samchain/econo-pairs-v1 huggingface dataset:
I’ll ask why the communications about the risks that built up were insufficient to prevent the crisis. The fourth part is a what if? What if the Risk Board had existed in the early 2000s – could the factors that led to the crisis have been identified and averted? The answer should point to some of the key advantages of (and reasons for) the EU’s new macro-prudential function. 1. The setting-up of the European Systemic Risk Board  The idea of establishing a body to monitor and assess systemic risk at European level was first mooted in the late 1990s. 2 It took over a decade and a financial crisis to implement it. Let me recall the milestones of the setting-up of the ESRB institutional framework. Following the recommendations of the de Larosière Report, in February this year, the main features of the institutional framework for macro-prudential supervision were defined by the Communication published by the European Commission on 27 May as well as the Conclusions approved by the ECOFIN Council on 9 June and by the European Council on 18 and 19 June. The European Systemic Risk Board will be responsible for the macro-prudential oversight of the financial system within the European Union. It will seek to prevent or mitigate systemic risks within the financial system, so as to avoid widespread financial distress, and it will contribute to a smooth functioning of the Internal Market and ensure a sustainable contribution of the financial sector to economic growth.

13  See, for example, Alessi and Detken (2009), “‘Real-time’ early warning indicators for costly asset price boom/bust cycles: a role for global liquidity”, ECB WP Series No 1039, March; Borio and Drehmann (2009), “Assessing the risk of banking crises – revisited“, BIS Quarterly Review, March; ECB Financial Stability Review, June 2009, Special Feature D “Estimating probabilities of hedge fund liquidation”. BIS Review 115/2009  5  Risk assessment Risk assessment relates to the evaluation of the relevance and potential severity of each risk identified as material in the surveillance phase. It should therefore include a quantitative evaluation of the likelihood that the potential risk scenarios could actually materialise, as well as an evaluation of the ability of the financial system to absorb the shocks (for example, through existing capital buffers or through the potential to increase buffers in the future through profit retention). It should also include cost estimates in terms of the failure of institutions, costs deriving from the malfunctioning of financial markets or impairment of the real economy. The product of these factors forms the basis for the ranking of risks. Quantitative methods and analytical tools (for example, macro-stress testing models) should support, together with expert judgement, the prioritising or ranking of these risks. The models will help in the conduct of quantitative impact assessments on the financial sector as well as in the assessment of the potential costs for the real economy, and thereby offer information about the relevance and severity of the risks detected in the surveillance phase.
Households have been worried about their savings, jobs, earning power and their homes; companies have been concerned about the availability of credit, the health of their suppliers, the viability of their markets and the prospects for their investments. Uncertainty has reduced confidence, dampened spending, and slowed growth. As a result the UK has endured its weakest recovery on record. Comparisons with other countries throw that fact into sharper relief. Over the past five years Germany has grown by 2%, the US by 5%, Australia by 13% and China by more than 50%. Meanwhile the UK economy still produces 3% less than it did five years ago. The real cost of this poor performance is that around a million more people are unemployed than before the recession. Capacity has lain idle in firms and opportunities have gone wanting for lack of finance and confidence. It will take a period of robust growth to begin to reduce meaningfully this spare capacity in the labour market and in companies. The Bank of England’s task now is to secure the fledgling recovery, to allow it to develop into a period of sustained and robust growth. We aim to get there in part by reducing the uncertainty that has held back growth. And we are using our full suite of policy tools to help rebuild confidence so that we all can move forward in a sustainable manner. First, we are giving confidence that interest rates won’t go up until jobs, incomes and spending are recovering at a sustainable pace.

