samchain/econo-pairs-v1 huggingface dataset:
A huge amount of work has already been done: the recommendations of the FSB’s Task Force on Climate-related Financial Disclosures (TCFD) provide a comprehensive and consistent basis for the voluntary disclosure of information about risks. In addition, I propose that we identify European best practices, and move gradually towards a compulsory transparency requirement in Europe, provided that two conditions are met in order to avoid overburdening financial institutions: this requirement should be based on (i) a “comply or explain” principle and on (ii) a common taxonomy with a sufficiently broad level of aggregation. France already requires by law13 that asset managers, banks and insurance companies publish information about the way they take climate change into account. On top of that, we should develop forward-looking carbon stress tests for both insurance companies and banks – what I call “the video of risks”. It is obviously a complex and difficult task, but it is essential. Today we are able to perform sensitivity analyses to ascertain the size of probable losses for financial institutions’ portfolios under a range of economic scenarios. But one of our duties in the NGFS will be to carry out additional work on two key issues: (i) how to translate climate change scenarios into economic scenarios that can be used in our stress testing frameworks, and (ii) assessing the impact of shocks on the probability of default over a much longer horizon than the usual one of one year. 2.

In my remarks today, I will address these two questions: (i) how can we better measure the long-term risks associated with climate change? (ii) and how can we develop the opportunities related to the financing of the transition? [slide 2] **  1. From physical risks to transition risks, and from a snapshot to a video Dr Shuckburg has just given an excellent presentation of the available research, which confirms 1/4  BIS central bankers' speeches  that the forces of climate change are powerful and inevitable. Physical risks – the increased frequency and severity of extreme weather events – are obviously the most visible and immediate source of risk for the financial sector. [slide 3] With 710 natural disasters in 2017, 9 we have just lived through another year of record climate turbulence. The 600 mark has been exceeded only five times, all of them in the last six years. Needless to say, the insurance sector is at the forefront in dealing with physical risks. Yet, contrary to widespread belief, if not covered by insurance, physical risks could loom large for banks as well. The lack of insurance protection when natural disasters occur, or what we call “protection gaps”, may increase credit risks for banks if it leads to suppressed economic activity and higher unemployment. Globally, protection gaps are already sizeable. 10 They could increase further, including in developed countries, if insurers increase their premiums or simply retreat from risky market segments. Physical risks should therefore be, at the very least, carefully monitored.
Real house prices in the United States have remained largely stable from the 1950s until the mid-1990s. They then rose by approximately 80 per cent and are now falling rapidly. As long as they continue to fall, household wealth will fall and the banks’ losses will rise. I shall now move on to part three of my speech, which concerns the Swedish economy. GDP growth in Sweden will be negative this year Sweden is a small, open economy. We are therefore affected when growth abroad declines. It has a rapid impact on Swedish exports. The decline in the export of goods during the fourth quarter of 2008 is the largest measured in an individual quarter. Orders in the export market have also fallen substantially and point to a continued fall in exports in coming months. Manufacturing companies are very gloomy with regard to future prospects. Both the National Institute of Economic Research’s confidence indicator for the manufacturing sector and the purchasing managers index are at all-time lows. 2  The other four are Spain 1977, Norway 1987, Finland 1991 and Japan 1992. 3  Carmen M. Reinhart, and Kenneth S. Rogoff, “Is the 2007 U.S. Subprime Crisis So Different? An International Historical Comparison”. American Economic Review Vol. 98 No. 2: 339-344. (2008). 4  Carmen M. Reinhart, and Kenneth S. Rogoff. “The Aftermath of Financial Crises.” Essay prepared for presentation at the American Economic Association in San Francisco, 3 January 2009.

