samchain/econo-pairs-v1 huggingface dataset:
Cases of financial turmoil in emerging countries, which are usually due primarily to inappropriate domestic policies, show that there is room for improving the timely identification and correction of vulnerabilities by International Financial Institutions. In particular, a key point is to improve the analysis of debt sustainability in order to have a more forward-looking assessment of possible cases of insolvency. We can only praise the ongoing work by the IMF on this matter. Unfortunately, enhancing warning signals will probably not be sufficient to protect us against financial crisis. 2.2. Designing effective procedures for handling international financial crisis represents another challenge  First, there is a need for clarifying the financing policy of the IMF, as acknowledged by the G 7 and the recent IMFC communique. Greater discipline in the provision of official finance is key to ensure a more timely involvement of the private sector in crisis resolution (PSI), and to provide strong incentives for debtors and creditors to start debt negotiations timely and appropriately. By doing so, the international community will benefit from the so-called « catalytic approach », that was at the core of crisis management in the 1980s and proved quite successful, and that was recently restated by the international community. A precondition for an orderly crisis management relies upon more predictable decision-making process regarding the use of Fund’s resources. In that regard, the presumption of clear access limits to Fund financing is key.

The need for an enhanced framework for crisis prevention and management  I do not need to remind you of the long list of financial crises emerging market economies have gone through in the last two decades. Against this background, the international community must, on the one hand, enhance crisis prevention and, on the other hand, design and implement better procedures for crisis resolution. BIS Review 62/2002  3  2.1. Authorities must reflect, in conjunction with the financial industry, on building up a suitable system of surveillance and crisis prevention. The objective of strengthening crisis prevention is shared by the private sector and by official community given the magnitude of potential losses; indeed, in some cases, restructuring costs for banking crises have reached more than 40 % of GDP. Building on international standards and codes is instrumental in establishing an appropriate institutional, supervisory and regulatory framework in the financial sectors of all market economies. The value of international standards is now widely recognised, insofar as they contribute to spreading international best practices and codes of good conduct, very closely linked to the globalisation process and the expansion of international capital flows. Indeed, the conduct of sound national economic and financial policies stands for a primary protection against potential financial contagion. Much has already been achieved with the design of more than seventy internationally agreed norms.
One of those efforts is our plan to bring in a simpler regime for smaller banks and building societies – we call this “strong and simple” just in case anybody thinks we want to have a weak regime for such firms. The prudentist does not believe in letting her younger patients develop cavities, but she does want to make their visits more pleasant. As far as I can work out from the many responses to our discussion paper, pretty much everyone thinks this is a good idea. The question now is how to design the simpler regime. The responses set out a broad range of views, which we are currently analysing. For instance, the discussion paper set out two alternative approaches to designing prudential requirements for the simpler regime – a ‘streamlined’ approach, which takes the existing framework as a starting point and modifies elements that are too complex for smaller firms, and a ‘focused’ approach, which is based on a narrower but more conservatively calibrated set of prudential requirements. There are advantages and disadvantages to each, and these will need to be weighed up when 3/5  BIS central bankers' speeches  designing the regime. The responses to our discussion paper seem to suggest relatively stronger support for a streamlined approach, but we’ll keep going through the responses in detail and then bring forward proposals for consultation in due course. Our other main early reform effort is less popular, strictly for the prudential enthusiast only. But it may well be more important.

We of course aim to be a more sensible and reasonable prudentist, but the question of ease of exit for our patients has nonetheless become more pressing through time. A well-functioning and competitive market is one in which firms can enter and exit easily. Our competition objective leads us to pay particular attention to this, significantly more I would say than prudential regulators without such an objective. I have frequently bored this audience with the very long list of things we have done to encourage entry, particularly into retail and SME banking markets given the competition issues in them. I will resist the urge to do this again but confine myself to making the simple point that in the 8 or so years since its creation the PRA has authorised 61 new banks, of which 28 are really de novo UK banks, because I think these figures speak for themselves. We have, however, said and done less on ease of exit. By “exit” here we mean the point at which a firm becomes unviable and can no longer sustainably meet obligations to customers using its own resources. While this often ultimately ends in winding-up proceedings, outside of fast failures there is much that can be done beforehand to “ease” their passing1. A reliably safe exit process is a vital corollary of ease of entry, as it allows us to be more accommodating to new entrants.
The Vertical Phillips Curve Inflation (% ) 15  10  5  0 0  2  4  6  8 10 Unemployment (% )  12  Chart 2. The United Kingdom Phillips Curve, 1993-2005  BIS Review 52/2006  1  Inflation (% ) 15  10  5  0 0  2  4  6  8  10  12  Unemployment (% )  Source: ONS. The unemployment rate used here is the Labour Force Survey measure. Inflation is measured using the Retail Price Index excluding mortgage interest payments (RPIX). So what is going on? The explanation is, I believe, straightforward, but it contains some important lessons for the conduct of monetary policy today. In the 1950s and 1960s our experience was that the rate of structural unemployment was rather stable, so that large swings in the growth rate of money spending eventually showed up in movements of inflation. In those circumstances the Phillips curve does indeed appear vertical. But since 1992 monetary policy has kept inflation broadly constant – within 1 percentage point of its target every single month since December 1992 – while structural changes have reduced the sustainable rate of unemployment in every part of the United Kingdom – including Scotland. So the Phillips curve appears horizontal. In the decade up to 2004, that is until the recent slowdown, unemployment fell from double-digit levels to around 5% on the internationally comparable measure and to 3% on the claimant count.

