samchain/econo-pairs-v1 huggingface dataset:
This means that for every SEK 1 000 in risk-weighted assets, the banks funded their operations with SEK 70 of their own money and with SEK 930 in borrowed money. This is in fact a rather generous calculation and includes capital that turned out be of dubious quality. Decisions had also been made at that time that allowed the banks to use their own internal risk models to a greater extent to calculate their capital adequacy requirements. The banks were thus able to substantially reduce the risk weights of their assets, including mortgages, in the long term. The major banks’ internal risk models indicated that the risks associated with mortgage lending were extremely low. In several cases this meant that the risk weight of a typical mortgage could easily be as low as 6 per cent, which meant that only 6 per cent of the mortgage would need to be covered. With a capital adequacy ratio of 7 per cent and a risk weight for mortgages of 6 per cent, this meant that a bank could fund each SEK 1 000 of a mortgage loan with SEK 996 in borrowed money and SEK 4 in its own money. The risk the bank itself took when it lent SEK 2 million for the purchase of a house thus corresponded to SEK 8 000 of its own capital.

I would also like to thank the Co-lead Managers, DZ BANK AG, Hong Kong Branch, ICBC (Asia) and BMO Capital Markets Corp and Co-Managers, ANZ Investment Bank and Commonwealth Bank of Australia, for managing and distributing the issue. I look forward to your continuing support of our Corporation and its debt issuance activities. Thank you. 2  BIS Review 116/2006
For the solvent banks, the challenge is to maintain their lending capacity. This is particularly important given that other credit markets are not functioning normally, so that it is difficult, or impossible, for businesses to acquire funding directly from bond markets. But without more capital, the banks are not willing to accept new loans on their balance sheets. The main challenge facing the authorities today therefore is to ensure that solvent banks increase their financial strength and thereby their lending capacity. At the same time, it is important to have an exit strategy so that capital injections today do not translate into an increase in state ownership when the crisis is over. Second, cross-border banking has been increasing. Twenty years ago, all the main Nordic banks were national banks. Today, for example, four of the five largest banks in Norway are foreign-owned (three branches and one subsidiary). A national authority cannot be expected to bolster the financial strength of branches of foreign banks: indeed, it could be complicated  BIS Review 12/2009  1  to do this even for foreign-owned subsidiaries. While we were able to choose national solutions to the banking crisis 20 years ago, any effective solution to today’s situation will require an internationally harmonised approach. As today’s financial crisis progressively gets resolved, it will be necessary to start the process of preventing future crises. This will require substantial reform of the regulatory framework. Banks will have to strengthen their capital and their liquidity buffers.

In Norway, the banks dealt with the problem loans themselves, and there is good reason to try to achieve this, where possible: the originating banks themselves are the best placed to deal with the problem loans. However, this presupposes that the problem loans account for only a limited proportion of total lending, so that the banks are able to continue to operate normally. Sweden and Finland established a “bad bank” that took over the high-risk loans. But this was in most cases done only after the state had nationalised the banks and was thereby able to control the kinds of loans that were transferred to the “bad bank”. Third, banking crises do not need to be prolonged. In the Nordic economies the prompt and extensive writing down of problem loans and recapitalisation of the banks limited the economic downturn, which lasted only around a few years. This experience stands in contrast to that of Japan, where loan losses were recognised too slowly, with substantial and decade-long consequences for economic developments. All that said, however, the challenges facing banks today require a broader set of instruments than those used by the Nordic authorities 20 years ago, for two main reasons: First, the situation for banks is more complex. The authorities have to distinguish more clearly between insolvent banks and banks that are solvent but in need of more capital in order to increase lending. The lessons from the Nordic banking crisis can be drawn on for the insolvent banks.
In other words, one cannot rule out the possibility that the  1  See, for instance, Henrekson, M. and M. Persson (2004): “The Effects on Sick Leave of Changes in the Sickness Insurance System”, Journal of Labor Economics, Vol. 22, No. 1, Forthcoming. 2  Lindwall, U. and P. Skogman Thoursie (2000): Sjukfrånvaro och förtidspension - En beskrivning och analys av utvecklingen de senaste decennierna (Sick leave and sick pensions - A description and analysis of developments over the past decades), 2000:2, the Swedish National Social Insurance Board. 2  BIS Review 40/2002  increases in sickness benefit in recent years could have contributed to the increase in those reporting sick. Furthermore, changes in the age composition of the working population may also have had some significance. That is to say, there may be demographic elements in the recent increases in sick leave, bearing in mind that the age group 55-64 years has increased as a percentage of the working population during the greater part of the 1990s. This age group generally has a higher frequency of sick leave than the average. Another explanation may be connected with the large savings made in the public sector during the 1990s in order to get to grips with the budget deficit. The savings may have affected both employees and, for example, users of medical and childcare facilities. If, for instance, the quality of day-care centres declines, and the strain on the personnel increases, reporting in sick may become an alternative for both parents and personnel.

