samchain/econo-pairs-v1 huggingface dataset:
This in turn has given rise to political instability and social unrest, particularly in countries with poorly developed welfare systems or limited will to distribute the benefits throughout society. So it is apparent that globalisation cannot guarantee world peace. Free trade does not always beget political reform, nor are all countries ready to adopt Western ideas on freedom and human rights – even if they open the doors to international trade. In spite of everything, history, culture, and geography cut far deeper among the world’s nations than the well-worn concept of profiting by day and partying by night. I would like to summarise this as follows. The inflation spurt that broke out with the COVID pandemic and the disruption of multinational production chains is a reminder of the importance of globalisation for our living standards. The events of recent weeks, with Russia’s expulsion from the global economy by means of sanctions, will have the same impact. Western countries have also shifted their stance to include the use of world trade as a political weapon, and this will have consequences. At the moment, multinational firms are consulting one another, contemplating supply chains, goods distribution, and subsidiaries, and re-evaluating political risk. Security is in sharp focus – and that costs. In the wake of this, some of the past years’ globalisation efforts will be unwound, and jobs will return to the West. This will cause price hikes in the short and the medium term.

At the time, the Central Bank’s senior management objected vociferously to this bifurcation, as I mentioned in my speech at last year’s Annual Meeting. If there is any single factor that foreign experts have identified as the main cause of the 2008 collapse, it is the fact that responsibility for and supervision of the financial system were spread across a large number of ministries and institutions, with the result that no single party had an all-encompassing overview, no single party was actually accountable, no single party had adequate power, and no single party had enough muscle to intervene in the course of events. But now, Iceland’s financial supervision and other central bank activities have joined forces again after a separation of 22 years, and the merger has been a successful one. Now we have a single institution that is responsible for financial stability and has all of the necessary information on the financial system and developments in systemic risk within it. The future of monetary policy lies in the expansion of the policy toolbox and the coordination of monetary, macroprudential, and supervisory policy instruments within a single institution. Here lie the opportunities for Iceland’s tiny currency area. The Central Bank will also need to use its balance sheet – such as by intervening in the foreign exchange market – to ensure effective  monetary policy transmission and ward off potential financial side effects. We have been successful in this regard.
That will call for a detailed review of the risk models used by banks and the adoption of corrective measures should unjustifiable deviations be detected. Macroprudential policy Macroprudential policy, insofar as it seeks to identify systemic risks, prevent them and increase the industry’s resilience, has an important role to play. The very nature of these risks is global in dimension, meaning that coordination between the various authorities with responsibilities in this field is needed. At the same time, it should be borne in mind that while the risks may be considered common to the euro area as a whole, their impact and intensity vary from country to country. This heterogeneity not only depends on the characteristics of each country, but also on the particular juncture of the financial cycle. For example, at present certain euro area countries evidence risks associated with excessive real estate market prices, while in others this risk is not discernible. Macroprudential policy thus requires a coordinated approach by the various institutions, and at the same time attention must be paid to considerations of a national nature. In a monetary  BIS central bankers’ speeches  3  union like the euro area, the heterogeneity of the member countries’ financial cycles may be an important issue when it comes to designing these policies. The European Systemic Risk Board was set up in late 2010 as the authority responsible for macroprudential oversight in the European Union, empowered to issue warnings and recommendations in this connection under the “act or explain” principle.

And we hope that such cooperation will continue into the future. I wish you all success. Thank you. 4/4  BIS central bankers' speeches
In particular, downside risks to the achievement of our employment and inflation goals amid very low interest rates were compelling arguments for a relatively cautious and predictable approach to policy. This proved its worth: The U.S. economy continued to expand at a healthy pace even as the Fed raised rates numerous times. For those who follow the Fed closely, you’ve noticed that the FOMC has been slimming down its statements of late and using less forward guidance about the future path of policy. In this vein, the FOMC in its recent statement removed language indicating that monetary policy remains accommodative.3 Let me make clear, these more concise statements do not signify a shift in our monetary policy approach. Instead, they represent the natural evolution of the language describing the factors influencing our policy decisions in the context of the strength of the economic outlook and inflation being near our 2 percent longer-run goal. These changes in our communication of policy views are a sign that we are nearing the end of the process of normalizing monetary policy and are inching closer to conducting normal monetary policy. Arguably, it’s been a long time since monetary policy was normal, so it’s worth describing what “normal” looks like in some detail. At its most basic level, monetary policy-making will remain the same: The path of interest rates will continue to be guided strategically by our dual mandate objectives and shaped tactically by the data and their implications for the economic outlook.

