders. Specifically, further steps are necessary to guarantee that resolution measures – such as a bail-in – ordered by the home regulator are mutually recognised by foreign authorities. In this regard, it is encouraging that the resolution and recovery plans for our big banks are being developed in close collaboration with the foreign regulatory authorities concerned. Let me finish with some words regarding the cyclical risks. Mortgage volumes and real estate prices continue to grow at rates significantly above those justified by fundamental factors such as income and population growth. This means that the imbalances, which are already large, are increasing further.
Other scratches also need early and effective treatment to avoid becoming scars. For example, insofar as investment is being affected by post-crisis legacies, such as the debt overhang in parts of the private and public sector – the famous Fisher-Minsky-Koo channel of debt deflation – history suggests that effective deleveraging nearly always involves a combination of growing out of debt and writing down debt – which is to say, structural policies are also key.15 And action also at the EU level is crucial. Efforts to complete the Single Market, for example, would incentivise more firms to invest and grow as they have a larger market to serve and exploit economies of scale. Progress with the Capital Markets Union (CMU) would likewise help to raise productivity by facilitating capital reallocation. Conclusion So, to conclude, the evidence suggests that hysteresis as it is often understood – meaning rising structural unemployment – has not yet materialised meaningfully in our economy. We see more scratches than we see scars. And unlike “classical” hysteresis, these scratches are currently reducing price pressures, warranting our currently very accommodative monetary policy stance. We can be confident that this stance will have the desired effect. The ongoing broadening of the recovery, together with the gradual disappearance of downside risks, increases the chances that those who want to work more will be able to do so. This, in turn, will create the necessary price and wage pressures for a return of inflation towards levels closer to 2%.

Benoît Cœuré: Scars or scratches? Hysteresis in the euro area Speech by Mr Benoît Cœuré, Member of the Executive Board of the European Central Bank, at the International Center for Monetary and Banking Studies, Geneva, 19 May 2017. * * * Accompanying slides. One of the most interesting questions for policymakers to have emerged from the crisis is the strength of links between the demand and supply sides of the economy. 1The classical view – that only cyclical policies influence the former, and structural policies the latter – has been challenged in two ways: first, by the observation that long periods of weak demand can lead to rising structural unemployment and a permanently lower capital stock – the so-called hysteresis effects. And second, by corollary suggestion that stronger demand might be able to reverse such effects. These insights are not entirely new, of course. In 1986, Blanchard and Summers’ seminal “insider-outsider” model laid bare how recessions might lead to higher underlying “structural” unemployment rates even after shocks have fully dissipated. The question of hysteresis, however, received renewed interest as we have gone through the steepest collapse in demand since the Second World War, which has exposed our economies to significantly higher risks of hysteresis than in the past. And, as a consequence, policymakers are asking themselves if this should change the way they implement monetary policy. Should they, as usual, raise rates when there are signs that price pressures are building, so as to be ahead of the curve?
To avoid that mistake today, under the structural impediments scenario, the Fed should revert to a “business-as-usual” monetary policy and begin to consider removing excess accommodation before inflation rises above its target and inflation expectations start to creep unalterably upward. There is a second competing storyline – one that I refer to as the “liquidity trap scenario”. First, consider what occurs during normal times when nominal rates of interest are considerably above zero and real rates of interest are positive. If the supply of savings increased but the demand for investment remained unchanged, market forces would drive down real interest rates to some natural rate of interest that equilibrates savings and investment. This market dynamic is thwarted in the case of a liquidity trap. Here, cautious behavior holding back spending – whether it is due to risk aversion, extreme patience or deleveraging – causes the supply of savings to exceed the demand for investment even at very low interest rates. Today short-term, risk-free interest rates are close to zero and actual real rates are only modestly negative. But they are still not low enough – because short-term nominal interest rates cannot fall below zero, real rates cannot become negative enough to equilibrate savings and investment. As I weigh the evidence, I find the case for the liquidity trap scenario more compelling than one for the structural impediments scenario. My assessment has been influenced by the book titled This Time Is Different: Eight Centuries of Financial Folly3 by Carmen Reinhart and Kenneth Rogoff.