But just as the Scottish Enlightenment still influences our thinking today, so the twin features of that framework – namely inflation targeting and independence of the Bank of England – will be crucial to successful monetary policy in the future. Just as the Monetary Policy Committee meets monthly to decide on interest rates, so David Hume and Adam Smith met regularly in the Poker Club to debate the policy issues of the day. Hume was an officer of the Club with the unusual title of the Assassin’s Assessor, “without whose assent nothing could be done”, and whose role was to ensure that in meetings “there was likely to be no bloodshed”. So I take it that Hume at least would have been content with last week’s decision to leave interest rates unchanged. There is no Assassin’s Assessor on the Monetary Policy Committee, nor – you will be relieved to hear – any bloodshed. But, month by month, we shall be debating the prospects for the economy in order to decide in which direction, if any, interest rates need to move. 4  BIS Review 52/2006
Deregulation has been the catalyst – the more cynical would say the excuse – for banks to introduce fees and charges on deposit accounts. Most banks have also introduced tiered savings accounts, with higher interest rates being paid on larger balances. Sometimes the rate depends on the range of the bank's products and services that the customer uses. The converse is that some banks are now paying less than the standard rate on small deposits. A further innovation is that in a few cases there are savings products that are linked to HIBOR. Banks have not rushed to pay interest on conventional current accounts, though some have offered combined savings and deposit accounts that pay interest. At least one bank offers an auto-sweeping service from savings to current accounts. Such products are effectively offering interest on current accounts. Generally speaking, the amounts deposited in the innovative current and savings accounts are still quite small. Perhaps the biggest surprise so far has been that some of the banks have been able to lower their benchmark savings account rate to 1.75%, which is probably 25bp below what it would have been without deregulation. A few years ago, when the debate about deregulation was taking place, the conventional wisdom was that the savings rate was artificially depressed and would rise closer to time deposit rates after the cap was lifted. So far this has not been the case. Indeed, it appears that the interest rate rules effectively imposed a floor as well as a cap.

It is a sobering thought that the interest rate on a 30-year mortgage in Hong Kong is now down to as low as 4.25%, more than 1 percentage point below the yield on a AAA-rated, US Treasury bond. It is no surprise that some banks are losing enthusiasm for the downward spiral in mortgage rates and are standing back. Among other things, this is showing up in an increased appetite for investment in bonds. The fall in lending margins is a classic case of too much money chasing too little demand. The impact is, however, being softened to some extent by the favourable impact of the excess liquidity on deposit margins. Partly as a result, underlying profits seem to have held up reasonably well in the first half of the year despite the difficult operating conditions. We are, however, only part of the way through the reporting season and it will take a bit longer to come up with definitive conclusions about the interim results. As always, some banks have done better than others, and it is worth looking at two of the factors that help to deliver a superior performance. The first of these is skill in asset-liability management. This is necessary to enable banks to widen deposit margins as lending margins shrink. It means, among other things, trying to reduce reliance on high cost deposits, trying to persuade depositors to consolidate deposits with your bank and looking for alternative funding sources, including long-term debt.
A raise in the interest rate in this type of situation, where over-optimism was rife and both inflation and interest rates were low, could have meant that investors, property buyers and credit institutions would have acted rather more cautiously than if the interest rate had remained unchanged at a low rate and thus at least subdued the price bubble somewhat. The costs to society of waiting too long to change the direction for monetary policy can be high if imbalances are allowed to grow and the fall in production can be drastic when the imbalances are corrected. It is therefore important that monetary policy should act in a preventive manner and that great vigilance is exercised with regard to the temperature of the entire economy, both the real and the financial parts. Let us return, after this outlook, to our own, calmer circumstances. Low, stable inflation expectations cannot be used in all situations as an argument in favour of retaining monetary policy unchanged. It could be possible that the expectations are based on the general public assuming that the Riksbank will act if and when required. The fact that inflation expectations remain stable could then reflect expectations of future monetary policy. If these expectations are not fulfilled, then inflation expectations, and later on the rate of price increase, will rise. The example from Japan also shows that it is not certain that inflationary pressure will be visible in CPI inflation; sometimes price pressure is first seen in other prices than consumer prices.