For house prices the average fall in real terms is 35 per cent over a six-period and for shares it is 55 per cent over three and a half years. •  Secondly, financial crises are associated with large declines in production and employment. On average, GDP per capita falls by 9 per cent over two years and unemployment rises by an average of 7 percentage points over four years. •  Thirdly, national debt almost doubles, but not primarily as a result of the costs of recapitalising the financial system. Instead, the main causes are reduced tax income and costs for fiscal policy stimulation. Experiences from earlier financial crises thus show that they are usually followed by a prolonged period of low growth and falling employment, falling asset prices and a substantial deterioration in public finances. This time the crisis is a global one, while most of the earlier crises have been of a national or regional nature. In my opinion, this indicated at the most recent monetary policy meeting that there is a risk that the economic downturn will be more prolonged than in the main scenario and that 2010 will also be a year of weak growth in the world economy. An important condition for growth in the world to pick up again is that the situation in the world’s largest economy, the United States, stabilises and in particular that the US housing market shows an upturn.
In the area of disclosures alone, there has been extensive improvements in the quality and consistency of disclosures, making it easier to understand through the use of plain language, and adopting the various approaches to bring important disclosures to the attention of consumers. For many regulators, the use of disclosures has been particularly useful to promote positive consumer outcomes, without creating distortions that could result from more intrusive policy interventions. On enhancing further financial knowledge, more than 50 countries have accorded priority to this agenda and have implemented or designed national financial education strategies. This will gain further traction with the publication of the OECD high level principles on national strategies for financial education in 2012. It will be further reinforced with the reporting of progress made by countries in implementing their national strategies. Of significance has been improvements to better coordinate and achieve greater alignment between the financial education strategies, the financial inclusion agenda and the consumer protection regime in order to maximise the impact of the respective individual initiatives and avoid duplication so as to optimise the impact of financial education efforts over the longer term. In the area of facilitating consumer choice, initiatives have been pursued to reduce exit and switching costs so that informed consumers can easily exercise their preferences and adapt to the changing circumstances.

What we now see is a decline in the value of notes from 6% of nominal GDP in 1970 to a low point of 2.4% in the mid-1990s. Since then, there has been a stabilisation and small increase, followed by a noticeable increase over the last two years, to 3.2% of nominal GDP. We can tell a story about inflation in the UK economy to explain the long-run trend. The decline in the stock of notes in circulation relative to nominal GDP came in the high inflation period of the 1970s, running on into the early 80s. As inflation erodes the value of the currency, the incentive to hold banknotes declined markedly in a period of high inflation. Likewise, this was a period that saw a marked decline in the use of cash for wage payments. The move to an environment of low inflation has subsequently stabilised that situation. This pattern of the note issue as a percentage of nominal GDP reveals that something quite noticeable has happened over the last two years. Chart 3 focuses on this development by plotting the course of the note issue to GDP percentage over the recessions of the early 1980s and early 1990s and the current experience. The contrast of the current experience is striking.
So, in conclusion, while there are reasons to expect yields to return towards historically more normal levels at some stage, it is difficult to know when that will be and how quickly it will occur. There is no doubt that this is a challenging time for pension funds and their sponsors. Low yields reduce the scope for harnessing the magic of compound interest to provide generous future pensions at a moderate current cost. It may be tempting to conclude that the current abnormally low yields are primarily a consequence of QE, and that the right approach is just to look through the associated rise in deficits. But I hope that what I have said today has persuaded you that this may not, in fact, be the most prudent course to take. Pension funds and their sponsors may, I am afraid, have to contend with low yields for some considerable time yet. Thank you! 6  BIS central bankers’ speeches  ANNEX: EFFECT OF DISCOUNTING BY A CORPORATE BOND RATE Accounting standard FRS17 dictates that pension fund liabilities should be discounted by an investment-grade (AA) corporate bond rate, rather than the gilt yield. During the period of the financial crisis that may, however, provide a misleading impression of the position of pension funds. Corporate bond yields carry a premium over gilt yields in part because of the risk of default.

Another possibility is a shortage of high-quality safe assets,10 with countries like China accumulating reserves particularly in the form of US Treasuries. That in turn will also have increased the demand for substitutes, including the government debt of other advanced economies. But recent events in the euro area have highlighted the fact that the debt of  8  For instance, if an employer is putting aside an additional 15% of the wage bill to cover accumulating pension liabilities and the price of buying a given stream of future income rises by 20%, then he would now need to put aside an additional 3% of the wage bill to meet those obligations. 9  See Ben Bernanke (2005), “The Global Saving Glut and the US Current Account Deficit”, Sandridge Lecture, Virginia Association of Economics, Richmond, Virginia, 10 March. 10  See Ricardo Caballero, Emmanuel Farhi and Pierre-Olivier Gourinchas (2008), “An Equilibrium Model of Global Imbalances and Low Interest Rates”, American Economic Review, pp.358–393. BIS central bankers’ speeches  5  some sovereigns is not as safe as market participants thought. That has led to increased demand for the debt of those sovereigns that are still regarded as safe, including that of the United Kingdom. How long such a “safe-haven discount” persists depends not only on what happens in this country but also what happens abroad: the demand for one country’s bonds as a safe haven depends in part on how risky those of other countries are thought to be.
Moreover, we have to cope with home-brewed shocks as well. It is for these reasons that we are eager to keep an independent monetary policy. Furthermore, if markets became convinced that in the future the SNB’s actions would merely be a Xerox copy of the ECB’s monetary policy, they would rapidly force a convergence of our nominal interest rates with those of the eurozone. Our real interest rates might remain lower for a while, given our relatively large endowment of physical capital, but a tendency towards equalization would nonetheless set in. What this might mean for us is a higher inflation rate for some time, together with a collapse in asset prices and in domestic gross capital formation. A cocktail of higher interest rates and our high wage structure would be highly detrimental to our competitiveness in export markets. The third fear that was sometimes expressed, although here I must say I was rather sceptical myself, was that the euro could eventually make the Swiss franc obsolete. With many of our trading firms billing and paying their suppliers in euros, there might be a tendency for them to adopt the euro more generally for their accounting as well as for their domestic transactions. Some people even went as far as predicting that before long wages would be paid in euros. Shops, hotels and restaurants would rapidly be forced to accept euros, so that visitors from abroad would no longer see the need to convert their euros into francs.

