samchain/econo-pairs-v1 huggingface dataset:
Recently, as prices have risen so much, it has become increasingly common for households to use the lower loan-to-value ratio to take out new loans on their housing. The new loan can then be used for further consumption, which stimulates activity in the economy. Correspondingly, falling property prices can contribute to subduing demand in the economy. If property prices were to fall heavily during an economic downturn, this could also lead to large loan losses for the banks and further aggravate the slowdown. The property market can be divided into two markets; a market for commercial property and a market for single-family dwellings and tenant-owned apartments. Today I intend to discuss both markets, but I shall begin with the commercial property market. After that I will talk about why housing prices have risen so much in recent years. Finally, I will talk about my views on future price developments. Commercial property The commercial property market has a direct bearing on financial stability. This is because property companies are the banks' largest individual borrowers. Around 20 per cent of the four major Swedish bank’s lending to the general public is to companies managing commercial properties, for instance, office premises or retail premises. The value of these properties is often pledged as collateral for the loans. When commercial property prices fell at the beginning of the 1990s, several property companies experienced problems paying their loan costs, which caused major losses for the banks.

I wish more people had dared to work on disruptions of energy supply (or global value chains) a few years ago. Likewise, the latest report of the Working Group III of the IPCC (dedicated to climate mitigation) contains a chapter (#5) that places great emphasis on the need for sufficiency and behavioral changes, and it discusses the literature exploring how we could thrive as societies and individuals without depending so much on GDP growth. Professor Dasgupta also invites us not only to acknowledge that GDP growth will be limited at some point even if you are a techno-optimist, but also to think about new approaches to economic value and social well-being that do not rely on GDP. All this begs us, and especially the young scholars present today, to ask what will be essential in 5 to 10 years from now. In addition to this need to promote new approaches, it is urgent to act. 9  Page 10 sur 12 We cannot afford to lose time or to wait until we have elaborated “perfect” tools. We need to seek how transformative changes can be implemented as soon as possible and if needed, develop and revise our scenarios, metrics, approaches. The responsibility to revert nature loss falls first and foremost with governments, and no central bank – above all in a democracy - can replace them.
In Figure 6, we can also see that the sum of squares for the output-gap forecast is much smaller than for the inflation-gap forecast. A higher repo rate path should have been able to push down both the inflation forecast and the forecast for resource utilisation. This would have reduced the sum of squares for the inflation-gap forecast but not increased the sum of squares for the output-gap forecast by very much. This would move the point for February 2008 in Figure 6 to the left and somewhat upwards. Unless the iso-loss line for the forecast loss function is very flat, that is unless the weight given to the stabilisation of resource utilisation is very high, this should give rise to a lower loss and thus to a more well-balanced monetary policy. The main scenario in February 2008 would thus be an example of a monetary policy that was not well balanced. However, in February 2008 the Riksbank  8  This can be done using the methods developed in Adolfson, Malin, Stefan Laséen, Jesper Lindé and Lars E.O. Svensson (2008), "Optimal Monetary Policy in an Operational Medium-Sized DSGE Model", www.larseosvensson.net. BIS Review 29/2009  9  attached more importance to the CPIX forecast than to the CPI forecast. The CPIX forecast gives rise to much smaller deviations from the target than the CPI forecast; see Figure 7. With regard to the CPIX forecast, monetary policy in February 2008 was better balanced.