While much has been made of the special relationship between the US and UK, it is not so special that the possibility of a reduction in the pace of additional stimulus in the US warrants a current reduction in the degree of monetary stimulus in the UK. 4  We are not alone in that belief – other major independent forecasters such as the OBR and NIESR share our view that unemployment will be above 7% in 3 years’ time. The MPC’s assessment of the outlook for unemployment and likelihood of hitting the threshold is described in the August Inflation Report, available on the Bank’s website at http://www.bankofengland.co.uk/publications/Pages/inflationreport/2013/ir1303.aspx. 4  BIS central bankers’ speeches  Movements in longer-term market interest rates are certainly relevant, but what matters most to you is what actually happens to Bank Rate, now and in the future. That is because the interest rates on 70% of loans to households and more than 50% of loans to businesses are linked to Bank Rate.5 And it is the Bank of England that controls that rate. We do not intend even to consider raising it before unemployment falls to 7%. When it does reach that point, we will control whether a rise is warranted, taking into account the strength of the recovery and the outlook for inflation. The upward move in market expectations of where Bank Rate will head in future could, at the margin, feed into the effective financial conditions facing the real economy. The MPC will be watching those conditions closely.
It discusses the principles that determine the situations in which the Riksbank can consider providing support for distressed banks and the terms for the support. Many other countries are reluctant to talk about these matters openly for fear that banks will be tempted to take greater risks. The Riksbank, on the other hand, sees openness as a means of deterring greater risk-taking. Clear game rules mean that the banks know more about what to expect. Future stability work Much has been done with the Riksbank’s work on stability in the past seven years but it is not hard to pick out fields where there is room for improvement. The analysis of borrowers abroad will be enhanced. The Riksbank needs to acquire a better understanding of how the banks manage their liquidity, select sources of funding and the effects of this on their durability. The analysis of stability also needs to be supplemented with methods for stress tests, that is, ways of analysing the sensitivity of bank durability. To obtain further inspiration for the work of improving the analysis, the Riksbank has commissioned an external evaluation of the work on financial stability. This evaluation is in the hands of a trio representing the international research frontier, the central bank world and the Swedish bank sector. They will be bringing their individual perspectives to bear in a joint effort to evaluate the quality and focus of the work we have built up.

Oversight of the infrastructure concentrates on the systems that are vital for the functioning of the financial market in Sweden. Besides RIX, the system for large-value payments provided by the Riksbank, these are primarily the central securities register (VPC), the Stockholm Stock Exchange and the clearing system for retail payments (Bakgirocentralen or BGC). BIS Review 53/2003  3  The Riksbank has also chosen to work on practical matters to do with risk management. These issues are invariably complex. Financial crises can arise at very short notice, not least on account of the massive payment flows and because banks tend to have a large element of short-term funding. The ongoing integration may have made things even more difficult. The Riksbank has therefore built up an internal crisis organisation and clearly documented who does what in the event of a crisis, including those who are to be contacted and put in the picture, how the press is to be informed, and the legal consequences of various measures. Another important element in the work on readiness is regular crisis exercises. Crisis management has also come to feature prominently in Sweden’s international profile. This has to do with our experiences as well as our basic stand on the importance of transparency. The Riksbank is leading Nordic and European working groups in this field. One of the articles in the latest Financial Stability Report that was published yesterday deals with the role of the Riksbank as lender of last resort.
Both are necessary, though both differ in terms of focus, instruments and the way risk is evaluated. Micro-supervision seeks to improve the safety and soundness of financial institutions, while macro-supervision focuses on the health of the financial system as a whole. Since 2014 the Banco de España has indeed been identifying and monitoring vulnerabilities in the financial system, and it also has the possibility of introducing countercyclical capital buffers. Along these same lines, we have recently been given the possibility of using tools other than the mere activation of capital buffers. These tools are more specific, enabling us to take action focusing on the credit segment where imbalances may be concentrated. Changes in banks, governance and business models, and changes in society In any event, as supervisors we cannot ensure the sustainability of banking business in the long run. Actually, the keys to such sustainability have always been in the hands of banks themselves. I should like to talk about some of these in-house keys. Specifically, I shall refer to governance and those aspects that should have a bearing on banking business models, some of which in direct response to changes in society. Bank governance As many of you are aware, governance is an aspect I often bring up in my speeches. I consider it to receive little attention, despite the fact that, in my view, it is a necessary though not sufficient condition for the proper functioning of banks. Governance is not something totally quantifiable or directly measurable.

