samchain/econo-pairs-v1 huggingface dataset:
The Riksbank and other Swedish authorities did the same in 2008–2010. In 1992, the Swedish government issued a guarantee for the banks’ commitments aimed at preserving confidence in the Swedish banking sector. But guaranteeing liquidity is not enough. Confidence in the European banking market is still low. Few lenders are prepared to lend to European banks on market terms over the longer term. This is where the theory of asymmetric information comes in. As nobody knows with certainty which banks will or will not remain solvent over the longer term, cautious investors  8  European Commission (2011): “State Aid Scoreboard: Report on state aid granted by the EU Member States, Autumn 2011 Update”. BIS central bankers’ speeches  7  will treat all banks as high-risk counterparties – in the same way as the car buyers in Akerlof’s “Market for lemons” treat all used cars as potential wrecks.9 When we, in Sweden, introduced the bank guarantee in 1992, it was to win time while banks were closed down, divided up and recapitalised with government assistance. The banks that were left were robust and able to regain the market’s confidence. This action reduced uncertainty and, in the course of time, contributed to keeping government expenditure down. In Europe, similar measures have only been carried out to a more limited extent. This delay and lingering uncertainty have contributed to the current sovereign debt crisis.

For long periods, European banks have had problems obtaining funding on the market. This uncertainty is also reflected in the Riksbank’s calculations of the stress index for Europe. (Figure 1)  6  Credit Suisse (September 2011): “European Banks”. 7  IMF (September 2011): Global Financial Stability Report. 6  BIS central bankers’ speeches  Figure 1: European stress index  State support to the banking sector has been significant. In addition to EUR 90 billion in direct public expenditure, governments and central banks have paid out the equivalent of 13 per cent of GDP, EUR 1.6 trillion, in emergency liquidity assistance and support for the banks. The total commitments amount to triple this figure.8 The problems in the banking sector have still not been addressed The management of the present European banking problems can be contrasted with the way we handled the Swedish banking crisis twenty years ago. Of course, although we are often considered to have succeeded well in Sweden in 1992, this was due to a relatively beneficial political environment, rather than intellectual superiority. Even so, the differences illustrate an important insight from economics – more specifically, the significance of asymmetric information. Like other central banks, the ECB intervened in 2008 to support liquidity by various means, including offering loans at longer maturities. Unlike in Sweden, these extraordinary loan facilities continue to be available. Furthermore, the ECB has supported the markets for both covered bonds and government securities. In a crisis situation, it is necessary to maintain liquidity among the banks.
Expectations of compressed term premia, either through central bank actions directly, or through cross-border capital flows associated with such programmes, or both, can offset, or mitigate, the impact of changes in the expectations about future short-term rates on exchange rates. Disconnects may also be the result of market segmentation, much in line with the view that the financial market comprises a heterogeneous set of actors with very different beliefs and expectations. Indeed, the same chart suggests that spillovers from the euro area to the US bond market had already accelerated sharply in the first half of 2014. So, a good part of the decline in US term premia during this period – you can see this on the right-hand side – might in fact have reflected expectations about monetary easing in the euro area, paired with a reappraisal of the Federal Reserve’s policies. In other words, during this period participants in the bond market might have held, on average, a different view on the prospects of global monetary policy from that of their counterparts in the foreign exchange market, which maintained sizeable net long positions in the euro. Christopher Sim’s “rational inattention” comes to mind.12 This can also be seen on the next slide. Here I show a breakdown of the historical drivers of the euro and US dollar exchange rate based on a Bayesian VAR developed by researchers at the ECB.13 The shocks are identified using standard sign restrictions.