The ideal, but normally unattainable, situation would be an iso-loss line at the origin, which represents a loss of zero and means that the forecast for inflation is exactly on target and that the forecast for resource utilisation is exactly equal to the normal level. However, the modified Taylor curve shows the minimum sums of squares that are possible on each decision-making occasion. The best monetary policy therefore entails selecting a point on the Taylor curve so that the iso-loss line for the loss function is as close to origin as possible. This is the point at which the iso-loss line is a tangent to the Taylor curve. Figure 3 shows an iso-loss line that is a tangent to the Taylor curve at point B. For the given lambda, which determines the slope of the iso-loss lines, this point thus represents a well-balanced monetary policy. As I have emphasised, the position of the Taylor curve depends on the initial state of the economy at the time the decision is made. In a situation in which it is more difficult to stabilise resource utilisation, the Taylor curve will be closer to the vertical axis than to the horizontal axis, for example like the dashed curve above point A.
While a stronger alignment with actual economic risk is necessary, it is also important that the new requirements do not imply excessive procyclicality. When I speak of “pro-cyclicality”, I am referring to the interactions between the financial and real sectors of the economy, which tend to be mutually reinforcing and to amplify business cycle fluctuations. Just as a period of economic growth will tend to be accompanied by excessive risk-taking on the part of financial institutions, strong credit growth, asset price bubbles and, ultimately, the building-up of systemic risks, a strong contraction in economic activity may lead to a marked slowdown in financial flows, including credit, which hinders the recovery. Pro-cyclicality implies that capital requirements are loose  6  BIS Review 129/2009  in a boom, allowing banks to lend more in relation to their capital, while they are tight in a downturn, which induces banks to cut back lending to the private sector even further than they would in the absence of these requirements. While these mechanisms are to some extent justified by the different degrees of risk prevailing in the different phases of the business cycle, it is important that they do not lead to the excessive effects I just described. The pro-cyclical impact of regulatory capital requirements is currently being analysed by the relevant authorities, including the ECB. These assessments could provide a basis for developing an appropriate counter-cyclical buffering mechanism, which is a precondition for enhancing financial stability over the medium to long term.

Looking at just the past four or five years, there is no doubt that certain laws of economics have been stretched to their limits and, in order to convince outsiders that the stakes have not been set too high, we have had to insist – and rightly so, I hope – that Iceland’s economic environment has various advantages that are not immediately obvious to those who are accustomed to operating in larger and more restrictive conditions. Here there is great flexibility, official measures are very transparent and channels of communication are shorter, which enables easier decision-making so that households, businesses and the authorities are quicker to respond to economic incentives or challenges than is the case elsewhere. To give you all a more complex and interesting topic to discuss at a conference such as this, the government itself promoted a number of measures that will benefit Iceland and its people in the long run. However, their timing and scope may have been more questionable. Thus the government itself was mostly responsible for attracting the largest single investment that has ever been made in Iceland, to which the state-owned power company, Landsvirkjun, had to respond by matching it with an investment of its own on the same scale. The inflow of capital was enormous.
The results showed that banks’ risk-weighted assets differ to an extent that goes well beyond what can be explained by business models and historical experiences. If we just take the banking-book results, two banks with exactly the same assets could report capital ratios that differ by as much as 4 percentage points. The potential for differences this wide, particularly as they are derived from only a part of a bank’s business, weakens confidence in the measurement of bank capital. Of course, this was not a total surprise. It was a reflection of what I mentioned earlier; that internallymodelled risk weights lead to capital not keeping pace with asset expansion. This has undermined the confidence in banks and in the credibility of the whole concept of banks’ internally-modelled risk weights. Ensuring consistency in the implementation of risk-based capital standards will therefore be a key factor in restoring confidence in banks. The Committee is thus assessing bank capital ratios with a view to ensuring that they appropriately reflect the risks that banks face. There should be “truth in advertising” for the regulatory ratios that banks present. To achieve this, the regulatory framework needs to deliver readily comprehensible and comparable outcomes. In my view, these assessments, both the jurisdictional and the thematic that compares risk-weighted assets, are absolutely vital for achieving our goals. This will be an important focus for the Committee in the coming years. I would now like to take a step further and focus on the link between implementation and how the system should be calibrated.

