samchain/econo-pairs-v1 huggingface dataset:
After six years you can go back to the bank and take out 35 532 kroner. The question is: From whom have they taken 15 532 Norwegian kroner?” 23 Vold has called this: “Capitalism’s fundamental mystique – how a krone, by lying idle for a period of time, gives birth to a 10-øre coin”. The poem is of course a few years old – both 10-øre coins and an interest rate of 10 per cent (the rate in the poem) belong to the past. A krone that yields a return does not lie idle, however. It represents resources used to build production capacity. The 10 øre is value added generated when capital is put to work. When our oil revenues are invested as financial assets abroad, we are buying a share of future global value added, which can subsequently be brought home and put to good use here. As an investor, the oil fund in principle faces two alternatives: Should the fund be an owner by investing in equities, or provide loans to companies and governments by investing in bonds? The return in both cases essentially depends on developments in global trade and industry, on the world’s economic future. Even our loans to governments depend on the success or failure of businesses since governments rely on tax revenues. When we provide loans – by buying bonds – the borrower is obliged to pay us interest at fixed intervals and repay the principal at maturity.

Sachs established an  30  For more on ownership strategies, see the NBIM website: http://www.nbim.no/en/Investments/ownershipstrategies/  31  For more about the UN guidelines, see “Global Compact”: http://www.unglobalcompact.org/. For more on the OECD guidelines, see: http://www.oecd.org/topic/0,3699,en_2649_37439_1_1_1_1_37439,00.html  32  South Africa received NOK 149.5 million in development assistance from Norway in 2010. See Norad website http://www.norad.no/en/tools-and-publications/norwegian-aid-statistics  BIS central bankers’ speeches  9  institute where advanced mathematical methods were applied to study the relationship between the position of the stars and the fates of human beings. 33 Collett was more down-toearth. He studied new methods of crop cultivation and was a keen supporter of the cultivation of potatoes here in South-Eastern Norway. 34 As a contributor to sustainable growth, we would have to say that Collett was closer to the mark than Sachs. Norway’s proximity to valuable natural resources has created substantial opportunities. New technology and new oil finds are still increasing the value of our oil wealth. Two North Sea fields where oil and gas were recently discovered, Galtvort (Hogwarts) and Gygrid (Hagrid), have been given names from the Norwegian version of Harry Potter. One of the books features the lucky potion Felix Felicis. This magical potion is difficult to make. The consequences can be catastrophic if the ingredients are mixed incorrectly. But if mixed correctly, the drinker will succeed in all that he undertakes. The potion also has some highly detrimental side-effects. If taken in excess, it may cause giddiness, recklessness and dangerous overconfidence.
The need for this involvement is heightened by the entry into force in 2018 of the new standard (IFRS 9) under which banks will switch from using the concept of incurred loss to that of expected loss in order to calculate the credit portfolio provision. This standard is undoubtedly an improvement on the current situation, since it enhances the measurement of the risks of loans and receivables. At the same time, it significantly increases the complexity of calculating provisions and, thus, increases the risk of heterogeneous application across banks, which is something the supervisor should be aiming to mitigate. The work under way in the Basel Committee on this matter is therefore very timely. My comments so far imply that there are in practice significant obstacles to satisfying the legitimate expectations that a rigorous and granular supervision will help moderate the intensity of the regulatory changes needed to promote financial stability. BIS central bankers’ speeches  3  The regulatory frameworks in force and different supervisory cultures, along with the difficulty of becoming more involved in accounting practices, often place considerable limits on the intensity of supervision attainable. This explains why the actions of the authorities to prevent financial crises largely rest on the definition of clear and demanding prudential standards to underpin the work of supervisors.

