samchain/econo-pairs-v1 huggingface dataset:
And that is why adherence to, and the full and consistent implementation of, the Stability and Growth Pact and Fiscal Compact is so important. As I have said before, this is not a matter of theology; it is a political and economic imperative. Markets need to trust the capability of our governance framework to effectively coordinate fiscal policies in EMU, and citizens need to be confident that common rules are being respected. Let me add that any common fiscal capacity will be financed by current or future taxes on the same taxpayers and companies which already fund their national budgets. We cannot add to this edifice if its foundations are shaky, that is, if national budgets are not clearly sustainable. In concrete terms, this means that Member States should rebuild fiscal buffers into their national budgets to be able to weather future economic shocks, while at the same time adjusting the composition of their fiscal policies to optimally support the recovery. Once these buffers are available, the Stability and Growth Pact provides ample flexibility to adjust fiscal requirements to enable the functioning of automatic stabilisers on a national level and to react to a severe downturn in the euro area as a whole if need be. Whether the Stability and Growth Pact should be further reviewed or complemented with new features, such as sovereign debt restructuring mechanisms, to improve ownership and set the right incentives is an open question, with ramifications which go far beyond our discussion today.

Rather, it is a crucial step in the economic and monetary integration of the European Union (“EU”) countries and the creation of the single market. This change will involve 300 million consumers, 16% of world GDP and 29% of world trade. This demonstrates why the euro is an important event for Hong Kong. As the UK Chancellor of the Exchequer recently made clear, we are now living in a global economy, in which each economy can directly affect the prospects of every other. Where the economy concerned is the size of the EU, its potential to affect other economies - for good or bad - is without question. This is reinforced by the existing trade and financial links between Hong Kong and the EU countries: • the EU ranks 3rd among Hong Kong’s trading partners in the world; • in the first eight months of this year, the EU accounted for $ billion or 13.2% of Hong Kong’s total trade - much of this represents entrepot trade between the EU and mainland China; • the EU is the largest external investor in Hong Kong, accounting for over $ billion or 34% of the total; • more than 700 EU companies use Hong Kong as regional headquarters or regional offices; • the EU is the 2nd largest source of visitors and 4th largest source of tourist earnings for Hong Kong; • there are over 50 licensed banks and other authorized institutions in Hong Kong from the EU countries, the largest concentration in Asia.
4 The third source of resilience in the face of the global downturn was the ongoing diversification of the economy towards higher value-added services such as financial services and various business-related activities. The combined share of these services in total gross value-added has increased from 25% in 2004 to 35% in 2009. 5 Success has also been registered in attracting new manufacturing activities such as pharmaceuticals and aircraft maintenance, although these have not reversed the declining role of manufacturing, as traditional sectors like textiles and clothing continue to shrink in the face of competition from low-cost producers. 1  European Commission Malta: Macro Fiscal Assessment: An analysis of the February 2010 update of the Stability Programme, April 7, 2010, pages 6, 10. 2  For example, the voluntary redundancy schemes offered to the workers of Malta Shipyards Ltd.  3  Latest figure, for March 2010. 4  Flash Euro Barometer No. 271. 5  These services include NACE categories J (financial intermediation), K (real estate, renting and business activities) and O (other community, social and personal service activities). 2  BIS Review 73/2010  Finally, the provision of direct budgetary assistance to manufacturing companies that found themselves in difficulty helped to limit the impact of the weaker external demand on the labour market. This approach was deemed more appropriate than a broad-based fiscal expansion, which would have mostly leaked out through imports. This stimulus was complemented by the initiation of a number of infrastructure and environmental projects.