There is also a possibility that employers would resist demands for higher wage increases to a greater extent than before, as it would no longer be possible for a depreciation of the krona to help maintain competitiveness. Increased mobility in the labour market? If domestic prices and wages are insufficiently flexible when competitive conditions change, the labour force may instead choose to leave a country, region or sector and seek employment elsewhere. And if there is a labour shortage, overheating can to some extent be counteracted by, for instance, bringing in labour from other countries or regions with higher unemployment. An increased mobility in the labour market in terms of both geography and profession could thus compensate for sticky wages. Increased labour market flexibility also implies a better allocation of resources and thus a higher potential growth. Mobility in the labour market plays a major role in the way the labour market functions today and mobility both within and between the member states will probably take on even greater significance if Sweden joins the Eurosystem. How mobile is the Swedish labour market? A high level of mobility in the labour market can be characterised by a good matching between job seekers and job vacancies. The Beveridge Curve, which shows the relationship between unemployment and job vacancies, can be used to illustrate matching in the labour market (see Diagram 5). An increase in the number of vacancies will lead to an increase in the number of jobs and a decline in unemployment.
At the end of 2008, this led to a first significant appreciation in the Swiss franc. The SNB took a series of measures to increase liquidity in the banking system and prevent a further strengthening of the Swiss franc against the euro, including, from spring 2009, interventions in the foreign exchange market. A certain stabilisation of the Swiss franc exchange rate took place in 2009. Slide 1 shows that, at the time, the exchange rate was about CHF 1.50 against the euro. As you know, this situation did not last. In spring 2010, tensions on the financial markets increased rapidly again as a result of the debt crisis in Greece, and this was followed by another global flight into safe investments. In this environment, the Swiss franc came under substantial upward pressure against all major currencies, even reaching parity against the euro for a brief period  BIS central bankers’ speeches  1  in summer 2011. In this extreme situation, the SNB introduced the minimum exchange rate of CHF 1.20 against the euro at the beginning of September 2011, enforcing it consistently by means of foreign currency purchases. For more than three years, the minimum exchange rate proved its value as an exceptional and temporary instrument to counter a broad-based and extreme Swiss franc strength. It stabilised the situation and gave the Swiss economy time to adjust. However, in 2014, exchange rate conditions began to shift once again. Expectations that the US central bank would soon lift interest rates had been increasing since mid-2014.

Since the revision of the National Bank Act in 2004, hardly any legal constraints have been set on the SNB’s leeway for investment. The SNB uses this leeway to achieve the optimum possible portfolio structure. Corporate bonds, for instance, were already introduced as an asset class in 2004, and equities in 2005. With the marked expansion of the balance sheet in the past few years, diversification has become increasingly important. In this respect, the SNB goes further than is common practice for central banks. For reasons of diversification, it is constantly evaluating new asset classes, currencies and investment opportunities in both advanced economies and emerging markets. Last year, for instance, the SNB expanded its investment universe to take in both Chinese government bonds and emerging market corporate equities. The SNB’s investment and risk control process is constructed using principles similar to those applied by large institutional asset managers. As you will see in slide 4, it can be split  2  Foreign exchange reserves consist of foreign currency investments minus repo transactions conducted for investment policy purposes and other foreign currency liabilities. BIS central bankers’ speeches  3  up into roughly five steps – investment policy, investment strategy, definition of guidelines and benchmarks, implementation (including tactical allocation of assets and portfolio management), and risk control. The SNB’s investment policy provides the framework for the management of assets and defines the overriding investment objectives.
A krone that is stable - but too strong - also entails costs in the form of low activity. Similarly, a krone that is stable but weak - is a source of high inflation. Petroleum revenues generally provide substantial, but uneven currency inflows into Norway. The currency flows might have resulted in a strong krone and wide variations in the exchange rate. This tendency is countered when the annual use of petroleum revenues over the central government budget is predictable and independent of annual revenue inflows, and the remainder is invested abroad. The capital outflow through the Petroleum Fund contributes to both curbing the appreciation of the krone and maintaining its stability. Norges Bank has not defined an exchange rate target. Nevertheless, developments in the krone are of considerable importance to interest-rate setting because exchange rate developments have an impact on inflation and output. Although the krone may fluctuate in the short term, it will generally stabilise over time. When inflation has been higher in Norway than among our trading partners for a longer period, the krone has generally depreciated. When inflation in Norway is expected to be broadly in line with that of other countries, the exchange rate will normally also return to its long-term average following periods when the krone has been particularly strong or particularly weak. This provides a basis for stable exchange rate expectations. Economic developments and prospects As I mentioned in the introduction, the current picture is a broad-based economic recovery with low inflation.

