samchain/econo-pairs-v1 huggingface dataset:
The good news is that with the rise of big data and new technologies, authorities have the capacity to achieve what was not possible before to keep a pulse on developments affecting the financial system. Second, authorities must continue to develop and deepen their understanding of risk transmission. Approaches to quantify the immediate, direct impact on institutional resilience are now reasonably well developed. However, further work remains in mapping out the second and higher order effects on the broader financial system and economy. Authorities need to continue pushing the envelope to advance the development of more holistic approaches to systemic risk assessments. This needs to be able to capture propagation channels and feedback loops not just among entities within the financial system, but also across the domestic and global economy. An understanding of structural changes driving such interlinkages will become increasingly critical. Third, authorities must have a broad policy toolkit for responding to financial stability risks. In recent years, central banks and other authorities responsible for financial stability have had their mandates clarified and powers strengthened for this purpose. This is however by no means assured in many other countries where financial stability authorities continue to face significant limitations in their ability to act, in particular, during a crisis. In Malaysia, the enactment of new central bank legislation in 2009 accorded Bank Negara Malaysia with strengthened surveillance powers, along with broad powers to implement measures to avert risks to financial stability.

With that in mind, I would like to suggest four strategic priorities for financial stability authorities as we navigate an uncertain future. First, authorities need to remain vigilant. While the global financial system is now on a stronger footing, the IMF reminded us that near-term risks to global financial stability have risen modestly, while medium term risks remain elevated. Emerging economies face mounting pressures that continue to see more volatile capital flows. Tightening financial conditions may also expose financial fragilities that have been created over an extended period of easy monetary conditions. 1/4  BIS central bankers' speeches  In addition, structural changes in the financial system are giving rise to new risks, including those presented by a growing shadow banking system and fintech players which might not fall within the regulatory net. Roboadvisors, algorithmic trading and other automated trading platforms powered by AI also have the potential to induce highly disruptive procyclical market behaviour, notwithstanding their substantial benefits in reducing transaction costs and increasing market liquidity. And of course, there are cyberthreats with the global cost of cybercrime projected to reach $ trillion in 2019. Both the tools and coverage of surveillance activities to support financial stability have evolved significantly in the post-crisis period. It is imperative that authorities continue to build on this to capture current and future emerging risks.
Second, the scale of the underlying adjustment is large, and monetary policy cannot put off for long the necessary change in the pattern of demand and output. A downward correction of expectations about future incomes and wealth has rendered unprofitable some of the investments made before the crisis. A good example is the investment made in shopping centres which is now either proving less valuable than anticipated, or making redundant some of the other pre-existing stock of retail space. Almost 1,000 high street chain stores closed in the first half of the year. Lower asset values have left debt levels looking too high. Households, businesses and, especially, banks are all deleveraging. Nowhere is the overhang of debt more obvious than in the banking sector where deleveraging is holding back the flow of new lending. During the crisis central banks have provided liquidity to banks on a truly extraordinary scale, so much so that there were no takers for additional liquidity in our latest auction. It is still useful to keep that auction facility as an insurance policy. But banks are now overflowing with liquid assets. Their problem remains insufficient capital. Just as in 2008, there is a deep reluctance to admit the extent of the undercapitalisation of the banking system in many parts of the industrialised world. The  2  BIS central bankers’ speeches  verdict of the market is clear – without central bank support banks still find it expensive to borrow.

Consistent macroeconomic policies, confidence in the Denar and increased competition in the banking system had to cause easing of the monetary policy and lower interest rates in the economy. The expectations for maintaining the current direction of the Macedonian economy, the firm stance of the Government of the Republic of Macedonia for continuation and intensification of the structural reforms, the realistic expectations for achieving faster growth and the expectations for setting a date for the Republic of Macedonia to start negotiations for getting the status of a member of the European Union, then, intensification of the process of liberalization of the capital flows in 2008, as well as the larger financial integration of the European capital markets through issuance of Eurobonds, definitely build a foundation of realistic expectations for much higher capital inflows in the forthcoming period. 3  BIS Working Party on Monetary Policy in Central and Eastern Europe, 21-22 February 2005, Sinaia, Romania. 4  Buiter W.H. and Grafe C., "Anchor, Float, or Abandon Ship: Exchange rate regimes for the Accession Countries", European Investment Bank Papers, 7 (2), 2001. 2  BIS Review 100/2006  These expectations are supported also by the positive interest differential and attractiveness of the securities that are listed on the domestic securities market. Under such circumstances, key challenges of the monetary policy, in the context of the capital account liberalization and potential risks for deepening of the current account deficit in the Republic of Macedonia, are the following: 1.
Moreover, the appendixes to this Annual Report include a study of the prudential consequences of the international accounting standards that will apply in Europe from 2005 onwards. * In sum, French credit institutions in 2002 amply displayed their ability to withstand cyclical contingencies. Improvements can still be made in terms of risk spreading and surveillance. This is one of the factors to which the Commission Bancaire will play close attention as banks prepare and phase in information systems ahead of the introduction of Basel 2 and new accounting standards. In addition to the two studies I have already mentioned, the appendices of the Annual Report include a review of risk management in financial conglomerates. Let me also mention that a summary of the Commission Bancaire’s judicial decisions is being published at the same time as the Annual Report. This first edition will be updated yearly. 4  BIS Review 32/2003