In this case, one of the many additional possibilities currently under discussion to reduce the potential undesirable effects of Basel II is to scale the capital requirements obtained through the IRB function by using a countercyclical multiplier. In order to make this multiplier countercyclical, it would be built as a function of a reliable economic activity variable (for instance GDP growth rate). As it happens with other alternatives, its main pros and cons should be carefully assessed. The multiplier is easy to obtain, transparent (as depends on a reliable macro variable), it has a low implementation cost and, finally, it would be of a uniform and wide applicability. Among its drawbacks we found that, first, it implies undertaking an external modification on the capital requirement figure and, second, that the multiplier is built using a domestic variable, which may make international comparison very difficult. No matter what the result of the previous debate is, either the use of counter-cyclical risk estimations or the use of a capital multiplier, we should explore the use of complementary measures to attain our final goal of financial stability and to minimise the social costs of procyclicality; for example, dynamic provisions. As most of you already know, this type of provision uses historical information on credit losses to estimate a general provision for homogenous loan portfolios. It reflects a collective assessment of credit losses at the balance sheet date (i.e. it covers incurred losses not yet identified in specific individual loans).
Nevertheless, several risks should be highlighted: that of a sudden drop in US consumption in the wake of the problems in the property market; that of a sharp increase in commodity prices; that of a return to volatility on financial markets, after several exceptionally calm years; and, linked to the latter, that of a disorderly adjustment of exchange rates triggered by the build-up of international imbalances. The second concern relates to the extremely rapid growth of monetary and credit aggregates in the euro area. The annual growth rate of M3, which was below 6% in 2004, gradually accelerated and currently exceeds 10%. Loans to the private sector also continue to expand by more than 10%. Structural changes in money and credit demand – linked to financial  BIS Review 92/2007  1  innovation – may partly account for this acceleration. However, these developments must be closely monitored in view of their implications for monetary stability and that of financial systems. During 2004 and 2005, household borrowing was the primary source of credit growth; in 2006, this was replaced by lending to enterprises, in line with the economic recovery and the rise in – often highly leveraged – company buyouts. The strong profits and financial soundness of firms facilitate and sometimes encourage increased borrowing, which is then presented as “optimising” their liability structure. But balance sheets are weakening and difficulties could appear in the event of a turnaround in the business cycle.

That is to say, some banks have been able to use the taxpayers’ guarantee to assume excessive risks which have made it increasingly likely that the guarantee will be called upon. Structural measures are intended, in this respect, to prevent risky activities such as proprietary trading from being pursued by banks which simultaneously take deposits from the public. Unfortunately, these initiatives have remained outside the bounds of international coordination and, more specifically, lie beyond the remit of the Financial Stability Board (FSB), which has given rise to a lack of uniformity across jurisdictions. For example, although the US proposal permits deposit-taking institutions to engage in a wider range of activities than the European proposal does (including market-making  4  BIS central bankers’ speeches  activities), it does require the activities of unrelated entities to be totally separated. The proposal currently under discussion in Europe would permit the creation of financially independent subsidiaries to accommodate the activity of investment within a group also authorised to engage in traditional commercial banking. We are therefore confronted with the need to achieve closer international coordination to ensure the consistency of the reforms under way in the various jurisdictions. Otherwise the cross-jurisdictional inconsistencies may encourage regulatory arbitrage which would reduce the effectiveness of the reforms adopted and put at risk the sought-after simplification of banking. In any event, the implementation of measures of this type affecting the specialisation of banking activity should be accompanied by an appropriate cost-benefit analysis.
When analysing the state of the economy I have focused on understanding how much can be attributed to cyclical fluctuations and how much to structural factors. In practice it is of course difficult to precisely distinguish between structural and cyclical factors, but it is nevertheless important to analyse this as monetary policy can only affect the latter. I have also asked myself what the relatively strong development of the Swedish household sector in relation to the weaker situation in the industrial sector means for monetary policy. All in all, I thought it was reasonable to leave the repo rate unchanged, for two main reasons. First, I think it would be wrong to lower the repo rate further in a situation in which the economy is improving. Second, I believe that a lower repo rate today could increase the risks associated with household indebtedness in the longer term. I will now explain my thinking about monetary policy today in more detail and describe how I see the current situation in the Swedish economy, what I believe monetary policy can achieve and how I see the situation in the period ahead. Divided demand – the explanation is to be found abroad I would like to begin by looking back in order to describe my view of the situation today. Approximately five years have passed since the financial crisis began in earnest and these have been turbulent years for the global economy.