Anita Angelovska Bezhoska: Payments in the digital era - inside out Speech by Ms Anita Angelovska Bezhoska, Governor of the National Bank of the Republic of North Macedonia, at the 13th Conference on Payments and Market Infrastructures, jointly organised by the National Bank of North Macedonia and the Netherlands Bank, Ohrid (digitally), 9 December 2021. * * * Dear Governor Knot, Minister Besimi, Dear speakers and participants It is my great pleasure to welcome you to our traditional conference on Payments in the Digital Era: Inside Out, hosted by our central bank together with the Dutch Central Bank, for which I express my deep gratitude to governor Knot and his colleagues. Our lives are becoming increasingly digital as a result of the proliferation of new technologies that transform public and private services making them more convenient and accessible to consumers. As our lives have gone digital, so have our payments. The digitalisation of consumer payment behaviour, which has been going on for years, has been accelerated by the pandemics that shifted it in a higher gear. Globally, last year cash payments declined by 16%, while the number of non-cash transactions increased by 6%. The pandemics has particularly accelerated the shift towards real time/instant payments that grew by 40%. In the euro area, according to the ECB survey on payment attitudes (2020)1, 40% of the respondents stated that since the onset of the pandemic they have used less cash and more cards (contactless in particular).
Instances of “follow-the-leader” behaviour occur not just in bullish stockmarkets but also in the currency market when many countries with different conditions are lumped together in a general assessment. Market players must assess each country separately. Central bank interventions under certain circumstances are uncommon with a flexible exchange rate regime but they do occur. I cannot exclude the possibility of the Riksbank intervening again if this were to be called for. Growth in the industrialised countries may thus be affected by the real economic crisis which has hit the emerging markets and resulted in a sharp fall in output there. The magnitude of such an effect will be highly dependent on confidence - confidence among households and firms so that they are prone to consume and invest, confidence among banks so that they are prone to provide credit. The Riksbank’s appraisal In the Riksbank’s most recent Inflation Report we counted on an OECD area growth rate of around 2 per cent in the years ahead. It should be borne in mind that this figure represented the latest in a series of downward revisions over the past twelve months. Since the publication of the September Report, our assessment of tendencies in the rest of the world has not changed. Considering the mechanisms to which I have just referred, however, it is not surprising that our Report highlighted the risks associated with the external situation. This situation is unusually difficult to evaluate and has to be followed closely.

10  For example, foreign currency debt securities were at the heart of the Latin American debt crisis in the 1980s in which bond investors played a significant role in volatile capital flows and ultimately in sovereign crises. 11 Recent Bank research shows that during the 2013 ‘taper tantrum’ asset managers sold bonds as prices fell, perhaps exacerbating the episode. See Czech and Roberts-Sklar (2017). 12 Whilst price-based measures of liquidity in fixed-income markets, such as quoted bid-ask spreads, are in line with historical standards, volume-based measure have deteriorated. In US and UK government bond markets, turnover ratios have declined materially since pre-crisis. In corporate bond markets, average large trade sizes have fallen. US corporate bond dealer inventories are over six times less than before the pre-crisis period and Sterling and US corporate bond inventories have been steadily declining since 2011. 13 Bank of England Financial Stability Report, Box 2, December 2015 6  All speeches are available online at www.bankofengland.co.uk/speeches  6  It is also less clear now that other investors like pension funds and insurance companies would come in to stabilise a falling market in the way that they may have done in the past. A Bank of England-led study in 2014 found evidence that in some instances, insurance companies and pension funds might indeed act pro rather than counter-cyclically in a severe episode of stress, selling into a falling market.
So that means Greece would not even need to be included in the government bond buying programme? C.N. Don’t jump the gun! The first question for the Governing Council is: should we decide to launch it? My personal reading is that if we were to decide to have a government bond buying programme, we should have a cap in terms of the percentage of what we would be buying, so that most of the financing will continue to rely on the private market. That would mean a relative limit of outstanding debt of each country? C.N. Yes, in my view, such a programme can be launched only if a majority of the debt were to continue to be held by private investors. So it should not be an absolute figure like 500bn? C.N. Personally I do not put too much trust in the absolute figures regarding caps. For me there is only one objective: to maintain price stability. That means we both need to have the credible prospect of returning to our objective of close to but lower than 2 per cent inflation, and we must ensure that expectations are not disanchored. If, thanks to the fall in the oil price, inflation, which was already very low, were to remain too low for too long, we would need to act to continue to ensure the credibility of our goal. There doesn’t seem to be a consensual view in the Governing Council? C.N.