In other words, in the absence of strong governance, managers have strong incentives to exploit accounting latitude in order to achieve certain short-run performance goals that are linked to rewards. This raises a number of important issues for governance. For one, insurers will need to consider the adequacy of existing internal controls and accountability frameworks to ensure the integrity of financial reporting. For example, where actuarial models are used, to what extent are these models and the assumptions underpinning them subject to sufficiently robust validations? Insurers will also need to consider the depth of knowledge and expertise required at the audit committee level to enable the effective oversight and monitoring of management discretion. Part of this oversight includes the rigor applied by boards and audit committees in the appointment of external auditors to ensure their ability to act as an independent check on management discretion. It is also essential for insurers to develop strategies for improving communications with users of financial statements. A key risk will be that users fail to make sense of reported results which can lead to irrational behavior and unintended consequences. Equipping board members and senior management to communicate results effectively will be particularly important. These are also the issues that supervisors will be concerned with. Given the potential for heightened risks and uncertainty, the Bank will examine the need for regulatory prescriptions or 3/5  BIS central bankers' speeches  guidance – particularly in the early phases of implementation.
To see why, imagine a bank whose expected future profits, and hence market capitalisation, have slumped. If this erosion of profits is sufficiently material, conversion at the highest trigger occurs. Upon triggering, a chunk of that bank’s debt converts into equity, automatically recapitalising the bank and providing it with an extra equity cushion. This equity infusion ought to help restore market confidence in the bank’s soundness. If the first conversion does not do the trick, or if the profits shock is sufficiently large, there are other rungs in the ladder. Lower triggers provide a graduated safety net. As these triggers are pulled, converting CoCos offer progressively greater stuffing for the cushion. This is a double boon. It confers the benefits of (contractually pre-agreed contingent) equity. But knowledge of the graduated safety net ought also to help stabilise investors’ confidence in the bank. Under this capital structure, banks’ insurance contract would be fundamentally different than at present. Instead of equity being provided at haste under stress, the safety net would extend automatically in advance. And instead of being provided by the state ex post, insurance would come from private creditors ex ante. Timely self-insurance would replace laggardly public insurance. There would be prompt corrective action. But it would operate on autopilot, using a contractual, market-based navigation system. 12  For example, Flannery (2010), Flannery and Perotti (2011), Duffie (2011), Calomiris and Herring (2011). 13  Alternatively, there could be graduated tranches of CoCos operating with a single trigger.