When the new framework for macroprudential policy is eventually in place and in use, the Riksbank will need to consider how it believes macroprudential policy measures will affect the development of the economy and financial stability in its forecasting work. The Riksbank should be able to take into account the effects of the macroprudential policy instruments in roughly the same way as it now takes into account how the government’s future budget plans will affect the economy. Gradual improvement in economic activity, but uncertainty remains I began this speech by looking back at the economic situation over the last few years. I would now like to spend the rest of my time looking forward. My second argument for leaving the repo rate unchanged at 1 per cent in July and September was namely that the economy seems to be taking a turn for the better. A gradual improvement in economic activity was indeed in line with the Riksbank’s earlier forecast, but ahead of the September meeting we had received additional statistics and other information that supported this assessment. For example, confidence indicators for Sweden and abroad had improved. Share indexes on the financial markets had risen thanks to positive signals about the recovery of the global economy. The outlook for a continued recovery in the United States was good and there were signs that an improvement had begun in the euro area.
While in many other countries the policy rate is an overnight rate, the SNB has an operating target for the 3month Swiss franc LIBOR (London Interbank Offered Rate). Without going into detail, I would like to stress two important points with respect to the transmission from the monetary policy instrument to the economy. First, monetary policy works primarily through financial markets. By setting the policy rate, monetary policy affects exchange rates, interest rates, risk premia and asset prices in general, and is thus  1  This is due, first, to uncertainties about the current state of the economy and its future evolution, and second, to long and variable lags in the transmission from monetary policy to the real economy. Therefore, monetary policy can and should only react to large and persistent deviations from equilibrium. Attempts at fine-tuning the economic cycle may even be counterproductive, in that they are procyclical. 2  Obviously, central banks also have some long-term influence on financial stability, first because of moral hazard induced by actual or expected central bank action, second, by affecting asset prices, and third, due to the involvement of central banks in banking regulation and banking supervision. Furthermore, one can also argue that price stability and economic stability are also conducive to financial stability. 3  To the best of my knowledge, this idea was first put forward by J. Niehans (1978), The Theory of Money, chapter 12, and was designated the “three frequency approach to monetary policy”.

Changes in market structure and regulation have implications for monetary policy implementation, and today’s discussion provided some interesting insights on these topics. This combination of changes in money markets and new policy tools, as well as observations on how central banks’ operating frameworks did or didn’t work during the financial crisis, suggests that those of us responsible for monetary policy operations should be researching and analyzing how monetary policy will be implemented in the years to come. What are the lessons from the crisis and the long period spent at the zero bound and how do these lessons change our views regarding monetary policy implementation? These are questions that many central banks are currently facing, particularly in advanced economies. They are certainly relevant for us at the Federal Reserve as we begin our own efforts to think about a long-run framework for monetary policy implementation.3 In my remarks tonight, I would like to give you my views on the significant issues, and the questions I believe deserve further study. I also want to emphasize how important it is for those of us charged with monetary policy implementation to seek broad engagement on these issues, particularly in our effort to better understand how our money markets function and how best to implement monetary policy in these markets. Motivation and background Why should we think hard about issues related to monetary policy implementation? After all, central banks could always go back to the frameworks they used before the crisis.
Moreover, as we have witnessed, these losses tend to increase precisely during the immediate aftermath of a crisis, when some of the questionable commercial practices are exposed. Consequently, a clear procyclical effect may ensue. For all these reasons, we supervisors and banks must focus our efforts on mitigating nonfinancial risk. How can we reduce it? Unlike other risks, it is not a case of considering what banks should do, but how they should do it. The issue is to improve the quality of internal procedures, IT systems, the governance structure and the compliance function. In addition to material aspects, many of these improvements involve a cultural change which, undoubtedly, is doomed to fail unless resolutely supported by each bank’s management. What is needed here is the involvement of the board of directors, which should consider the management of non-financial risk as part of its regular monitoring tasks, instead of confining itself to reacting to problems that may arise in the event of control failures. Naturally, the board cannot perform its functions if it does not receive the appropriate information from its operating and risk-management and control units, known as the “first and second lines of defence”. And, of course, it also needs to have an internal audit function as a third line of defence. Obviously, considering a strengthening of control functions is not straightforward in the current context. Such improvements usually entail additional expenses that add pressure to the sector’s already-diminished profitability.

Margarita Delgado: Transparency in the banking sector Speech by Ms Margarita Delgado, Deputy Governor of the Bank of Spain, at the Banking Law Conference, organized by the Malaga Lawyers’ Association, 4 June 2021. * * * I should like to thank the Málaga Lawyers’ Association for their kind invitation to close this conference on banking transparency. I think this is the first time since March last year that I have set foot out of Madrid to attend an event. And I must admit that leaving my office for Málaga added allure to the invitation. The subject chosen for this conference is highly topical and relevant. Transparency is certainly needed for there to be effective competition between banks, and it is a central feature of the framework of conduct that should govern the relationship between banks and their customers. Clearly, too, banks’ massive dealings and business formalised through standard form contracts call for legal certainty to be ensured. Further, the necessary standardisation and speed of dealings must always be compatible with maintaining a high degree of protection for the end-customer, especially where individuals are concerned. Regulatory developments It may seem to us that transparency obligations go hand-in-hand with banking business. But the reality is that such obligations were introduced little more than three decades ago. Not so far back, a controlled system of fees and interest rates was in force. The 1946 Banking Act delegated the setting of bank charges to the Finance Ministry. This remained the case until charges were partially liberalised in 1981.
In and of itself, this shift seems likely to have made money markets more segmented, and more prone to the “turbulence” in response to shocks I mentioned earlier. Longer term, this regulatory shift has catalyzed a deep and complex impact on the structure of money markets, which is still unfolding nearly two years later. These effects have included an ongoing increase in the role of FHLB advances as means of intermediation between government money funds and financial firms, as well as ongoing efforts by a wide variety of borrowers and lenders to broaden their counterparty lists and consider new operating frameworks so as to best accomplish their business objectives in the new money market environment. For example, although the FHLBs for years focused their liquidity management on the federal funds market because it provides a high degree of intraday liquidity, they are now beginning to explore greater use of bilateral repo, as that market has similar characteristics and can at times provide them with a higher return. It is likely that these ongoing shifts in money market structure have contributed to fluctuations in rates and spreads, and that they will continue to do so. 11  I view fluctuations in term money market rates of the magnitudes seen recently as normal parts of market functioning during a period of structural change. Wholesale dollar funding, though more expensive, has remained readily available both in the United States and abroad.