And that brings me to a theme of my remarks today: What does “normal” monetary policy look like going forward? Before I say even one more word, I should stress that what I have to say represents my own views and not necessarily those of the Federal Open Market Committee (FOMC) or anyone else in the Federal Reserve System. Strong, Strong, Strong My view on the U.S. economy is well summarized by the most recent FOMC statement, in which variations on the word “strong” appeared five times in describing the U.S. economy. 1 Central bank communication can be difficult at times, but, at least in this case, our message is very clear. Indeed, the Federal Reserve has attained its dual mandate objectives of maximum employment and price stability about as well as it ever has. Most indicators point to a very strong labor market—including an unemployment rate of 3.7 percent—and inflation is right on target. With fiscal stimulus and favorable financial conditions providing tailwinds to the U.S. economy, the outlook is for more strong growth. Let me put some hard numbers to that: I expect real GDP to increase by around 3 percent this year and by 2.5 percent in 2019. Assuming this forecast comes to fruition, this will be the longest expansion in U.S. history based on data going back over 150 years. This above-trend pace of growth should lead to continued solid job gains and further declines in the unemployment rate.
On the other hand, the SNB employs ESG criteria in the management of its equity portfolio via a selective exclusion policy. Since 2013, it has refrained from acquiring shares in companies whose products or production methods seriously violate ethical principles – notably, firms that produce internationally condemned weapons, seriously violate fundamental human rights or systematically cause severe environmental damage. Such exclusions, which also apply to our corporate bond portfolio, enable the SNB to align its asset management with the fundamental values and norms of our country. How does the SNB go about identifying the companies to be excluded? It follows a clear and structured process, in which it draws on the knowledge of external experts. With respect to the environment and human rights, we regularly evaluate our investments in a two-step process. First, an expert consultancy collects all publicly available information and then draws up a warning list containing high-risk companies (i.e. companies that most likely meet our exclusion criteria). In a second step, another specialist firm evaluates these allegations in detail and prepares a full report for each high-risk company, accompanied by a recommendation. The final decision on whether or not to exclude a company is taken by the SNB. In addition, the SNB exercises its voting rights for a portion of the shares in its portfolio. It focuses on aspects relating to good governance. Good governance contributes to the positive development of a company, which ultimately improves the return on our investments.

The pursuit of credible and reassuring fiscal adjustment measures will contribute to the consolidation of the recovery because such measures inspire confidence in all those on whom economic prosperity depends. But has sufficient account been taken of the social risks involved? The main problem consists of the level of unemployment. As I said, a return to confidence, in particular fiscal confidence, is essential for the consolidation of the recovery and thus for the creation of lasting employment. The confidence to which you refer is measured in particular by the credit rating agencies. Isn’t it necessary to reassess their role? Why can’t the EU have its own credit rating agency? This is one of the major areas that is being looked into at the global level. Past events have shown how risky it could be to rely blindly on the analyses of the credit rating agencies. Financial institutions and investors must assume overall responsibility for the decisions that they take. How can monetary policy and EU economic policy be better coordinated? We have a monetary federation, which has provided monetary stability on a continental scale for 330 million citizens. Necessarily, this must be accompanied by very close monitoring of fiscal policies and strict compliance by fiscal policies with the reference framework that we set ourselves. On behalf of the Governing Council, I have always asked for strict compliance with the Stability and Growth Pact and the introduction of closer monitoring of developments in competitiveness within the euro area.
As I initially explained, the institutional reforms that have been adopted or are being adopted to establish a banking union constitute important progress. But to meet the ultimate objective of strengthening financial stability, implementation is key. And implementation is well under way: the Supervisory Board has held its first three meetings; a Framework Regulation has been prepared and is now the subject of a public consultation; and work is progressing on the supervisory model of the SSM with the Supervisory Manual. One of the first major implementation tests is the comprehensive assessment, the health check of the euro area banking system, which is currently being conducted as a prelude to the SSM becoming operational. Here, the ECB is making good progress in establishing the new structures and ensuring that the exercise will be fair, transparent and stringent. But many more steps still lie ahead of us. A final challenge relates to the macro-prudential arm of the SSM. As you know, the SSM Regulation gives the ECB the power to apply stricter macro-prudential measures than the national authorities if it deems them necessary. We can also advise on the calibration of instruments. This goes some way towards insuring against an inaction bias at the national level, thus improving the prospects for a more stable euro area financial system. We will maintain a clear separation of objectives between the macro-prudential policy framework and monetary policy and a clear hierarchy, with price stability remaining the ECB’s overall primary objective.