And perhaps, most worryingly, the momentum for reform appears to have slowed, partly because markets have stabilised, partly because the public is losing interest and partly because, as Jerry Corrigan recently said, “the subject matter of reform is so very complex and often controversial.” 6 In view of the complexity of the issue, allow me to lay out the regulatory reform priorities which the Swiss National Bank (SNB) believes we must focus on in our efforts to build a more robust financial system for the future. Fully in line with proposals by the FSB and the decisions already taken by the G20 leaders, we must pursue a dual-track approach to reform, combining preventive measures and resolution measures: The preventive measures aim at reducing the probability of bank failures and systemic crises. Note that I deliberately use the word “reduce”. Eliminating all instability would be neither feasible nor desirable. The resolution measures aim at reducing the negative consequences in the event that failures or systemic crises occur – despite hopefully greater resilience in the future. In what follows, it is useful to bear in mind the extraordinary situation we face here in Switzerland. In international comparison, our banking sector is very large relative to our economy. Currently, total assets of the Swiss banking sector exceed seven times GDP. Furthermore, the Swiss banking sector is highly concentrated. Based on total assets, the two big banks, UBS and Credit Suisse, have a market share of more than two-thirds.
Cryptoassets represent a new competitive threat for traditional transactional services, with some variants (such as stablecoins) also potentially compromising deposit-taking activities as 17  See “Assessment of Risks to Financial Stability from Crypto-assets”. FSB (2021). 18  https://www.bde.es/f/webbde/Secciones/Publicaciones/InformesBoletinesRevistas/InformesEstabilidadFinancera/22/F SR_2022_1_ChE.pdf 19  This extends to all matters concerning compliance with the tax obligations associated with investing in these markets. With this in mind, Spain has announced new reporting obligations that are expected to enter into force in 2023. The treatment of such assets for the purposes of the various different taxes has to date been resolved in the form of requests for binding rulings from the Directorate General of Taxation. 20  See “Research Note: Cryptoasset consumer research 2021”. FCA (2021). 21  Specifically, even though half were University graduates, almost two thirds of the crypto-asset owners interviewed admitted to having limited or zero understanding of the most basic features of the associated risks and rights. See “Cryptoassets in Asia: consumer attitudes, behaviour and experiences”. OECD (2019). 22  See “Cryptic Connections: Spillovers between Crypto and Equity Markets”. Iyer, T. (2022), IMF Global Financial Stability Notes, No. 2022/01. 6  they intend to become a store of value. As highlighted in some recent papers, a disorderly disintermediation in the event of an accelerated substitution of bank deposits for such digital assets could ultimately affect the banking sector’s net financing capacity and lead to credit being rationed or becoming noticeably more expensive.

As investment activity is becoming increasingly complex, so are the demands of corporate governance. In conformity with the private financial sector, central banks - the SNB counts itself among them - have professionalised their investment and risk control processes and improved their accountability toward the public. With increased professionalism, particularly as a result of applying the mark-to-market principle, the SNB’s profits are more volatile than in the past, however. In order to safeguard the independence of monetary policy and so as not to restrict investment policy, the SNB’s annual profit distribution - as already spelled out in the message of the Federal Council on the new National Bank Law - must remain a variable residual amount in the long term and must not be tied to any specific purpose. BIS Review 55/2003  1
If an issue is on the FPC agenda, given they are responsible for the financial  3  www.bankofengland.co.uk/-/media/boe/files/news/2018/november/boe-and-fca-appoint-new-chair-of-the-sterling-risk-free-referencerates-working-group.pdf 4 https://www.bankofengland.co.uk/events/2019/june/last-orders-calling-time-on-libor 3  All speeches are available online at www.bankofengland.co.uk/news/speeches  3  system as a whole, then we would generally assume it should also be on the agenda of the senior governance committees of the firms who make up that system. To make sure this was the case, the UK regulators – the PRA and FCA – took a decision to send a “Dear CEO” letter to our largest banks and insurers requesting sight of their Board-approved plans for managing the risks around Libor cessation. The Bank and FCA have already responded to the individual firms involved and, this morning, we published thematic findings from the exercise. I encourage all Libor users whatever their size and position in the system - to look at this: the emerging themes from the exercise apply to a wide range of firms, not just those who received our letters. I’ll make a few observations:  i. The letter has achieved one of its original objectives of helping to focus senior minds on this topic. Each firm written to now has a dedicated Senior Manager under the Senior Managers regime with responsibility for overseeing the transition – I can see many are here this morning. ii. The responses to the Dear CEO letter highlighted much of the good work that is already underway; how some firms have mobilised themselves to meet this challenge.