This shock and the negative effects that it brought upon the economy and the central bank policies have been beyond comprehension. The authorities are feeling the difficulty of performing their task in the zero lower bound or very close to it. In this respect central banks have lost the traditional instruments of monetary policy and are reverting to money as the instrument of monetary policy. The shift has been significant not only in size but also in concept. The leading central banks in developed economies, the ones which set the trends, are under process of reviewing their objectives and monetary policy. Using support of research analysis and conclusions they are eventually rewriting monetary economics by giving central banks new instrument in the form of permanent use of the central bank balance sheet as a tool of monetary expansion. However, while implementation of balance-sheet strategies is easy to implement and deal with for developed countries central banks, same policies might not be easily adaptable and applicable by developing economies. Narrow and shallow capital markets, problems of financial inclusion and financial education, stressed private, public and fiscal balance-sheets and history, remind us of several potential risks that such policies can have for the highly dollarized/euroized economies of South-East Europe. Yet in the presence of current constrains faced by monetary policy we have to react and to find new ways to support the economy.
The development of functioning markets for risk capital has been an important factor behind the IT revolution, which in turn has been an important requirement for the way in which the financial markets have developed. Thanks to the new technology, capital can now be transferred in seconds from one continent to another. We have obtained a global capital market that brings together borrowers and lenders from all over the world, 24 hours a day, while new financial instruments deal with the risks arising from international trade and investments. Let me take the co-operation within the EU as an example of the changes occurring in the world today. The work on implementing the single market is aimed at tearing down barriers to the four freedoms, which entail people, goods, services and capital being able to move freely within the union. The increased competitive pressure that ensuing from the deregulation of the single market has led to major structural changes in the EU Member States' economies. The number of mergers and acquisitions on various markets has increased significantly. In the financial sector, the reduction of the number of credit institutes has continued and there are now around 7,500 institutes in the euro zone, which is 3,000 fewer than there were 15 years ago. The euro has created a basis for an integrated European market for securities. The money market has undergone a fundamental process of integration and standardisation.

The deposit market, that is to say, the market for loans without collateral, and the derivative markets were in principle fully integrated  2  BIS Review 26/2001  at the beginning of 1999. The Eurosystem's refinancing transactions have strengthened the development of cross-border transactions on the money market, while the TARGET system has enabled a balancing of liquidity within the euro zone and contributed to eliminating price differences within various segments of the money market. The stiffer competition, the increased number of counterparties for individual banks and the improved liquidity are other important structural changes that have taken place parallel to the increasing cross-border activities. On the other hand, the integration process has been much slower on the repo market and the treasury bills market. On the bond market the euro has led to an acceleration of growth. The number of outstanding bonds in private, non-financial companies have increased considerably, albeit from a low level. This increase mainly applies to the large bond loans, that were issued to finance the extensive merger and acquisition activities. However, Europe lags behind the USA, where the market for private bonds is three times as large. On this side of the Atlantic bank loans still dominate, which makes corporate borrowing more costly. Europe also lies one step behind the USA on the stock markets. However, a clear trend towards increased saving in shares can now be discerned in Europe, too. The change in the national pension systems contributes to this development.
It is impossible to benefit from past experience in gauging the impact of recent global monetary policy measures on economic activity and other fundamental variables. Although not having resorted to explicit quantitative easing in the post-crisis period eliminates some of the risks in case of Turkey, it should still be noted that the full impact of the cumulative easing of 1000 basis points since November 2008 is yet to be seen. In other words, although the baseline scenario does not envisage any policy rate hikes for an extended period, it is important to closely monitor the impact of policies to ensure a timely response to any development not envisaged within the framework I drew in my assessments above. Another possible scenario is a surge in capital inflows to emerging markets owing to the relative improvement of credit risk across these countries. Ample liquidity with low cost driven by expansionary fiscal and monetary policies on a worldwide scale, coupled with rising risk appetite, have led to an increase in the demand for financial assets of emerging markets. Current low levels of resource utilization in the Turkish economy imply that a fall in the cost of imported inputs may be reflected on to the consumer prices rapidly, suggesting that a further acceleration in capital inflows may exacerbate downward risks on inflation. The realization of such a scenario may lead to temporarily lower policy rates compared to those envisaged in the baseline scenario. Esteemed guests, The CBRT will continue to monitor fiscal policy developments closely while formulating monetary policy.