It is nevertheless true that the implementation of Basel Pillar 2 on the basis of the regular supervisory review exercises has somewhat changed the situation. Pillar 2 allows specific requirements to be made of each bank on the basis of its risk profile so as to cover aspects not contained in Pillar 1 (minimum regulatory capital ratios). In that way the supervisor can regulate solvency requirements by adjusting them to each bank’s situation, thereby  BIS central bankers’ speeches  1  extending the supervisor’s discretion and reinforcing its role, while reducing commensurately the relative significance of the general solvency requirements set in the regulations. Likewise, the inclusion of stress tests as a supervisory tool extends the supervisor’s capacity to impose capital requirements or other constraints on banks when this is necessary to withstand adverse scenarios, even if such scenarios are rather unlikely. Once again, this tool broadens the weight of supervisory action. That said, in order to optimise the scope of supervision, supplementary instruments – that are not always available in accordance with the prudential regulations in force – are needed. For instance, not in all jurisdictions must the supervisor expressly authorise the eligibility of certain capital instruments, the acquisition of qualifying holdings in other financial institutions or dividend pay-outs charged to reserves. Above all, effective supervision should occasionally be based on discretionary actions rather than mere application of the instruments expressly provided for under the regulations.
However, ICAP, the FFO publisher, did not consider it to be a financial benchmark and did not calculate it as such, which raised questions about the FFO’s suitability to be used in such a manner. The TMPG identified this issue during its work on financial benchmarks and encouraged industry groups to examine possible alternatives to the FFO. This led the Securities Industry and Financial Markets Association (SIFMA) and the Risk Management Association (RMA) to jointly recommend that market participants use the overnight bank funding rate, a rate more consistent with international best practice recommendations. See SIFMA’s and RMA’s joint announcement here and the TMPG’s statement of support here. 17  The following year the TMPG was established and issued its first set of best practices, with several recommendations to improve the clearing and settlement processes to alleviate fails. See here. BIS central bankers’ speeches  5  $ billion per day. About a year following implementation of the fails charge, fails declined to only $ billion per day. 18 Best practices can serve as a tool by which control functions, such as compliance, audit, and legal, can test their firms’ procedures and activities against affirmed standards of best practice. The standards can act as a measuring stick that, along with applicable law, regulations, and supervisory expectations, encourages continuous improvement of front, middle, and back offices. For example, the TMPG has a series of practices directed at managing large positions with care.

The central bank of the Netherlands – De Nederlandsche Bank – has developed new approaches for the supervision of corporate culture and decisionmaking. 21  The MPG is working with the BIS FXWG to develop market-based adherence mechanisms for the FX Global Code. 6  BIS central bankers’ speeches  of market participants as we develop best practices. This is to ensure that the practices reflect all relevant segments of the market and to promote buy-in and thus foster their adoption. As I mentioned before, both the TMPG and the FXC are expanding their membership such that a range of market participants feels vested in their missions. In addition, we engage with other sectors of the marketplace, such as trade associations and infrastructure providers, to educate them about best practices that have been developed and facilitate their potential adoption of aspects of them. When central banks operate in the markets ourselves, we expect the best practices to apply. This has two aspects. First, we align our own practices to the best practices, except where it would inhibit our policy functions. As a corollary, we expect those institutions that choose to become our counterparties to comply with the best practices as well, so that when we transact, we do so with the confidence that our counterparties are adhering to these standards of behavior. Finally, we keep supervisors, regulators and other official sector bodies, inside and outside our four walls, abreast of the work of our committees.
But it must be clear that beyond regulators and central banks, the private sector has also a key role to play to ensure that the digitalisation of finance indeed brings about the efficiency benefits it is expected to deliver without jeopardizing the stability of our financial system. From that perspective I would like to underline the strategic importance of the European Payments Initiative. 3/4  BIS central bankers' speeches  The EPI is currently the only project aiming to offer an integrated pan-European payment solution with a common brand, and not based on the interoperability of heterogeneous domestic solutions. I regret that part of the European banking community has prioritised other interests over a common, lasting project. This shrinking of the number of shareholders has inevitable consequences on the capacity of the initiative, leading EPI to give up on a European card scheme, and leaving this field open for international schemes in the short and medium term. On the other hand, we can also acknowledge that EPI has decided to invest in the next generation of payments: mobile, account-to-account and instant payments. Eight of the first ten European banks and the two largest European payment processors are part of the project. We therefore hope that the launch of the first EPI solutions, expected for the beginning of 2023, will convince other banking communities to join this new digital pan-European solution, which stands as a great chance for the European market to build the independence of the European payments market for the future.