It is also standard procedure that new regulations are subject to industry consultation and in many cases additional discussions also take place with the industry itself, as well as with investors, to avoid unintended consequences. In this context, however, let me remind us all that the reactions we get from the banking industry are sometimes slightly biased, if I dare say so. A telling example is the lobbying effort during the design of the Basel II framework. As part of that work, in 2003 the Committee consulted on a new securitisation framework, which, with the benefit of hindsight, turned out to be very weak. Yet the comments from the industry on the proposed securitisation framework were in general quite alarming. Allow me to quote just a couple of the replies to the consultation proposal that the Committee received (all of which are publicly available): •  One bank wrote: “The prescribed risk weightings for securitisation exposure(s)…result in excessive risk weights compared to the economic risks of securitisation tranches, particularly for retail and mortgage portfolios.” – This particular bank happened to incur $ billion in losses from CDOs during the crisis.5  •  Another bank wrote: “If adopted, the current proposal for securitisation will materially impair the ability of banks to distribute risk from their own balance sheets into the  2  Calculations of costs are based on Laeven, L and F Valencia (2013) using data from the banking crisis database and calculations of the BIS and the Riksbank.
BIS central bankers’ speeches  Besides these fundamental goals, Banking Union also involves two practical aspects of more immediate concern that I will now address: (i) the repairing of banks’ balance sheets to unclog the impaired credit channel and consolidate the on-going mild economic recovery; (ii) the reduction of the bank-sovereign loop in order to further mitigate the remaining financial fragmentation6. I will complete my remarks by addressing the role of the SRM as the necessary complement to the SSM in the Banking Union and finally, by dwelling upon the broader implications of Banking Union for European Integration. I will only briefly touch upon the SSM as my colleague Danièle Nouy will elaborate on SSM issues during her speech later today. Bank recapitalisation and the economic recovery In the past few years, one could hear many voices urging European policy makers to repair the balance sheets of banks so that these could again lend to the real economy and jump start GDP growth. There will be no growth without finance, the narrative goes. In this vein, the fact that the U.S. has returned to robust economic growth faster than Europe has been, to a large degree, attributed to policy-makers acting quickly to repair the balance sheets of U.S. banks. This narrative, while intuitively compelling, is missing two crucial points. The first is that euro area bank balance-sheet repair has started for some time already.

2  Holthausen, C. and T. Ronde (2004): “Cooperation in international banking supervision”, ECB Working Paper 245. 3  On financial stability as a public good, see for instance Beck et al (2010): Bailing out the Banks: Reconciling Stability and Competition An analysis of state-supported schemes for financial institutions. 4  Banking union and the future of banking, speech by Vítor Constâncio, Vice-President of the ECB, at the IIEA Conference on “The Future of Banking in Europe”, Dublin, 2 December 2013; Towards the Banking Union, speech by Vítor Constâncio, Vice-President of the ECB, at the 2nd FIN-FSA Conference on EU Regulation and Supervision “Banking and Supervision under Transformation” organised by the Financial Supervisory  BIS central bankers’ speeches  1  developed before the crisis. Without unified supervision, it was impossible to contain the build-up of such imbalances in the pre-crisis period. National supervisors had to respect the single market rules and lacked the macro-prudential tools to offset the effects of large capital inflows. As I have often underlined, private debt intermediated by the banks, more than public indebtedness, was at the heart of developments in peripheral countries.5 By introducing supervision at the European level, the Banking Union now offers a possibility to better pre-empt such developments in the future – and therefore to better protect the real economy and financial stability in the whole area. A third objective of the Banking Union is the contribution it can provide to financial integration, by separating banks’ robustness from sovereigns and consequently reduce markets’ fragmentation.
As head of the Hong Kong Monetary Authority I have repeatedly been asking our community to stick it out. We have seen downward adjustments in asset markets of about 50% in less than twelve months. While not taking a view as to whether BIS Review 85/1998  -5-  such adjustments are adequate in the circumstances, we can do without the excessive and destabilizing interest rate volatility brought about by market manipulation. We can do without what is now clearly proven to be the excessive interest rate premium brought about by the continuous presence of the market predators. We can do without the market overshooting that many of our neighbouring economies have been made to suffer. We can do without confidence being undermined by the greed of those that are intent only on making profits at the expense of our people. We have the wherewithal to tackle the situation and we did so decisively. The third accusation is that we have dangerously departed from the currency board discipline and ventured into discretionary monetary management. We have not. And without bothering you with too much technical detail, the measures introduced recently have the effect of strengthening the currency board arrangements of Hong Kong rather than eroding them. There has been much confusion about this matter, stemming from the somewhat academic debate as to whether a currency board should also be responsible for the provision of liquidity to the banking system that involves an increase in the monetary base.