The key interest rate has been reduced by 5¼ percentage points and is now approximately the same as among our trading partners. The krone has depreciated over the past year, and is in line with the average for the 1990s. Monetary policy is expansionary. This is reflected in low after-tax real interest rates as shown in the chart. The low interest rate level has reduced household net interest expenses. This has increased household purchasing power considerably. Household demand will probably be the most important driving force in the Norwegian economy in the period ahead. Private consumption has a considerable impact on overall demand and activity and accounts for 60 per cent of mainland GDP. Low inflation and reduced interest expenses will support strong growth in household real income. Even with a moderate wage settlement, real income growth may reach about 5%. In addition, improved labour market conditions will strengthen job security and lead to expectations of higher income growth. Against the background of high real income growth, improved job security and expectations of continued low interest rates ahead, household consumption is expected to exhibit strong growth. Growth in private consumption is projected at 5¼% between 2003 and 2004. Given this path, consumption will grow at a pace that is broadly in line with real income, with little change in the saving ratio. After falling last year, house prices edged up in autumn. At the end of 2003, house price inflation was high.
From Africa to London, technology and finance are being combined in unprecedented ways to deliver solar power to communities, drive investment decisions based on sustainability metrics and break down barriers to access. With growing inequality, environmental degradation and more uncertain global developments, the stakes are high. If banks do not take up the mantle of leadership within the community, at risk is their legitimacy in the longer term as vehicles for the efficient allocation of economic resources. Future-proofing the workforce for digital finance One can hardly talk about the quality of growth without addressing the workforce. This brings me to the third area that I would like to touch on. In a sense, the financial sector is arguably better positioned than most to transition its workforce as job profiles change in response to technological disruptions. For one thing, the financial sector has already been moving for a while in the direction of higher skilled jobs. Over the past three years, 91% of total jobs created in the financial sector were in high-skilled positions. As at the end of last year, high-skilled workers continued to comprise the majority of the workforce – representing 74% of the banking sector employees and 83% of the insurance/takaful sector employees. That said, more substantive considerations of the implications of technological disruptions for the financial sector workforce have generally been lacking.

To defend the fixed exchange rate, the Riksbank raised the repo rate. During 1990–1991 the major tax reform was implemented, which meant that tax deductions declined significantly. All in all, the real interest rate after tax rose very substantially over a short period of time, which subdued the demand for credit substantially, and property prices took a sharp downturn. The end result of this process was a banking crisis. The banking crisis also led to a dramatic deterioration in public finances. At the same time, there was a currency crisis in Europe. Sweden had abolished currency regulation in 1989 and in 1991 pegged the krona to the ecu, the euro’s predecessor. However, partly as a result of the higher interest rates in Germany, an increasing number of countries in the European Exchange Rate Mechanism, ERM, experienced a depreciation pressure on their currencies. The previous history of devaluations also meant that there was even greater pressure for another Swedish devaluation. In an attempt to defend the fixed exchange rate, the Riksbank raised its policy rate to a massive 500 per cent. Finally, the situation became untenable and the fixed exchange rate was abandoned on 19 November 1992. The route to the 500-per cent interest rate was thus part of a longer sequence of events, with several interacting circumstances. It also provides a clear illustration of what can happen when the confidence in the nominal anchor is lost.
The Financial Stability Board (FSB) has been a galvanizing force at the international level. The FSB and its members have published proposals, plans, and timelines for reference rate reform and have promoted the strengthening of the major interest rate benchmarks. The FSB has been carrying out work on the development and introduction of alternative benchmarks, developing a plan to accomplish a transition to new benchmarks, encouraging work by the private sector on contract robustness, and reporting regularly on the progress made.14 The Federal Reserve has played a lead role in the development of these recommendations as applied to U.S.-dollar LIBOR, working closely with the other major financial regulatory agencies in the United States. This effort has also involved coordinating with the official sector sponsors of similar efforts around the world.15 In late 2014, in response to FSB and Financial Stability Oversight Council recommendations, the Federal Reserve convened the Alternative Reference Rates Committee (ARRC)—a group of market participants established to identify more robust alternative U.S.-dollar reference rates that are risk-free or nearly risk-free, fit the needs of the derivatives market, and are compliant with IOSCO principles.16 This effort paralleled similar ones in other jurisdictions to find reference rates that are well-suited to local conditions and market needs—including the UK’s Working Group on Sterling Risk-Free Reference Rates.