In a pre-emptive move, MAS further undertook a tightening of monetary policy in October 2007 and April 2008, even as there were heightened concerns over developments in the US economy. 7. Between April 2004 and June 2008, the $ appreciated by 12.2%. Against the $ the $ appreciated by 23.4%. The policy moves have had a clear restraining effect on CPI inflation. For example, while WTI oil prices in $ have increased by more than 70% from a year ago, domestic electricity tariffs and petrol prices rose by around 30% each. Similarly, while the IMF global food and beverage index has soared by 43% from a year ago, domestic food prices picked up by a more moderate 9%. The effects of our policy tightening will continue to restrain cost and price pressures going forward. 8. However, we cannot totally insulate ourselves from the increases in global food and oil prices. Hence, we must ensure that inflation expectations remain firmly anchored and that external price changes do not trigger second round effects. For monetary policy, our objective continues to be price stability over the medium-term. At the same time, other policy responses, as well as changes in household and business behaviour have been complementary toward this end. 9. MAS’ current monetary policy stance announced on 10 April 2008 remains appropriate given our assessment of current external economic developments. The next monetary policy statement will be released in October as scheduled. Financial stability 10.
Turning to the external sector, which remains our main source of growth, the adjustment of relative costs and prices under way in the Spanish economy, and the subsequent improvements in competitiveness, is allowing sales abroad to grow at a higher rate than that of the markets to which we export. Even if there is a rise in imports in the remainder of the year, this will provide for a strong correction of the current account balance, which will run a significant surplus this year of around 2% of GDP. In addition to achieving this improvement in competitiveness, households, firms and financial institutions are deleveraging and the Spanish economy is undertaking major reforms, furthering the fiscal consolidation drive, which must in any case continue through to 2015 but which will evidently prove easier if the recovery firms. BIS central bankers’ speeches  1  Before moving to the second part of my address, and to conclude my comments on developments in activity, I should like to refer to the 2012 results of our Central Balance Sheet Data Office, and its preliminary results for 2013, which have been published this morning. The 2012 figures illustrate the severity of the crisis that year. In 2012, Gross Value Added fell 4.5%, 3 pp more than in 2011, and the Net Profit for the year was practically zero. For 2013, however, the estimate provided by the quarterly information from the Central Balance Sheet Data Office points to a turnaround in activity and in business profits.

With the extension of this service to equity operations, a market segment that had hitherto remained on the fringes and set us apart from more developed markets has been covered. Through its intercession in each operation, acting as a buyer against the seller and a seller against the buyer, the CCP considerably facilitates the management of counterparty risk. This centralising function, which has a major bearing on post-trade operating arrangements, will be subject to most stringent regulatory requirements, in line with European legislation. Other objectives it pursues are to provide the Spanish securities market with the tools to compete on an equal footing and with the same resources as other European markets. It is scheduled to come on stream in October 2015. On the European front I should like to mention the “TARGET2-Securities” project. As you know, this project takes its name from the European payments system that came into being with the Monetary Union, and its aim is to use the TARGET 2 system for the settlement of securities operations using the accounts held by banks at central banks. Despite the ongoing development of post-trade infrastructure in Europe, an excessive level of fragmentation remains. TARGET2-Securities will considerably reduce this fragmentation, allowing cross-border securities settlement to be equated to domestic settlement in terms of costs, efficiency and safety. Moreover, it will reduce institutions’ collateral and liquidity requirements. TARGET2-Securities is the most ambitious European securities market integration project undertaken to date. It will commence operating in June 2015, when the first migration wave takes place.
But I should stress that the discussion of the MPC focuses on the relative merits of different possible explanations of what is happening in the economy, in a spirit of mutual enquiry, rather than an exchange of fixed and conflicting views. A second criticism, made by the IMF team during the recent Article IV consultation, was that, whereas the minutes explained in some detail differences of view among Committee members, the Inflation Report contained only a single projection for the inflation outlook. Again, there was some justice in this criticism, and we have responded to it. In fact, for three out of the past four Inflation Reports, there have been explicit descriptions of differences of view among Committee members about prospects for inflation. What are the challenges for the next two years? If monetary stability is to be a permanent feature of British economic life, the MPC will have to overcome several challenges in the years ahead. Two of these I would like to discuss briefly. First, how will the Committee deal with expectations that have been raised by the remarkable  BIS Review 63/1999  6  stability of inflation during its first two years? Second, how can the MPC build a constituency for low inflation? Despite the openness and transparency of the new monetary framework, the British, indeed the world, economy often moves in mysterious ways. Monetary policy is decision-making under uncertainty. That is why MPC projections are published as fan charts, not as point estimates.

