samchain/econo-pairs-v1 huggingface dataset:
The SNB is treating this issue as a high priority, and will continue to monitor the mortgage market carefully. We will analyse the risks in greater detail – in close cooperation with FINMA and the banks themselves – and examine whether there is a need for action. In any case, caution should be exercised in lending. When assessing affordability, it must be taken into account that interest rates are, by historical standards, exceptionally low. It is essential that loan-to-value ratios be set conservatively, especially for regions and property types that have seen prices rise sharply in recent years. Outlook We expect the global economy to continue recovering this year. This recovery, however, is fragile, for it has until now been based largely on the support measures deployed by governments and central banks. Uncertainty is still at an above-average level. Downside risks have gone up again in recent months due to the financing difficulties faced by some  2  BIS Review 85/2010  European countries. Urgently needed cost-cutting measures and rising risk premia could jeopardise the recovery and trigger another lengthy period of higher credit default rates, and even renewed turbulence on the financial markets. A development of this kind would present the Swiss banking sector with a serious challenge: besides an economic slowdown and a slump in the financial markets, a further destabilising influence could be the spread of problems throughout the global banking system.

With this in mind, a further strengthening of the capital situation and – in conjunction with this – a further realignment of the business model in order to achieve sustainable profitability, are still central challenges facing the big banks. The profitability and the capital situation of the banks with a domestic business focus – the cantonal, regional and Raiffeisen banks – were significantly higher in 2009 than the longterm average. The dip in GDP from mid-2008 to mid-2009 has so far barely had any effect on these banks, with the result that the provisioning requirement for credit risk continued at a low level in 2009. Nevertheless, in our estimation, the position of these bank categories is less comfortable than may appear at first glance. First of all, the capital situation of the Raiffeisen banks and the state-guaranteed cantonal banks needs to be put into perspective: the Raiffeisen banks can count the additional funding obligation required of members in the  BIS Review 85/2010  1  cooperative as capital until the end of 2011, and the cantonal banks are entitled to a reduction in required capital due to the state guarantee. In the absence of these concessions, the capital ratios – particularly for the Raiffeisen banks – would be markedly lower. Second, according to our assessment, the risk exposure of the domestically focused banks is higher now than it was in 2009. For one thing, the interest rate risk of cantonal and Raiffeisen banks is at historically high levels.
The macroprudential policy response to the COVID-19 crisis The outbreak of the economic crisis stemming from the COVID-19 pandemic posed an unprecedented challenge, and it did so too from the macroprudential standpoint. As I have attempted to convey in this speech, macroprudential policy was conceived to tackle risks that arise endogenously in the financial system and build up gradually over time. The pandemic has thrown up a radically different crisis scenario, caused by a risk factor exogenous to the financial system. But, in any event, it has had a sudden and profound macrofinancial impact. Against this background, we must accept that the role of macroprudential policy in countering these effects is limited; it is other economic policies (fiscal and monetary policy in particular) that are best suited to combat them. In any event, at the onset of the pandemic, in parallel to the action taken by the monetary and fiscal authorities, numerous announcements of measures ensued at notable speed from the macroprudential authorities.7 Specifically, the main macroprudential instrument subject to these measures was the CCyB which, practically across the board, was drawn down (i.e. returned to its initial level of 0%) in those countries in which it had previously been activated. The aim was to encourage banks to maintain the flow of credit to the economy. In Spain’s case, the CCyB percentage was at 0% before the onset of the pandemic, since no signs of an accumulation of systemic risk had been detected.

Thus, while each policy must act on the basis of its individual objectives, the consequences each has for the other should be taken into account. Macroprudential policy in practice identification and monitoring of systemic risk Timely activation of macroprudential tools calls for indicators that enable the risks arising in the financial system to be monitored and which, in parallel, allow the use of the instruments and their effects to be calibrated. 12  In particular, these indicators should be capable of capturing the financial cycle. The literature has identified various indicators that can play this role. For example, Terrones et al. (2011) consider three main variables on the basis of which these indicators can be calculated: credit to the non-financial private sector, house prices and stock market prices. Thus, in the case of the CCyB, current regulations give a special role to the credit-to-GDP gap (also known as the “Basel gap”). This indicator measures the difference between financing received by the non-financial private sector as a percentage of GDP and its longrun equilibrium trend, estimated using statistical procedures. Positive credit-to-GDP gap values would indicate that we are in the expansionary phase of the financial cycle, since the volume of credit, once the economy’s level of income is taken into account, stands above its equilibrium level. Consequently, activating the CCyB or increasing it might be considered. Negative values would denote a contractionary phase in the financial cycle, whereby the CCyB should be deactivated under normal conditions.
From the customer’s point of view it means increased choice and control over financial assets, data and the service providers having access to this. The big aim of Open Banking is to increase competition in the market by driving innovation in the quality of products and services that customers receive. The current account market has complex pricing, low customer switching, difficulties in comparing products and high charges on overdrafts. The outcome is that people are paying more for lower quality services than they need to. In 2016, Accenture conducted a research with consumers which showed that 85% of 18–24 year olds would trust third parties to aggregate their financial data. In contrast, 48% of 55–64 year olds were neutral or positive.2 These figures already suggest that we will witness a battle for the customer relationship and data between banks and FinTech. The outcome of this battle will be crucial in determining the future of the bank models which will likely face several transition stages. At the current stage, the existing banks are under pressure by the FinTech to improve cost efficiency and the customer relationship. Given their market knowledge and good market positions, the existing banks may adapt relatively fast by adopting new technologies in close cooperation with the FinTech. In the future, banks and FinTech companies may strengthen their cooperation as joint ventures, partners or other type of structures where delivery of services to the clients is shared between them.