Achieving a complete and consistent macroprudential safety net, in addition to completing the microprudential one, is also desirable in the current context to enable banks to absorb further shocks while maintaining the provision of key services. This should take several avenues, ranging from countercyclical buffers, to be set at 0.5 % in France as of 2023, to borrower based measures. In this regard, there is clearly a need to act across Europe with regards to the buoyancy of the residential real estate market. In France, the macroprudential authority has put in place since 2019 a framework to regulate lending standards in the residential real estate market by imposing a debt-service-to-income ratio 2/4  BIS central bankers' speeches  cap of 35% and a maturity limit of 25 years on new housing loans. Such measures together with the prominence of fixed rates in France, has strengthened households’ financial resilience against any potential increase in market interest rate and any related rise in loan maturity. 3.Challenges associated with climate change and digitalisation of finance The challenges brought forward or amplified by the war in Ukraine should not blind us to more structural vulnerabilities, which the war in Ukraine has not made disappear. What I have in mind here is the transition to a sustainable economy and the digitalisation of finance. To conclude my remarks I would like to say a few words about the role we can play as supervisors and central banks to help banks address those two challenges.
Proportion of actual and expected interest rate changes occurring in Inflation Report  (A) Actual changes Percentage of interest rate changes 100 90 80 70 60 50 40 one-third 30 20 10 0 1997-2000 2001-present whole period IR months Not IR months  (B) Expected changes Percentage of interest rate changes 100 90 80 70 60 50 40 one-third 30 20 10 0 1997-2000 2001-present whole period IR months Not IR months  What – if anything – should be read into the MPCs apparent change in behaviour? On the face of it, the evidence might suggest that the re-evaluation of the outlook undertaken during the quarterly forecast has become more influential. But there are a number of possible explanations. Most obviously, it could be a reflection of the shocks that have come along in the last 4 years. These may have required fewer changes in the policy rate than in the pre-2001 period. Alternatively, the required adjustments in rates might have been bigger in the early days, and if the MPC had an inclination to change rates in small steps, perhaps because it had good reasons for proceeding cautiously, then larger desired adjustments might have required more frequent changes: of the 16 changes in the first period, 7 were back-to-back, while in the second period, only 4 out of the 14 changes happened in consecutive meetings. The turnover in the Committee’s membership since 2000 might provide a different kind of explanation.

BIS Review 16/2004  5  Growth in the Norwegian economy is projected to pick up this year, primarily fuelled by higher private consumption. There are signs of high productivity growth, which means that companies can produce more with the same workforce. The high cost level in Norway and strong competition will probably induce many industries to continue reducing costs and rationalising. Against this background, the output potential of the Norwegian economy is assumed to increase more than normal in 2004. As demand edges up, enterprises’ profitability will improve. At the same time, they may meet capacity constraints. Investment is therefore expected to pick up gradually and become a more important driving force behind the upturn. Mainland GDP growth is projected to pick up markedly this year and remain relatively high in 2005 and 2006. Thank you for your attention. 6  BIS Review 16/2004
Our assessment in May was that economic growth in the United States would slow at the end of this year, chiefly due to the assumption that fiscal policy would be less expansionary. Coupled with gradually rising interest rates, it was judged that this would dampen private consumption and housing investment somewhat. Despite the slowdown, however, the economic outlook was expected to be mainly bright over the coming years. Data for the second quarter indicates that private consumption has slowed somewhat earlier than anticipated. It is possible that this is partly due to the high oil price, which has lowered households’ real incomes. Even though more recent data from the United States has given a mixed impression, I think there is reason to be somewhat less optimistic about developments in the United States in the period ahead than indicated in the assessment in May. Growth this year of almost 4½ per cent now appears likely. In 2005 and 2006 there is reason today to expect about 3½ per cent annual GDP growth. Growth in the euro area was judged in the latest Inflation Report to increase gradually this year following a very weak development in 2003. New information during the summer broadly confirms this outlook. In Germany it is mainly net exports that are contributing positively to GDP growth, while in other countries, notably in France and Spain, it seems to be domestic demand that is growing relatively quickly.

Today, low-inflation policies seem to enjoy high credibility in most countries, which is indicated in part by the fact that the rise in the oil price at least so far has had small effects on inflation expectations. The risk of an oil price rise spreading to wages and other prices in the economy is therefore also likely to be low. Furthermore, in the case of Sweden it should be added that inflation is rising from a low level and that agreements in the labour market have been settled for 2005 and 2006, further reducing the risk of contagion effects via the jobs market. To sum up: the fact that the increase in the oil price is partly a demand-driven phenomenon, that the dependency on oil has decreased and that inflation-targeting regimes enjoy high credibility suggests that the higher oil price should mainly be reflected in a temporary, limited rise in inflation and that the effects on the real economy should be fairly small. If this is correct, the general economic and inflationary developments are more significant for monetary policy than developments in the oil price. This brings me to a discussion of the broad outlook for the Swedish economy in the years ahead. Economic activity in Sweden Despite the Riksbank’s relatively optimistic outlook for the Swedish economy compared with other forecasters, we have gradually revised up our forecasts in the past year.
Growth in lending to the enterprise sector has slowed recently while demand for credit in the household sector has remained stable. Both households and mainland enterprises have increased their debt burden markedly in recent years. If credit to the household sector continues to grow through next year, household gross debt is expected to increase to more than 140 per cent of disposable income by the end of next year. Even with such high debt, the interest rate will have to rise by more than 3 percentage points for gross 8 interest expenses to constitute the same burden, measured as a percentage of income as before the banking crisis, when it was around 10 per cent. This illustrates that we have a long way to go before households are as vulnerable as they were then, but no one wants us to come that far either. BIS Review 86/2001  7  High credit growth has resulted in a falling core capital ratio. However, capital adequacy ratios at many savings banks remain high. Bank lending has increased more than deposits, and in the last few years banks have become more dependent on money and capital markets. Small and medium-sized banks have substantially increased their borrowing from other credit institutions. Short-term foreign debt has also risen. Although the decline in stock markets appears to have improved the financing situation in recent months, other forms of saving are expected to compete strongly with bank deposits.