Earlier this year, MAS shared its vision of a Smart Financial Centre: a financial centre where innovation is pervasive and technology is used widely. It is about pursuing innovation and technology to: •  increase efficiency;  •  manage risks better;  •  create new opportunities; and  •  improve people’s lives. We are walking the talk. •  We formed a new FinTech & Innovation Group (or FTIG) within MAS. •  FTIG’s mission is to formulate policies and strategies to create a conducive ecosystem for innovation while fostering safety and security. BIS central bankers’ speeches  1  •  MAS has committed $ million over the next five years under the Financial Sector Technology and Innovation scheme. We have been working closely with the industry as well as reaching out to the broader “fintech” community. •  We have been talking to start-ups, software providers, and experts and practitioners in various fields of financial technology, including data analytics, cyber security, blockchains, and digital payments. •  We have learnt much from these interactions. The response from the industry has been encouraging. •  Insurers such as Aon and Metlife as well as banks such as Citibank, Credit Suisse, DBS, HSBC, and UBS have already set up innovation labs in Singapore. •  Aviva has announced plans for a “Digital Garage” and AXA for a “Data Innovation Lab” here.
The major Swedish banks fund about half of their operations on the capital markets of which a substantial part is in foreign currency. In simple terms this means that more than one of  8  BIS central bankers’ speeches  every two krona that are lent to Swedish households is ultimately governed by conditions that are set by anonymous capital managers in Sweden or elsewhere in the world. Moreover, approximately half of the banks’ funding consists of covered bonds which are partly held by foreign investors and partly by the other major Swedish banks. All in all, this means that developments on the mortgage market in Sweden are not only important to individual banks but also to the banking sector as a whole. If the providers of the banks’ market funding were to lose confidence in the banks, or in the situation on the mortgage market, the price of funding could increase and access to funding decrease. This would entail higher interest rates for households and perhaps also for companies, depending on the ability of the banks to parry such a situation. It is therefore vital that our financial system is resilient and inspires confidence, and that the development of household debt is deemed to be sustainable in the long term. We are in a situation in which the development of debt in Sweden and the Swedish mortgage market are not only matters of importance to us here in Sweden but also to international investors.

This is why the FPC has replaced its existing cyber recommendation with  5  For more detail see http://www.bankofengland.co.uk/publications/Documents/speeches/2015/speech792.pdf. BIS central bankers’ speeches  3  a recommendation targeted at completing the current set of CBEST tests and making them a regular part of supervision. The FPC has now recommended that the Bank, PRA and FCA “work with firms at the core of the UK financial system to ensure that they complete CBEST tests and adopt individual cyber resilience action plans. The Bank, PRA and FCA should also establish arrangements for CBEST tests to become one component of regular cyber resilience assessment within the UK financial system.” In response, following on from the FPC’s recommendation, the Bank will therefore: •  Seek to embed CBEST within our supervisory framework;  •  Undertake a broad, joint work programme with the FCA and HMT to enable the FPC to consider whether additional action is needed to address cyber risk. Both to improve ex ante cyber resilience in firms and ex post responsiveness; and  •  Ensure the framework for cyber resilience is both alive to the special features that cyber possesses but is also joined-up with our approach to deliver operational resilience of the sector more generally. And of course with all of this, we know that cyber knows no borders. Hence the importance of continued cooperation with our international counterparts. At the beginning of this speech, I set out the Olympian view of the threat cyber poses and its broader context i.e.