In my view, LIBOR is likely to go away—and it should, because it is not supported by a sufficiently robust regime. The LIBOR countdown clock should provide an impetus for action, but it should also make market participants and regulators increasingly nervous as we approach the deadline—especially if longer-term solutions are not in train or in 4/6  BIS central bankers' speeches  place. Time is of the essence, and we must manage it well. The ARRC and others have laid out valuable transition plans, and we need to ensure that they are executed expeditiously and well. Of course, I do not mean to minimize the costs involved. This is a monumental and complicated effort—one that the industry has never undertaken—and it will entail overcoming many obstacles. It requires collective action by a wide variety of market participants, some of whom may not be fully convinced of the need for change. And, there may be others with a direct interest in the preservation of LIBOR—such as its administrator—who may not support moving away from the status quo. There also undoubtedly will be those who seek a free ride on the efforts of others. And, of course, the effort will encounter inertia and wishful thinking. All of this is to be expected in such a large undertaking with significant upfront costs. Nevertheless, delay is not a viable option. This task is borne out of necessity.
Moreover, in those European countries and regions where competitiveness has been lost in the past and/or the unemployment rate remains too high, it is important that wage increases do not fully exhaust productivity gains in order to provide incentives for firms to create additional jobs. In this respect, sufficient wage differentiation is also required to improve the employment opportunities for less skilled-workers where there is high unemployment for this category of employees. The extent to which an increase in nominal wage growth leads to upward pressure on inflation depends crucially on trend labour productivity growth. Under normal circumstances, stronger labour productivity growth would justify an increase in nominal wage growth, thus allowing wage earners to participate in economic growth without adding to inflationary pressures. But, for the same reason, without sustained improvements in labour productivity, higher nominal wages would not lead to improvements in real purchasing power, but undermine job creation and fuel inflationary pressures. Against this background, the ECB’s Governing Council considers that, features enforcing wage rigidities and leading to nonoptimal wage setting – in particular indexation of nominal wages to the consumer price index – should be avoided. This is particularly accurate in this period where the euro area economy is currently in a juncture which is dominated by exogenous price shocks and uncertainty about the outlook of the real economy. Headline inflation which has been pushed up by external pressures on energy and food prices, is today significantly above 2% in the euro area and even higher in Spain.

At the end of the day, the question is an empirical one. Here, there is no evidence that Hong Kong’s long term growth has been impeded by our exchange rate regime. Indeed, there is some evidence that Hong Kong has grown more rapidly than would otherwise be expected on the basis of our factor endowments. Perhaps this should not be surprising. It would seem natural that the very flexibility required to respond to short-term shocks under a fixed exchange rate regime would foster a climate of innovation capable of turning challenges into opportunities. Hong Kong’s involvement in the rapid opening and development of the Mainland economy is an excellent example of this. It seems to me, then, that the sustainability of our exchange rate system has been demonstrated through its performance. While the economic logic is important, of course, it is irrelevant unless it is complemented by a high degree of public support — the ultimate test of sustainability is that the public at large recognise and endorse the benefits of the linked exchange rate. The high degree of public support that the linked exchange rate continues to enjoy — in spite of the painful aspects of the current adjustment process — testifies to the strength of the consensus that our system is appropriate. The choices for Asian economies The linked exchange rate system, with its strict currency board arrangements, has served Hong Kong well since 1983.