In the world of finance, some of the questions being asked today are: What makes a bank a bank? Will digital currency ever replace central-bank issued money? Or more likely, will central banks issue their own versions of digital currency and in the process, disintermediate banks? Are banks selling financial products, or are they offering a lifestyle, opportunity and the freedom to pursue a new and different path in life? What business are banks really in? When everyone stopped using film in cameras, one wonders if Kodak realised that it was actually in the business of capturing memories. Or when smartphones burst into the mobile handset market, did Nokia realise that their business was not selling mobile handsets, but connecting people with the world around them? Three years ago, McKinsey predicted that technological advancements will redefine the landscape of finance, and then went on to argue that incumbents had – at most – a brief window of five years to adapt or risk becoming obsolete. You may or may not agree with this, but I think it would be hard to deny that a shake-up of the industry is already present. To some extent, the finance industry has been responding. Total IT spending is estimated at over $ billion every year across the regions of North America, Europe, Asia Pacific and Latin America. In 2016, a single global bank spent $ billion, or 16% of its expenses on technology.
This could happen when expectations are not only forward looking, but have a high degree of inertia, due to, for example, high levels of indexation or lack of credibility. In contrast, when expectations are well-anchored to an inflation target, becoming also more forward looking, the monetary policy adjustment required to achieve stable and low inflation is milder and the sacrifice ratio declines, reducing the volatility of both inflation and output. 4 Of course, achieving credibility is not an easy task and can be done through different avenues. Certainly the conquest of low inflation, as occurred in developing countries, increases the belief in policymakers’ competence and commitment to controlled inflation. This allows stable inflationary expectations and reduces inflation persistence. An inflation target, with the necessary institutional support such as an independent central bank with a clear mandate to price stability, helps in this regard. It establishes an explicit commitment to keep inflation low and stable through time, and a strategy to adjust to deviations, including the time horizon in which this will be achieved. Indeed, among developing countries, those  4  For a model on this issue see De Gregorio (2007). BIS Review 74/2008  3  that adopted inflation targeting regimes have had lower inflation and output volatility than the rest (figure 3). Of course, this evidence is only suggestive and the direction of the causality could be the reverse, with more stable economies being more prone to implementing an inflation targeting regime.