This should have caused the US dollar to appreciate, at least on the basis of past behaviour. The dollar defied upward pressure, however. It continued to depreciate persistently, despite the marked widening in future expected interest rates. One reason why this might have been the case is that the signalling and the portfolio rebalancing channels of asset purchases might have worked in opposite directions. In imperfect markets, investors may give different weights to conflicting information. What I mean by this is that, despite expectations of a significant increase in policy rates, the Federal Reserve’s very gradual slowdown of its pace of Treasury and mortgage-backed securities purchases – which caught many investors on the wrong foot after the “taper tantrum” – possibly fuelled expectations that long-term rates, and hence also foreign demand for USdenominated interest-bearing assets, would remain contained for a considerable period. This interpretation is consistent with at least four observations: first, term premia on US bonds fell notably after the Federal Reserve started tapering in December 2013, pointing to a correction of the sharp uptick in term premia after the “taper tantrum”.9 Second, investors did not expect the US dollar to appreciate. CFTC data show that they continued to hold net short speculative positions in the US dollar well into 2014. Third, capital inflows into the US Treasury market did indeed decelerate somewhat during the first half of 2014, validating earlier expectations.
The overnight rate has remained stable around the repo rate. However, as in many other countries, Swedish interbank rates have risen. On the interbank market for loans from tomorrow until the day after, the interest rate has been higher than normal, and movements have been more volatile. But higher and more volatile interbank rates do not automatically mean that the banks will experience problems. Swedish banks have had good opportunities to obtain financing during the entire financial crisis, solvency is good and loan losses are currently small. The fact that we have not seen any major problems in Sweden is of course linked to the fact that Swedish banks have not been exposed to any great extent to the US subprime market. Nor has there been any “distrust” of Swedish banks. Ultimately, it is a question of a broad view that Swedish banks do not have problems. The fact that the overnight rate has been stable around the repo rate may also be linked to the way in which our monetary policy steering system is constructed. An increased demand for deposits with the Riksbank would have been visible in that banks with surpluses would have put their money in their deposit accounts. The return on this is 75 basis points lower than the repo rate, and thus poorer than the overnight market. It would thus be expensive from day one. This differs from systems with an average minimum reserve requirement.

1 The argument blaming monetary policy for the current crisis claims that low interest rates combined with large current account surpluses in emerging economies, particularly Asian and oil-exporting countries, created an abundance of liquidity that triggered excessive increases in asset prices (that is, a bubble). This was particularly acute in the housing market. When the bubble burst, the crisis erupted. This argument contends that monetary policy failed to act in a timely fashion and allowed severe imbalances to accumulate. Nonetheless, soaring asset prices do not necessarily result in a crisis like this one. Moreover, the financial systems of most emerging markets proved to be resilient despite significant monetary loosening before the crisis. A financial crisis requires the combination of two factors: a surge in the value of a set of assets that will  1  For further discussion on this issue, see De Gregorio (2010). BIS Review 76/2010  1  eventually collapse, and vulnerability of the financial system to the collapse in these assets prices. In the recent crisis the key assets where houses and structured credit products. The key vulnerabilities arose from the exposure of highly leveraged institutions – many of which had a substantial maturity mismatch – to these assets. These factors combined led to a degree of vulnerability that neither markets nor regulators anticipated.
Expectations of debtors and creditors would have been conditioned ex ante and the severity of the crisis thereby reduced ex post. Second, the Russian experience illustrates the importance of having orderly default mechanisms in place. In assessing the costs of default, the maxim should be: "it's not what you do it's the way that you do it". In Russia, it was not that they defaulted but the way that they did it. The default was disorderly – neither efficient, nor equitable, nor expeditious. And that contributed importantly to the disruption to Russia and more widely. But default need not be like that. There are dead weight costs to  BIS Review 71/2001  7  disorderly default. So there are lump-sum gains – to both debtors and creditors – to having orderly mechanisms in place. This is where the official sector has a role to play. A key principle of any crisis resolution framework is that decisions on a sovereign's debt are the responsibility of the borrowing country, in consultation with its private sector creditors. Neither the IMF nor any group of countries should tell a country to restructure its debt. There are a range of options open to debtors in dealing with their creditors at times of crisis. Countries with a good track record of repayment and long standing relationships with their creditors may be able to borrow more from the international market.

Mojmír Hampl: States as debtors Speech by Mr Mojmír Hampl, Vice Governor of the Czech National Bank, to the Alpbach Financial Market Symposium, Alpbach, Austria, 2 September 2011. *  *  *  I would like to thank the organizers for inviting me to this wonderful and amazing place. And that is not a platitude; I really mean it. It is my first time here in Alpbach, and I can only hope that it is not the last after I finish my presentation. Concerning the sovereign debt crisis, we are describing it as something absolutely fatal. But from a bird’s eye view – as was said by several speakers yesterday – sovereign debt problems and overindebtedness of nation states are nothing new. Europe as a continent has a rich experience with such problems. The Czechs share a long part of their history with Austria, so many might remember from their textbooks the sovereign instabilities and crises of the 19th and 20th centuries, for instance the well-known crash of state finances in 1811, in the middle of the wars against Napoleon. That crash was followed by a drastic monetary reform, default of the Austrian empire and a search for a better way. This time is different, however, at least in the following respects: 1. We forgot that this can happen, that sovereigns can become perfectly insolvent just like any other debtor, and states behaved accordingly. 2.
Nevertheless, new technologies are gaining traction, by capitalizing on devices such as smartphones and tablets and allowing to get rid of “plastic” payment cards through virtual wallets. These general changes, which are already affecting traditional actors, are reinforced by the introduction of new players, either the much talked about “GAFA” (Google, Apple, Facebook and Amazon) or the smaller actors concentrating on niche payment services, that capitalize on these new technologies to enter the payment cards market. To be fair, this move “out of plastic” is a bit slower than forecasted some years ago: but it shall probably accelerate. Lastly, in Europe, the third trend that is also deeply influencing the payment cards market is the current regulatory renovation that is taking place, notably through the implementation of the new Interchange fees regulation for card based-transactions, which was passed in April 2015. This new regulation sets, amongst other measures, maximum caps for interchange fees, 0.2% for debit card and 0.3% for credit card transactions, and the obligation to separate payment card schemes and processing entities. In doing so, this new regulation might stand as an additional game changer for traditional actors. Such a context will no doubt incentivize traditional suppliers of payment cards solutions to find new sources of revenue, building on added-value services on top of sole payments, and possibly revising the way payments are made and processed to keep their lead in the retail payments market. II.