But I do not expect to see too many destitute foreign exchange traders miserably wandering the streets in search of charity or menial employment because of course, as trading amongst the EMU currencies disappears, new international trading is developing in a range of currencies of leading emerging market economies. But more importantly, the advent of the euro will usher in potentially much deeper markets than exist in the individual national centres at present in a range of different money market instruments -- short-dated government and/or central bank paper, commercial bills, CDs, inter-bank deposits, commercial paper, repos, interest-rate futures, swaps, FRAs, options and a miscellany of tailor-made variants on these basic products. Markets in these products are of very varying depth and liquidity, where they exist at all, in the individual local-currency markets of the countries likely to participate in EMU. But all of these instruments are, as it happens, traded in London in the main international currencies; and with the advent of the euro, all of them will also, for the first time, be traded in the major European currency. This represents a tremendous business opportunity for banks and financial institutions with the capacity to trade these instruments and to harness them to the needs of their customers. 34. But there is a third impact on financial markets from the euro that is essentially a necessary prerequisite that must be fulfilled if the benefits from integration of the bond and money markets that I have identified are to be achieved.
Clearly, we cannot avoid all overlaps and even some differences between MAS’ regulations and exchanges’ rules in certain areas such as those relating to financial resources and business conduct requirements. This is in a way inevitable as MAS’ regulations have to cover all capital markets intermediaries regardless whether they are members of exchanges or not. 4  BIS central bankers’ speeches  Exchanges, depending on the type of products that they offer, may need to impose differentiated requirements on different members depending on the assessment of product risks and credit worthiness of their members, which may or may not be regulated by MAS. Protocols on information sharing between MAS and exchanges’ SRO units will hence be mapped out. 30. At a broader level, we believe this change will lead to greater supervisory efficiency and better system-wide risk management. While exchanges will retain their regulatory responsibilities in terms of member supervision, their resources can be concentrated on the supervision of members with significant risk exposures on their respective exchange. This can include members which are not under MAS’ oversight such as those based overseas. Market surveillance 31. The MAS on our part will be enhancing our surveillance capabilities both within and across markets. The presence of multiple exchanges, each focused on its own markets, can give rise to blind spots as each exchange may not have the complete picture of common members’ exposure and activities. There are also certain markets such as in the OTC derivatives space that are not under the direct surveillance of exchanges. 32.

It has become commonplace that shadow banking somehow exacerbated the boom, and complicated the rescue efforts of the authorities during the bust. 1 That is true. But there has been relatively little discussion about what this means for policy. We do not need to get too bogged down in defining what is meant by “banking” here. I mean it simply to refer to firms that take on-demand or highly liquid deposits, and use those liquid savings to provide term loans to households, firms and other parts of the financial system. Banks are, therefore, absolutely central to the monetary and payment system; and they are also vital to the credit system. They are leveraged; they run maturity mismatches; and their net worth is often uncertain. So they are exposed to runs, with spillovers to the rest of the system and the economy more widely. Reflecting that, they have long functioned within the terms of an established social contract with the authorities. 2 It has involved industry-financed deposit insurance (and now special resolution regimes); prudential regulation and supervision; and liquidity insurance from central banks. That regime reflects the spillovers (“negative externalities”) that flow from bank failure. But precisely because the regime aims to place a higher weight on the safety and soundness of banking than banks and their shareholders would themselves, it sets up incentives for some types of business to be booked outside the banking system.
Lenders were reducing interest rates, that is, their compensation for risk, and at the same time lending to higher risk segments of the market. They appeared to be basing this higher risk appetite on a marked fall in the rate of defaults on consumer loans over the past five years that they attributed to a structural improvement in the underlying creditworthiness of consumers since the crisis. However, the improvement in default rates also reflected the macroeconomic environment over the period of sustained employment growth and low interest rates and lenders appeared to be underestimating the losses they would incur in an economic downturn.27 The growth rate of consumer lending has fallen back, very possibly as a result of FPC and PRC action to correct this underestimation of risk. 26 27  Broadbent (2019) and Cunliffe (2016) These findings were set out in full in Bank of England (2017) 11  All speeches are available online at www.bankofengland.co.uk/speeches  11  We have in recent years seen other signs of growing risk appetite. Spreads on UK mortgages have come down noticeably over the past few years while loan to value and loan to income multiples have gone up.28 The increased risk appetite of mortgage lenders has not been matched by increased demand by house buyers. The number of mortgage transactions has remained pretty static over the past few years, one of the reasons why overall credit to households is not growing rapidly. Demand may currently be constrained by Brexit uncertainty.

Such an outcome may not be what we expect to happen or what is likely to happen but rather the worst possible case. The risk has not been generated by the financial sector. But, if it occurred, it would almost certainly lead to a correction in UK asset prices and losses for UK banks. The task of the FPC has been to ensure that such a correction, were it to occur, would not lead to a UK financial crisis. We have tested the banking system to equal and greater stresses to give us the confidence that while losses would occur, unlike 10 years ago, the system would have the capital to absorb them. We have required the banks to hold liquidity, in the currencies that they would need, to withstand a liquidity stress greater than that experienced in the financial crisis. And the Bank stands ready to provide liquidity in all major currencies. And, with other UK authorities, we have ensured that regardless of the Brexit outcome there should not be disruption to the provision of financial services in the UK by EU firms. The Financial Stability Reports of the FPC over the past 18 months have set out the actions that have been taken. The Record of the Financial Policy Committee’s February meeting, published earlier this week, makes clear the Committee’s assessment that the core of the UK financial system is resilient to, and prepared for, the wide range of risks it could face, including a worst case disorderly Brexit.