Galí, J. and L. Gambetti (2007), “On the Sources of the Great Moderation,” Economics Working Papers N° 1041, Universitat Pompeu Fabra. 6  BIS Review 74/2008  Gerlach, S., A. Giovannini, C. Tile and J Viñals (2008), Low Inflation: Testing Times for Central Banks, Geneva Report on the World Economy 10. Gonçalves, C. and J. Salles (2008), “Inflation targeting in emerging economies: What do the data say?” Journal of Development Economics 85, pp. 312–318. Hyvonen, M. (2004), “Inflation convergence across countries”, Discussion Paper N°2004-04, Reserve Bank of Australia. Kent, C., K. Smith and J. Holloway (2005), “Declining Output Volatility: What Role for Structural Change?” in C. Kent and D. Norman (eds. ), The Changing Nature of the Business Cycle, Proceedings of a Conference held at the H. C. Coombs Centre for Financial Studies, Reserve Bank of Australia. Kim, C.-J. and C. Nelson (1999), “Has the U.S. Economy Become More Stable? A Bayesian Approach Based on a Markov Switching Model of the Business Cycle,” The Review of Economics and Statistics 81 (4) pp. 608-616. McConnell, M, and G. Perez-Quiros (2000), “Output Fluctuations in the United States: What Has Changed since the 1980s?” American Economic Review 90(5), pp. 1464-1476. Mishkin, F. and K. Schmidt-Hebbel (2007), “Does Inflation Targeting Make a Difference?” in F. Mishkin and K. Schmidt-Hebbel (eds. ), Monetary Policy under Inflation Targeting, Central Bank of Chile, pp. 291-372. Stock, J. and M. Watson (2003), “Has the Business Cycle Changed? Evidence and Explanations,” in Monetary Policy and Uncertainty: Adapting to a Changing Economy, pp.
Average annual growth in business investment in the decade before the crisis was 2.4% and in the 15 years before the crisis it was 3.6%. 2  3  All speeches are available online at www.bankofengland.co.uk/speeches  3  One reason for this weak investment since the crisis has been weak demand. Over a run of years, the rate of investment should adjust to maintain the capital stock at a particular level relative to GDP. If GDP grows more slowly, less investment is required to maintain the capital stock at a desired level relative to GDP. This can lead to a vicious circle in which weak demand leads to lower investment that in turn impairs the productive capacity of the economy. This in turn impairs demand as households and businesses revise down their expectations for future income and profits and so on. So what starts as a demand shock can end up as a supply shock. According to the IMF, this effect probably accounts for some of the weakness in investment in advanced economies. 3  But this is unlikely to be the whole story behind the weakness of investment post crisis. One common and repeated candidate explanation is the lack of finance for productive investment. This is not a new issue; it has very deep roots in the UK. The role of banks in providing finance to businesses for investment has been examined many times since Charles Geach’s day.

Chart 4: Rates of return on capital and cost of capital compared to survey measures Net rate of return for PNFCs (ONS) (a) Net rate of return for PNFCs - 2000-2016 Average cost of loans for private non-financial corporations (b) Weighted average cost of capital (c) Bank Rate Average rate of return (survey) (d) Average hurdle rate (survey) (e) Average cost of bank loans (survey) (f)  Per cent 14 12 10 8 6 4 2 0  2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: Bank of England, ONS Profitability of UK companies and Bank of England Finance and Investment Decisions Survey. (a) UK non-financial corporations' net operating surplus/net capital stock (per annum). (b) Weighted average interest rate of sterling loans made to private non-financial corporations by UK resident monetary financial institutions (excl. the central bank). 11  All speeches are available online at www.bankofengland.co.uk/speeches  11  (c) (d) (e)  This is partly based on estimates of the equity risk premium as described in Inkinen, Stringa, and Voutsinou (2010). There is considerable uncertainty surrounding these estimates. Question 12: 'If you set an investment hurdle rate, what is it?'. Question 5: 'On average, what is the total rate of return realised on investment projects completed in the past 5 years?' . One might still, however, have expected firms' hurdle rates to come down to reflect lower financing costs and lower yields on other investments such as financial assets.
Mervyn King: Monetary policy developments Speech by Mr Mervyn King, Governor of the Bank of England, at the Lord Mayor’s Banquet for Bankers and Merchants of the City of London at the Mansion House, London, 18 June 2008. *  *  *  My Lord Mayor, Mr Chancellor, My Lords, Ministers, Aldermen, Mr Recorder, Sheriffs, Ladies and Gentlemen: Can it really be only a year since we last met in this magnificent room? With the financial crisis continuing, I was tempted to deliver last year’s speech again. But that would not allow me to welcome the Chancellor to his first Mansion House Dinner as Chancellor. After the past – difficult – year, could I say, Chancellor, how much we at the Bank have appreciated the patience and good humour with which you have handled the “slings and arrows of outrageous fortune”. Over that year, the west wind of a credit crunch emanating from the United States and the east wind of higher energy and food prices resulting from the strength of Asian economies have been stirring up the waters through which our economic ship must pass. These two challenges of rising inflation and falling economic growth have led to a crop of doom-laden predictions best captured by my less well-known addition to the well-known words of Robert Frost: Some say the world will end in fire, Some say in ice. But whichever it is It won’t be NICE. That “non-inflationary consistently expansionary” decade, as I described it in 2003, has drawn to a close.