•  Second, pay a close attention to the implementation of PFMIs and different regulations to ensure that CCPs maintain state of the art risk management practices (margining, collateral, default funds) and adequate governance both for the sake of both their own soundness and the resiliency of the markets they serve. •  Third, define appropriate principles for resolution and recovery of Financial market infrastructures, and particularly CCPs which now concentrate a high level of risks. •  Last, bring transparency in the area of secured and unsecured interbank lending, which are the underlying reference for interest rate derivatives. Monetary policy considerations also call further transparency in that regard as it requires detailed knowledge of the organization of money market and the real conditions under which transactions take place. 2. Meanwhile due attention should be paid to an adequate calibration of the framework. The development of multiple concomitant regulations (capital, liquidity etc…) calls for a perfect coordination. We cannot pile up these different approaches without assessing their impact and the costs incurred for the market and the public. This is a particular concern when considering the collateral requirements that stem from the different regulations. 3. Last but not least, we need to promote a consistent framework.
Ajith Nivard Cabraal: Foreign exchange reserve management Inaugural address by Mr Ajith Nivard Cabraal, Governor of the Central Bank of Sri Lanka, at the SAARCFINANCE seminar on Foreign Exchange Reserve Management, organised by the Centre for Banking Studies of the Central Bank of Sri Lanka, Colombo, 15 August 2008. *  *  *  Deputy Governors, Director of the CBS, My dear friends, 1. I am pleased to participate at the opening ceremony of this SAARCFINANCE seminar on foreign exchange reserve management. I also welcome all participants to this course and extend to the participants from the central banks of our neighboring countries, our resource persons from BIS, Deutsche Bank group, Citigroup and Reserve Bank of India, a very warm welcome to our country as well. 2. At the 17th SAARCFINANCE Governors’ meeting held in Washington in April 2008, it was decided to organize a seminar in foreign exchange reserve management. It was also decided that the Centre for Banking Studies (CBS) in Sri Lanka, with its over 26 years of experience in training and developing financial sector professionals, together with the International Operations Department of the CBSL, should host this seminar, so as to provide a forum within the region to discuss the latest challenges facing the managers of sovereign reserves at present. 3. My dear friends, foreign exchange reserve management has gained increased importance in Central bank activities in the recent past, due to two factors.

Most had a financial sector characterised by poor risk management, low capital and liquidity, inadequate corporate governance, and weak supervision and regulation – diluted by many years of excessive optimism in the self-repairing power of markets. When the Lehman shock hit, banks exposed to toxic US assets ran into difficulties and some were bailed out by their governments. In the euro area, these banks were mostly located in Germany, France and the Netherlands. Bank bailouts took place on a staggering scale. In 2009, they totalled around 8% of GDP in Germany, 5% in France and 12% in the Netherlands. 1 These bailouts did not greatly affect sovereign borrowing costs, however, thanks largely to the relatively strong fiscal positions of the governments implementing them. In the second phase, the crisis spread to banks in Spain and Ireland that had similar weaknesses, but were instead overexposed to the collapsing domestic real estate market. Another wave of bank bailouts followed, and some signs of tensions in sovereign debt markets began to appear. Those tensions were compounded by the third phase, which began when the Greek crisis shattered the impression that public debt was risk-free, triggering a rapid repricing of sovereign risk. To those who saw the crisis as a consequence of moral hazard, this represented a required return of market discipline vis-à-vis sovereigns – a view that was reflected in the Deauville agreement in October 2010. 1/9  BIS central bankers' speeches  These events spread contagion to all sovereigns now perceived as vulnerable by financial markets.
Innovative instruments such as the sukuk have attracted interest from both the Islamic and conventional markets. 2  BIS Review 43/2003  One of the central issues towards developing a dynamic Islamic financial industry is the Shariah. The Shariah should always be viewed as an enabler to innovation and creativity, rather than a constraint. On the contrary, innovation and creativity is strongly advocated. Efforts therefore, need to be enhanced to fully appreciate and maximise the true potential and wisdom of Shariah. Thus, there is a need for greater collaboration among the Shariah scholars, practitioners and researchers to undertake in-depth studies and research to originate products. This would provide the fundamental foundation towards developing a dynamic Islamic financial system. An issue that needs to be addressed is the development of a pool of intellectual capital for Islamic finance. The investment in adequate expertise for the development of Islamic financial instruments and services need to be made. In this regard, there is a need for Islamic financial players to intensify efforts in the training and development of expertise in the various specialised areas. Such Islamic financial programmes would benefit from a comprehensive approach, encompassing both conventional banking and Islamic banking, complemented with Shariah. The dynamism of the Islamic financial industry can only be demonstrated through a pool of talent that possesses convictions and expertise in Islamic finance.