The Federal Reserve entered this tightening cycle with its overnight policy rate at the zero lower bound and with a large portfolio of long-duration securities. Normalization, therefore, has two parts: increasing the overnight rate, and reducing securities holdings to a smaller size. The FOMC began raising the overnight rate from zero in late 2015, and it began reducing the size of the portfolio late last year. First: overnight rates. Due to the large supply of reserves that has accompanied the Federal Reserve’s expanded balance sheet, we are employing a new and innovative framework to control money market rates. 5 Before the financial crisis, the Federal Reserve followed a wellworn playbook for monetary policy implementation that was based on keeping reserve balances scarce. Nowadays, however, reserves are no longer scarce. Our current framework relies, instead, on providing the market with two overnight investment opportunities to help steer money market rates: interest on reserves (IOR), which is the Federal Reserve’s main tool to control interest rates, and the overnight reverse repurchase agreement (ON RRP) facility, a secondary tool. The current framework is simple and efficient to operate. In contrast, in the pre-crisis regime, hitting the target federal funds rate each day was a technically challenging exercise. 6 We also have now had more than two and a half years to observe the performance of this framework, 4  These remarks focus on dollar money markets, many of which are linked to LIBOR, and do not discuss the reference rate itself.
Even though demand for labour is strong, there is a risk that outflows from the labour market to various social security schemes will remain high. Sickness absence is high, and the share of the working-age population on rehabilitation schemes or receiving disability pensions is rising. Many wage-earners choose to take early retirement under the AFP scheme (contractual early retirement) when they reach 62 years of age, and – because this age group is expanding sharply – this number will probably increase in the next few years. In Norway, close to 600 000 persons of working age receive social security benefits or pensions. This is equivalent to 25 per cent of the labour force. This is the Norwegian economy’s Achilles’ heel. A particularly disturbing aspect is that disability is increasing among young people. 1 In economic terms, Norway’s substantial petroleum wealth gives it a unique position compared with many other countries. Nonetheless, labour is still by far the most important resource we have. A well functioning labour market is therefore important for our welfare. Although it is difficult to quantify labour’s contribution in exact terms, even a small increase in the “return” on labour could generate considerable gains. Inflation in Norway decelerated markedly from the end of the 1980s to the mid-1990s and has since been low and stable, and fairly close to 2.5 per cent, with considerably lower variability than earlier. Over the past 5-10 years, inflation has averaged around 2 per cent, i.e. somewhat lower than the inflation target.

This autumn the krone appreciated during the period of market turbulence, but has weakened somewhat in the past two weeks, reflecting shifting themes in foreign exchange markets. However, it appears the krone will be a good 3 per cent stronger on average in the second half of this year compared with the first half, and about 1.5 per cent stronger this year than last year. Exchange rate developments have a dampening impact on inflation. Given our inflation-targeting regime, we will be mindful of the effects of higher interest rates on the krone exchange rate when inflation is low. High oil prices have resulted in substantial growth in the petroleum fund’s capital, and there are prospects of further growth ahead. The Government uses the central government budget to influence economic developments. Government petroleum revenues are transferred in full to the Government Pension Fund – Global and invested in securities abroad. However, as part of the budget resolution, the Storting decides on an annual transfer from the Fund to cover the deficit in the government budget when petroleum revenues and capital income earned by the Fund are excluded. This annual transfer – direct petroleum revenue spending – has been sharply reduced in recent years, but is expected to increase somewhat next year. Developments reflect a marked increase in the government’s general tax revenues as a result of the current period of strong expansion.