Yesterday we learnt that inflation in May rose to 3.3%. In line with our remit, I sent an open letter to the Chancellor. As I said in my letter, inflation is set to increase further over the next few months. Oil prices have doubled since the beginning of last year, and, in real terms, are now as high as they were in the 1970s. And further sharp increases in domestic gas and electricity prices are probably on their way. So what should the Monetary Policy Committee do in the face of this rise in inflation? The immediate cause of the current pickup in inflation is increases in food and energy prices relative to other prices. They are caused by the pressure of demand on the supply of food and energy in the world as a whole. Part of that pressure may well reflect expansionary monetary policy in the world as a whole. But the rise in commodity prices cannot, by itself, generate sustained inflation in the United Kingdom unless we allow it to. We will not. So although inflation in the UK will rise in the short term, inflation will then fall back. That means that the rate of increase of other prices and domestic costs, notably pay, must remain low. The MPC does not take that for granted. Surveys – including our own – indicate that expectations of inflation have risen, meaning that inflation is likely to have some tendency to persist.
We have therefore tried to develop our own treasury and securities specialists whose task it is to review and assess more leading-edge and sophisticated areas such as value at risk and treasury and derivatives risk management. Let me move on now to the subject of the prevention of money laundering. This is a key concern for the supervisors of all major international financial centres, and is something that should be high on the agenda for the management of every financial institution. Here in Hong Kong considerable time and effort has been put in over a period of years into ensuring that the banking system follows best international practice on the prevention of money laundering. Principally, this means following the recommendations of the Basle Committee on Banking Supervision and the Financial Action Task Force, whose guidance notes on the prevention of money laundering we have used to develop our own detailed Guidelines to institutions. The basic thrust of these Guidelines is to provide that institutions should have in place adequate and effective policies, procedures and controls to combat money laundering, covering essential areas BIS Review 48/1998  -5-  such as procedures for account opening, customer identification and record keeping as well as proper systems for reporting suspicious transactions and training of staff. Please be in no doubt as to how seriously we regard adherence to these Guidelines. The reason for this is simple. To paraphrase the health warning on a packet of cigarettes, “Money laundering can seriously damage your health”.

An important objective of such regulatory convergence is to ensure that crossborder financial linkages act to foster regional growth, while mitigating the propagation of systemic risk across borders through such linkages. The convergence of standards has proceeded in different ways in different parts of the world. In Europe, regulatory convergence has been driven by EU-level bodies and agencies, including the European System of Financial Supervisors and the European Systemic Risk Board. The EU-wide prudential rules are formulated and implemented through directives and regulations legislated by the European Parliament and European Council, with limited room for member states to apply “national discretion”. Recent proposals to establish a single supervisory mechanism for banks led by the European Central Bank, and a single resolution mechanism, will further  2  BIS central bankers’ speeches  reinforce the role of EU-level institutions in the management of financial stability in the Euro area. With significantly more diverse economies and financial systems, promoting greater regulatory convergence in Asia is more likely to proceed on the basis of a set of shared principles for developing and maintaining sound financial systems, while providing for the unique and distinct legal, financial, social and economic structures of individual countries within the region. It will be important to have clarity around the key principles, an inclusive process in agreeing on these principles, and mechanisms that support their effective implementation in individual countries.
Nowadays, the SNB and the commercial banks together provide the economy with money. Through credit creation, the banks are in a position to create book money, only a small part of which they are required to cover with SNB sight deposits. In everyday life, this book money – for instance deposits in salary accounts – is generally accepted in the same way that cash is accepted. A plain money system would mean that banks had to cover 100% of their book money with SNB sight deposits. The people behind the initiative believe that this would simplify monetary policy because a plain money system would allow the SNB to manage the money supply with utmost precision. Moreover, plain money is thought to increase the stability of the financial system because deposits are secured by SNB sight deposits. In addition, profits from money creation would accrue fully to the SNB and no longer, in part, to the banks. Although the idea of plain money may be interesting in certain respects, I am sceptical as to whether acceptance of the initiative would result in better money. My reticence is born not only of considerable doubts as to the anticipated benefits of plain money, but far more because the introduction of plain money would constitute an enormous experiment for which we lack any experience or comparative figures from the past. Never in monetary history has a country introduced plain money based on central bank money. Assumptions which appear plausible could therefore prove to be incorrect.

This also speaks in favour of a national monetary policy and against delegation. Consequently, in my opinion, the use of foreign money would not result in better money in our country, in the current situation. At this stage, you might object that, through the minimum exchange rate against the euro, the SNB has already, in point of fact, adopted foreign money and handed over its monetary policy to a foreign central bank. Such a view of affairs would be incorrect. The minimum exchange rate is a measure which we adopted in order to fulfil our mandate in the interests of the country as a whole. The world economy is currently in an extremely difficult situation and the minimum exchange rate allows us to maintain appropriate monetary conditions and secure our long-term capacity to act. The minimum exchange rate is therefore an expression of our national policy sovereignty and the SNB’s lived independence, not a sign that we have given up our autonomy. The power of monetary policy Despite the criticism of these four proposals, I attach importance to making two things clear. First, it is absolutely possible and, as history has shown, even probable, that over the course of time the situation could change in such a way that the assessment of specific points might change. However, whatever these changes might be, the aim of the monetary order should remain unchanged – to ensure sound money in the interests of the public at large.