Apart from the Core Capital and Tier-2 Capital, Bank Negara Malaysia will consider the Profit Sharing Investment Accounts to be part of the overall Islamic banking capital fund for the purpose of determining the single customer limit. BIS Review 43/2006  1  Ladies and Gentlemen, Thus far, there are 7 Islamic banking window arrangements that have been transformed into subsidiaries. Six have now commenced operations. Together with two full fledged Islamic banking institutions and the 3 new foreign Islamic banking players, Malaysia now has 12 Islamic banking institutions operating under the Islamic Banking Act. There are also 9 takaful operators, including the 4 new takaful operators that will commence business later this year. With this diversity of players and the larger number of institutions that has been established in the Islamic financial system, it is envisaged that the development of the sector will gain further momentum with new areas, such as fund and wealth management, also gaining increased significance. In the more recent period, domestic Islamic financial institutions have ventured on business opportunities beyond the domestic shores to tap the tremendous potential markets abroad, particularly, in the Asian region. Banking institutions therefore, need to build their capacity to be able to take advantage of these potential markets that are still relatively untapped. Ladies and Gentlemen, Against the backdrop of the rapid expansion of the Islamic finance sector, there is also the need to intensify efforts to provide adequate training at all levels - technical and frontline staff, middle management and senior management levels.
Therefore, we still hold the view that the return to global equilibrium will be slower and more uncertain than is usually the case at the end of a recession. Swiss economic outlook The Swiss economy is also on the road to recovery: Swiss GDP growth turned positive in the third quarter. However, value added continued to contract in the manufacturing industry. Overall, demand for labour is still falling and unemployment numbers are on the rise. We are projecting a moderate recovery for 2010. Private consumption growth will be held back by weak household income growth. Exports will benefit from a gradual return to strength of external demand. This should allow manufacturing production to recover, albeit unevenly across the different segments. In particular, new orders in the equipment goods segment will probably continue to suffer from the excess capacity at the international level. In Switzerland, too, the increase in manufacturing production will not be enough to allow excess production capacity to be reabsorbed. Consequently, equipment investment is unlikely to see any improvement for several quarters, and there could be a fall in the number of manufacturing jobs. In the construction industry, on the other hand, where the degree of resource utilisation is more than satisfactory, demand should stabilise. For 2010 as a whole, the SNB expects real GDP growth of between 0.5% and 1%, following a decline of around 1.5% in 2009.

In the absence of a consensus, however, strong leadership would be required in order to explain the need for hard measures to the population and to isolate vested interests standing in the way of the needed reforms. Whatever the approach adopted, maximizing the benefits of Malta’s participation in monetary union will require the removal of the remaining impediments to growth. In the public sector, fiscal consolidation must henceforth involve a greater emphasis on expenditure reduction, particularly in view of rising pressures caused by aging-related factors such as pension and health care costs, and on securing more “value for money” and greater accountability in the use of public funds. The provision of free public goods and services regardless of the beneficiary’s ability to pay needs to be reassessed as it leads to waste and to a higher tax burden, besides being inequitable. The same applies to subsidies, whether implicit or explicit. The resulting distortion of incentives and inefficiencies is both unsustainable and incompatible with the fiscal discipline required in a monetary union. An important contribution to enhancing the economy’s competitiveness can also be made by new forms of employment security and by further improvements in labour market flexibility. With regard to the former, there remains scope for more innovation in terms of employmentfriendly labour laws, labour market practices and social protection systems.