Second, history suggests that, at least in the latest crisis, they would have given far timelier signals of impending stress, and so a better guide to prompt corrective action, ahead of the crisis cliff-edge being reached. To illustrate that, Charts 6–8 look at the three market-based measures of solvency for the 33-bank panel, again broken down between “crisis” and “no crisis” banks. There is now clear blue water between the solvency ratios of the crisis and non-crisis banks, with the second materially weaker. In the two years prior to the Lehman Brothers crisis, the average marketbased capital ratio was around 5 percentage points lower for crisis than for no crisis banks. Second, market-based measures of capital offered clear advance signals of impending distress. For example, the market-based capital ratio of crisis banks began to fall in April 2007, well over a year ahead of the Lehmans crisis. To formalise that visual impression, Table 1 shows Type I and II errors for the three market-based capital measures. These now  8  Cannata and Quagliariello (2005), Gunther et al (2001), Krainer and Lopez (2004). 9  Berger et al (2000). 10  Calomiris and Herring (2011) prefer a variant of the first measure. 11  Largely, because even marked-based measures of solvency will rely on disclosures by banks, which will themselves be model-dependent to some degree. BIS central bankers’ speeches  5  comfortably outperform a coin toss. Replacing the book value of capital with its market value lowers errors by a half, often much more.
As in the 1930s, today’s low Treasury interest rates in good part reflect elevated demand for low-risk assets – we see investors run to U.S. Treasury markets every time they hear any bad economic news from anywhere in the world. Consider another metric for interest rates, the well-known Taylor  4  BIS central bankers’ speeches  Rule, which captures how monetary policy typically adjusts to output gaps and deviations in inflation from target. Its prescriptions would call for the federal funds rates to be something like –3.6 percent now, well below the zero lower bound the funds rate is currently stuck at. Our large-scale asset purchases have provided additional stimulus, but by most estimates not enough to bring us down to the Taylor Rule prescriptions. Also, I should note that in 1998, Friedman gave a similar recommendation to the Japanese, advocating that the Bank of Japan undertake more accommodation by buying government bonds on the open market. Other critics raise the specter of 1970s-like structural changes in the economy. Such changes, they argue, have reduced our productive potential, in particular the mechanisms by which resources – most notably labor – move from declining to expanding sectors of the economy.3 I am acutely aware of the costs of making such an error. No central banker wants to repeat the painful experiences of the 1979–83 period.

Furthermore, I see a 3 percent inflation threshold as a safeguard against inflation running too high for too long and thus unhinging longer-run inflation expectations. It also is a safeguard against the kinds of policy errors we made in the 1970s. If potential output is indeed lower and the natural rate of unemployment higher than I currently think, then resource pressures would emerge and actual inflation and the outlook for inflation over the medium term would rise faster than expected. If this outlook for inflation hit 3 percent before the unemployment rate falls to 7 percent, then we would begin to tighten policy. I understand that some may find such a policy proposal to be hard to understand, or even risky. But these are not ordinary times – we are in the aftermath of a financial crisis with massive output gaps, with stubborn debt overhangs and high degrees of household and business caution that are weighing on economic activity. As Ken Rogoff wrote in a recent piece in the Financial Times, “Any inflation above 2 percent may seem anathema to those who still remember the anti-inflation wars of the 1970s and 1980s, but a once-in-75-year crisis calls for outside-the-box measures”.9 The Fed has done a good deal of thinking out of the box over the past four years. I think it is time to do some more. 9  Rogoff (2011)  BIS central bankers’ speeches  7  References Board of Governors of the Federal Reserve System, 2011, Minutes of the FOMC Meeting, January 25–26.
The downward revision for the coming year is not due to any change in the assessment of economic prospects, but rather to a number of specific factors that have resulted in higher competition in the world market and in Sweden. But as the cyclical upswing continues and firms’ costs increase, there is still assumed to be a gradual rise in inflation. In the main scenario, which is based on an unchanged repo rate in the coming two years, both CPI and UND1X inflation is expected to be on target two years ahead. The annual averages for inflation will be low throughout the forecast period, however. Allow me in this context to briefly say something about the fact that the weak price developments in the recent period have caused the word ”deflation” to reappear in the media, often in the form of an eye-catching headline. There is always reason to keep the risk of deflation in mind, since falls in the general price level are sometimes associated with considerable problems in the economy. It is important, however, to ascertain whether the subdued price developments are a result of weak demand or due to positive changes on the supply side of the economy. At the moment there is no doubt that the latter is the dominant factor.