But it is really for the governments to see whether these assumptions remain likely. Any debt restructuring is always very costly in terms of confidence. It is really something that you want to only use as a last resort instrument and do so in the friendliest possible way with lenders. We could wonder whether  BIS central bankers’ speeches  1  the repayment schedule is appropriate, but this is really a matter for negotiations between the lenders and the borrowers. Given that debt levels are above 170 per cent GDP, isn’t debt restructuring inevitable? C.N. It very much depends on the assumptions on Greek growth in the future, which in turn will be dependent on the pace of Greek reforms and the growth in the euro area as a whole. Is it even possible for the ECB to decide on further monetary policy easing with a possible bond purchase programme just a few days before the Greek election? C.N. Nothing has been decided yet at the ECB but we will have to take these uncertainties into account. But the Greek bond market is extremely small and so the question maybe difficult in theory but in practice it doesn’t really apply. Just to make it clear, the negotiations with Greece won’t block the ECB, will they? C.N. No, they won’t. The problem of Greece is rather minor compared to the question of whether or not and when to step in with action on further market segments in our unconventional monetary policy.
However, looking at studies of Swedish data covering the period from the end of the 19th century up to the mid-1990s, it is difficult to find evidence of this. 9  8  See, for instance, Chapter 5 “The changing dynamic of the global business cycle”, in World Economic Outlook 2007, IMF. See also T. Dalsgaard, J. Elmeskov and C-Y. Park. ”Ongoing changes in the business cycle, evidence and causes.” OECD Working Paper ECO/WKP(2002)1. 9  Jesper Lindé, ”Swedish postwar business cycles: Generated at home? Scandinavian Journal of Economics, 2004:4, 623-45. and V. Bergström and A. Vredin, ”Measuring and Interpreting Business cycles”, Clarendon Press Oxford, 1994. BIS Review 121/2008  3  If one looks at the period from 1980 to 2008, however, the turning points in the economic cycle appear to systematically occur a few quarters earlier in the United States than in Sweden. 10 This could imply that international developments have also gained increased significance in recent years as capital markets have been deregulated and the exchange rate has been allowed to float. One can also see that exports often show a turnaround a quarter or so before GDP. However, there have been few cycles since 1980 and it is therefore difficult to reach any conclusions. Let me illustrate how the components of GDP in Sweden move in the example of a “normal” economic downturn. Export growth often turns around a few quarters before the turnaround for GDP.

I will also offer my opinion on how other economic policy should make a consistent contribution, so that we can chart a course through these uncertain times towards prosperity and opportunity. 1. Euro area: situation and outlook A succession of adverse shocks, including that triggered by Russia's invasion of Ukraine, have rocked the global and, naturally, the European economy. Indeed, given our geographical proximity to the war zone, our close trade and financial ties to Russia and our high dependence on fossil fuel imports from that country, the euro area economy has been one of the hardest hit by the war. The war has sent the prices of energy and other commodities soaring. As these are products that the euro area does not have at its disposal and needs to import, this has led to a significant deterioration in our terms of trade of around 2 percentage points (pp) of (nominal) GDP to 2022 Q3. Moreover, this shock has unfolded amid sky-rocketing global inflation, which has reached levels not seen in several decades and is prompting sharp falls in real income. The reasons behind the rise in inflation are manifold and combine supply and demandside factors, whose weights differ depending on the geographical area in question. In  1/8  BIS - Central bankers' speeches  the case of the euro area, higher energy and food prices have added to the effect of other supply-side factors related in particular to supply-chain disruptions.
To evaluate forecasts it is necessary to understand what these forecasts are based on. Solely model-based forecasts mean, for instance, that there is only one interest rate, linear relationships, that the household sector is represented by one household and that imperfections in the financial markets are not picked up. The fact that there is only one interest rate means, for instance, that the effects of unusually low long-term real interest rates are not included. The fact that the relationships are linear means, for instance, that the model will never be able to forecast abrupt falls in demand following a shock. So how should a central bank judge whether there is a risk that lending and asset prices are increasing too quickly if the inflation forecasts provide no signals of this? What one wishes to avoid are abrupt corrections in asset prices leading to a large fall in demand and low inflation in the future. Although it is possible to extend the forecast horizon, as the DSGE models are based on rationality, they provide no opportunity to quantify such a risk scenario or to answer the question of whether an interest rate increase now would be able to reduce imbalances. The central bank must nevertheless make decisions and in some way take into account the risks it envisages.

However, when the rate of increase remains at a high level, my concern increases that imbalances are being built up, which may later on check demand and inflation. This risk has been taken into account in the monetary policy decisions in recent years. The costs of increasing interest rates at a slightly faster rate than is motivated by the inflation forecasts made by traditional means must also be considered. My opinion is that when GDP growth has been strong, the risks in the housing and credit markets have carried greater weight in the decisions, and vice versa when the economy has been weaker. Inflation is low and stable… Let me begin by reminding you of why we have our current framework. The attempts during the 1970s and 1980s to keep employment up by means of a very active stabilisation policy led to sharply rising central government debts and high inflation. This laid the foundation for the current broad agreement that economic policy should not attempt to fine tune demand in the economy and that price stability should be the long-term objective of monetary policy. Price stability creates favourable conditions for  BIS Review 62/2006  1  households’ and companies’ decisions. It contributes to channelling savings to economically profitable investments, which benefits growth in the long term. In Sweden, as in the rest of the world, the rate of increase in consumer prices has been low for the past ten years, and inflation expectations have stabilised around 2 per cent in many countries.