At the onset of the crisis, governments along with financial regulators have deployed sizeable stimulus packages and various assistance programmes in order to contain the crisis and stabilise the economy. This includes addressing demand and supply disruptions, maintaining cash flows and keeping workers employed. In Malaysia, the total stimulus package amounted to USD 73.55 billion (RM3056 billion) with an additional fiscal injection by the government totalling 1/4  BIS central bankers' speeches  RM45 billion. As at September 2020, a total of 2.63 million workers and 321,000 employers had benefitted from the Wage Subsidy Programme, involving an expenditure of RM10.4 billion. To provide further stimulus to the economy, the Bank has reduced the overnight policy rate (OPR) by a cumulative 125 basis points (from 3.00% to 1.75%) this year, alongside reduction in the statutory reserve requirement by 100 basis points (from 3.00% to 2.00%). The reduction in the OPR is intended to provide additional policy stimulus to accelerate the pace of economic recovery. The financial industry, including Islamic financial institutions, also lent support to their borrowers and customers. In the first half of 2020, a total of RM120 billion7 was disbursed in lending/ financing to SMEs, with more accounts being approved8 in aggregate in 2020 compared to the same period in previous years. Islamic financial institutions and related associations have been actively educating and reaching out to affected borrowers about the financial assistance programmes available in response to the pandemic.
Only towards the end of that decade, with first a Labour and then a Conservative Government recognising that the control of inflation was the first step towards any semblance of a coherent macroeconomic policy, did the transition from the Great Inflation to the Great Stability begin. But the first steps were faltering. It took two painful recessions and sterling’s exit from the Exchange Rate Mechanism in September 1992 to reach the goal of low inflation. Even then, the long-term commitment of the United Kingdom to low inflation was not fully believed by financial markets. Granting independence to the Bank of England was the dramatic constitutional change that convinced financial markets of the United Kingdom’s conversion to stability as the basis of macroeconomic policy. Next Sunday is the tenth anniversary of the historic announcement on the morning of Tuesday 6 May 1997 that the Bank of England would be granted independence. Although that decision was both unexpected and far-reaching, we had been preparing to implement the manifesto commitment to introduce a monetary policy committee to help the Bank formulate its advice to the Chancellor in the context of the previous regime, in which the Chancellor decided on the level of interest rates following a meeting with the Governor. On the very day that Gordon Brown and Ed Balls entered the Treasury carrying a draft letter to the Governor setting out proposals for Bank of England independence, the Bank completed a paper for the incoming team setting out proposals for how an advisory committee might operate.

3 Nationally Determined Contributions. 3/3  BIS central bankers' speeches
This will reduce barriers to entry by making it easier for third party providers to ‘plug into’ the banks’ systems to manage customers’ accounts on their behalf. Figure 1: Impact of reforms  The reforms are designed to increase innovation, competition and security in payments and banking services – to give us better information, more competitive pricing and new services in the use of the 97% of our money provided by the private banking system. They pave the way for improved and more secure smartphone apps, including the so-called ‘aggregators’ that aim to help customers shop around and switch providers of financial services frictionlessly. 15  15  The energy market is sometimes cited as a possible comparator for consumer switching. In that market, five and a half million customers in the UK switched provider in 2017. 10  All speeches are available online at www.bankofengland.co.uk/speeches  10  Just as many of us have come to use our smartphones as a single tool for things that we used to do over multiple devices, so PSD2 and Open Banking could, at least in theory, enable apps that centralise our personal financial affairs, offer us advice on how we might more efficiently manage our finances (for example, by recommending that more money could go into a savings account, or rival bank that is offering better interest).

The first is that these claims are denominated in Sterling, the ‘unit of account’ in the UK, the common measuring stick of economic value that we all accept, that is governed by the Bank of England under the authority of Parliament. The Bank’s Monetary Policy Committee is charged with ensuring the stability of the currency’s value in terms of what it can buy. The second is that the private banks that hold our transactional accounts (i.e. take deposits) and create money by issuing claims on themselves, have to operate within a comprehensive legal and regulatory framework – supervised by the Bank of England and the FCA. This framework itself has been greatly strengthened since the financial crisis. It is designed to ensure that the banks that are authorised to take deposits and issue claims on themselves in return, are robust and can absorb losses. They have access to the lending facilities of the Bank of England to meet any shortages of liquidity. Up to £ of deposits are protected by a statutory deposit guarantee scheme paid for by the banking industry. Banks are also now subject to ‘resolution’ requirements to ensure that in the unlikely event of failure they can be stabilised and subsequently broken up, sold or wound down to the degree necessary while protecting depositors’ ability to make and receive payments – and without requiring taxpayer money. The payment systems through which claims on private banks are exchanged, are likewise supervised by the Bank of England.