In general terms, it can be said that the need for action should be based on the outlook for domestic demand, the stringency of fiscal policy and international trends. In addition, inflation expectations play a key role as an overall indicator of inflationary pressures. In a situation where inflation risk premiums are low, an independent central bank with a price stability target can also contribute to stabilising the economy around its potential growth. How far does this responsibility extend? According to the way the Riksbank has explained the target, annual inflation measured by the CPI is normally to be restricted to 2% with a tolerance interval of ±1 percentage point. In the event of a deviation from this target, inflation is normally to be brought back on target within 1-2 years. In the event of a major deviation, caused for example by a major external disturbance, there may, however, be reason to extend the horizon of the target so as to limit fluctuations in production and employment. In other words, in these circumstances it may be too difficult or too costly for monetary policy to quickly bring inflation back on target. The “new economy” Let me now take up another question that is the subject of much discussion both in the media and in academic circles: the existence of a “new economy”. When people talk about this, their eyes are turned primarily towards the American economy. The concept seems to be capable of covering many phenomena.
This means, among things, that monetary policy is substituting for policies that are traditionally the domain of governments. All this is shifting the focus of the debate from “How deeply negative can interest rates be?” to how to make the two policies work in a particular desired harmony or mix. The former paradigm where they could be independent of each other and hence be regarded as substitutes is turning into one where they complement and reinforce one another. For example, the central bank can help the government by keeping interest rates low, which will facilitate government financing, while fiscal policy can financially support the central bank as lender of last resort, curbing growth 4/7  BIS central bankers' speeches  in its balance sheet and giving it more room for manoeuvre and greater credibility in the pursuit of monetary policy. New remits Besides changes in the central bank paradigm, some central banks have been taking on new, secondary remits in recent years. The Federal Reserve has begun to pay more attention to income inequality, while the ECB and other European central banks are starting to go green. Looking first at income inequality, I should point out again that redistributive policies used to be the sole preserve of elected politicians. Despite this, Federal Reserve Chair Jerome Powell recently announced that the Fed will closely track the shortfalls of employment from its maximum level. It is well known that low-income and low-skilled workers from ethnic minorities are the last to enter the labour market.

We have to act in a determined way to deliver our 2% target Inflation has reached levels that we have not seen in decades in the United States and in the euro area. HICP inflation in the euro area was 10.0% in September 2022 and excluding energy and food reached 4.8%. We decided to frontload our monetary policy normalization in September with a 75bp increase in all our policy rates, taking them into positive territory for the first time since July 2012. When anyone acts fast, there are always people to ask whether they are overreacting or could wait and move more slowly. For some in Europe, there would be two arguments in favour of inaction or at least caution: namely the supply-side origin of the shock and the risk of a recession. Let me tell why I don’t think such fears should derail us from our normalisation course. On the nature of the inflation shock, there is obviously a significant energy and supply component in the current euro area inflation, reflecting pandemic-related supply 2  Page 3 sur 14  disruptions in 2021, and on top of the sharp increase in energy prices this year after Russia’s invasion of Ukraine. When central banks are faced with temporary supply shocks, they are often supposed to “look through” the immediate effect and extend the horizon over which inflation returns to target if necessary. But due to pressures along the pricing chain, inflation has not only heightened, it has broadened into industrial goods and services.
With the increasing share of gold on the balance sheet, a secondary effect would be that the profit distribution to the Confederation and the cantons would likely be lower. This is because, unlike foreign currency investments, gold does not generate income in the form of interest or dividends, and any valuation gains on gold could not be realised because of the ban on sales. If, as the initiative demands, a ban on selling gold were to be enshrined in the constitution, the question would arise as to whether an immovable asset of this kind could even still fulfil the function of a currency reserve. Yet, the very purpose of currency reserves is that they are available quickly and without restriction when needed. This availability in a crisis situation is important, even if – as is currently the case – we are not intending to sell gold. The availability of gold reserves also plays a role with regard to their storage. Let me therefore take a look at the third component of the initiative, i.e. the demand that all gold reserves be physically stored in Switzerland. Decentralised storage in Switzerland and abroad is in line with the basic principles of due diligence in the conduct of business and business continuity management. It ensures that the SNB can in fact access its gold reserves, especially in an emergency. The same standards are applied to storing gold abroad as to storing gold in Switzerland. Our partner central banks keep clearly identifiable gold bar holdings for the SNB.

The purchase programme alone cannot solve the crisis. However, it has significantly reduced tail risks, such as the exit of one or several countries from the monetary union, and it buys governments more time to implement fiscal consolidation and structural reforms. The affected countries have already made some concrete progress in this regard. However, it is clearly too early to relax our guard. The global economic situation is still fragile and the way out of the crisis in Europe is long and arduous. In many countries – not just in Europe – there are still a number of unanswered questions with regard to the medium-term growth outlook and the sustainability of public finances. And while we expect the global economy to recover gradually this year and the Swiss economy to grow by 1–1.5%, considerable uncertainties remain. The Swiss franc is still high, even at today’s level. In view of the fragile international environment, the downside risks for the Swiss economy remain substantial. In particular, the threat that the franc could suddenly come under upward pressure again has not been averted. The minimum exchange rate is an important instrument in helping to prevent an undesirable tightening in monetary conditions. The SNB will therefore continue to enforce the minimum exchange rate with the utmost determination and, if required, is  2  BIS central bankers’ speeches  prepared to buy foreign currency in unlimited quantities for this purpose. It stands ready to take further measures at any time.