This is essential in order to map out the way forward for the European Monetary Union, which I will now briefly sketch. III. The way forward  The way forward for the euro area and the EU requires a number of initiatives in key areas in order to guarantee the public authorities’ ability to continue delivering macroeconomic and financial stability. In my view, the building blocks of any comprehensive plan of reform for Europe are the following:   implementing fiscal consolidation and securing the sustainability of public finances;    promoting sustainable growth and job creation;    enhancing the crisis management framework;    improving economic governance;    strengthening the financial sector.   Let me briefly elaborate on these points. III. (a)  Implementing fiscal consolidation and securing the sustainability of public finances  The financial and economic crisis has led to a very considerable deterioration in the fiscal positions of euro area countries, in terms of both large budget deficits and rising government debt. However, the economic recession amplified imbalances in fiscal policies that had built up gradually long before the crisis, reflecting the failure by many countries to implement sound fiscal policies during past periods of strong economic growth. On the institutional side, the EU’s fiscal framework, which is embedded in the Stability and Growth Pact (and that had been watered down in 2005), proved to be too weak to enforce fiscal discipline and was not implemented with sufficient rigour.
Accordingly, the maximum daily amount to be purchased in the auctions has been set at USD 45 million, with USD 15 million for auction amount, and USD 30 million for optional selling amount (200 % of the total amount sold). As of 12 December 2006, the total amount of foreign currency purchased via auctions and interventions is USD 9.4 billion, while the total amount sold is USD 3.1 billion for the whole of 2006. The total amounts of foreign currency purchased and sold by the Central Bank are shown year by year in the table below:  Table 2: The Central Bank’s net foreign exchange purchases and sales (2002-2006; million USD) FX Buying Auctions  FX Selling Auctions  FX Buying Interventions  FX Selling Interventions  Total Net FX Buying  2002  795  -  16  12  799  2003  5.652  -  4.229  -  9.881  2004  4.104  -  1.283  9  5.378  2005  7.442  -  14.565  -  22.007  2006*  3.961  1.000  5.441  2.105  6.297  Total  21.954  1.000  25.534  2.126  44.362  Year  * As of 12 December 2006  BIS Review 1/2007  7  Unless extraordinary differences are observed in foreign exchange liquidity conditions, FX buying auctions will continue in 2007 in the framework of the aforementioned program.

Finally, I will turn to the experience of what is now seven years of coexistence with the euro area. While my focus is naturally on Switzerland, I would like to emphasise that we are not the only ones living on the edge of the euro area. Norway, Sweden and the UK conduct independent monetary policies; most Central and Eastern European countries are eager to join the euro area, but have not been admitted yet, and, of course, Israel is not a member state either. In fact, Israel and Switzerland share a large number of similarities in their relations to Europe. Let me start with the obvious. We are both small open economies. Our populations are roughly the same, with around seven million people. Our economies are service-oriented, with about two-thirds of GDP originating in that sector. Moreover, Israel and Switzerland are both export-oriented, with Israeli exports amounting to 44% of GDP and Swiss exports accounting for 49%. One-quarter of our countries' exports are services, three-quarters are goods, most of which are manufactured goods, especially capital goods. Granted, the greatest part of Israeli exports, roughly 40%, goes to the US, while the largest share of Swiss exports, around 60%, goes to the EU. Due to our geographical position and a long history of cross-border activity, it is understandable why we are more Europedependent than Israel. Nevertheless, Europe is a critical trading partner for your country, too, absorbing almost a third of Israeli exports.