Emerging Market Spreads: Then Versus Now. IMF Working Paper. BIS Review 86/2001  3  The next financial bubble occurred during World War I. During the first half of the war, in particular, there was strong growth in the Norwegian economy. This provided the foundation for a boom that is unparalleled in history. Banks’ lending rose sharply. The build-up of risk in the financial system was far more pronounced than in previous episodes. A strong inflow of gold led to uncontrolled growth in the money supply and inflation at the beginning of the war. In addition, the constraints implicit in the gold standard gradually broke down, and the money supply expanded sharply. The banking crisis came in the wake of a cyclical downturn in the early 1920s and can largely be attributed to the build-up of risk 5 during the boom period. The bulk of bank losses occurred before the introduction of parity policy. The authorities’ response In response to the extensive banking crises in the interwar period, a financial safety net for banks was introduced in most developed countries. In Norway, guarantee funds were introduced for savings banks in 1921 and for commercial banks in 1938. There was also a need for separate rules on public administration of banks. These arrangements helped to dampen the effects of the crises and prevent new ones. Commercial banks were subject to separate legislation and supervised by the newly established Banking and Savings Bank Inspectorate.
It may appear that wages for white-collar workers are first increased in line with that of other groups and then supplemented by individual increases based on performance and profits. The overall rise in wages does not seem to be adapted to the situation now faced by many enterprises or to an ample supply of labour. The system for determining these groups’ wages may be an unnecessary source of cost increases for enterprises and public entities. Last year’s wage settlements resulted in wide differences in pay increases across different groups. This may give rise to renewed tension between occupational groups and new wage spirals. Because substantial pay increases negotiated in 2002 will take effect in 2003, wage growth will also be high this year even without any new generous pay increases. It may take time and be very costly for business and public entities to resolve the problems caused by last year’s wage settlements. It will only be well into 2004 before we can assess how high the unemployment rate will be in this business cycle. One of the richest countries in the world? Norway’s position as petroleum exporter may have influenced wage developments and affected household optimism and eagerness to borrow. The risk of job losses and a rise in unemployment may have been underestimated. Cash flows from the petroleum sector may give rise to the perception that Norway is one of the absolute richest countries in the world. Chart 13. GDP per capita in 2000.

Now that this certainty is gone, debt sustainability may well rest on a more fragile and volatile basis. As we all know, debt sustainability depends on three variables: the primary surplus, the growth rate and the interest rate. The relationship between those three parameters and debt can be expressed through a simple equation, the famous “unpleasant arithmetic”. Assessing sustainability seems therefore relatively straightforward. Many economists and market analysts on sovereign European debt simply assume low growth and high interest rates forever in peripheral countries – which enables them to conclude categorically that debt is not sustainable. A (slightly) more sophisticated and developed version of that story takes account of the impossibility, for Euro economies, to depreciate their exchange rates, therefore locking them into a low competitiveness and no growth equilibrium. I see three major problems with those analyses. First, the competitiveness story does not hold. Take the UK, for instance. Its effective real exchange rate has depreciated by 23% over the last four years. And its exports have grown by a healthy 15%, in nominal terms, over the first six months of 2011. But Italy, Spain and Greece have done even better, with exports growing respectively by 16%, 19% and 37% during that same period, and, of course, no exchange rate adjustment. Equating competitiveness with exchange rate depreciation is therefore overly simplistic. This does not mean that efforts to improve competitiveness in many parts of the euro area should not be strengthened.