There is, however, still progress to be made; our monetary and economic union needs to be completed. Our European economic institutions are like a trimaran. Our vessel already has a robust central hull in the form of the ECB and the Eurosystem, with its credible single monetary policy. This boat must be completed with two floaters. On one side, we need a public float with a standing common fiscal capacity to better cope with macroeconomic shocks. This need not mean increasing permanently our yearly budget; rather we should construct a fiscal facility that could be activated in moments of crisis or recession. In this respect, the EUR 750 billion Next Generation EU programme – agreed in 2020 and now actively implemented – has been a major step forward. On the other side, we need a private float to foster a better capital allocation, which is just as important. The  Page 5 sur 9 Banking Union and Capital Markets Union, though somewhat “boring” and technical, should be absolute political priorities to enhance the free circulation of capital across the EU and build what I suggest to rebrand a “Financing Union for Investment and Innovation”. In the U.S., private capital flows are a major financial shock absorber between states. We can achieve the same in Europe, and make better use of the world’s largest pool of savings, including by fostering venture capital which is still underdeveloped.
so that no one expected a change in rate and this was what actually happened) then the statement that surprises are bigger in Inflation Report months is no different from the statement that rates are only expected to change in these months. The closer the distribution comes to being degenerate, the more weight should be attached to that interpretation. But both the average surprise and its variance are significant. BIS Review 17/2005  7  On closer inspection, this finding seems to relate to the decision in Inflation Report months – not the publication of the Report itself a week later, or the minutes the week after that (Panel E shows that the market reaction to the policy decision is, on average, significantly bigger than the reaction to the Report and the minutes). This might imply that it is the rethink during the preparation of the Inflation Report that counts. But, once announced, the decision itself (and the accompanying press notice, if rates have changed) provides most of the information the market needs to understand the Committee’s approach. This would be consistent with a fairly high degree of policy predictability. It is worth emphasising that the observed tendency for interest rate changes to coincide with the publication of an Inflation Report does not imply that interest rate changes are tied in any mechanical way to the central projection for inflation. The assessment of risks is always a material factor in determining policy, as well as an important aspect of the presentation of the forecast.

It allowed shared knowledge and expertise to tap into opportunities to create scale and efficiencies for the development of common infrastructure. Another area that has leveraged effectively on partnerships has been in developing the ecosystem to support start-up businesses. An example of this is the Malaysian Global Innovation & Creativity Centre (MaGIC) ASEAN Startup track which builds a community of startups within ASEAN and accelerates their timeto-market-readiness. There are also various financial technology or ‘fintech’ initiatives by regional financial institutions that foster partnerships to accelerate financial innovators in the region. In 1919, an American biochemist discovered the four basic building blocks that form the DNA’s iconic double helix structure. Similarly, I believe that successful partnerships are also anchored by four strong foundations in its DNA, namely Adaptability and Responsiveness, Complementarity, Trust, and Governance. Let me elaborate on these essential foundations for success for aspiring policymakers and entrepreneurs to reflect on. The first base of a strong partnership is adaptability and responsiveness. In today’s world, challenges will not be easily addressed with conventional and one-dimensional solutions. With greater interconnectedness and intensification of competition, one needs to draw on broader perspectives that can be gained from partnerships, to build the agility to manage in an everchanging environment. In a partnership, it is important to strive for mutual respect and recognition of the differing needs, preferences and interests, and to encourage an open dialogue around them.
8  All speeches are available online at www.bankofengland.co.uk/speeches  8  For the UK the picture is broadly similar. Fast indicators suggest the trough in activity was reached in the middle of April, with a steady recovery thereafter. Chart 8 plots payments-based fast indicators for the UK mapped into four convenient categories of consumer spending. By late-June, these spending components had recovered at least a third, and in some cases all, of their prior fall. They have risen both sooner and materially faster than in the May MPR scenario. Chart 8: Fast indicators for the UK % change from Jan-Feb level  60 40  Staples  20 0 -20  Aggregate  -40 Delayable  -60  Work-related  Social  -80 -100  Mar-20  Apr-20  May-20  Jun-20  Sources: Bank of England and Bank calculations. Notes: Based on the CHAPS payments that a sample of around 90 UK companies receive from their merchant acquirers on a daily basis. These payments reflect the sales that companies make through debit and credit card purchases, which are summed to estimate rolling seven-day revenues. Definitions of the different consumption groups are discussed in the May MPR. Among the negatively-affected components of spending – social, work-related and delayable – the fastest recovery has been in delayable expenditure such as DIY and household goods.11 There has also been a sharp up-tick in the car and housing markets, albeit from stagnant levels.

The May MPR scenario suggested peak-to-trough falls of 60% and 40% respectively, based in part on results from the Bank’s Decision Maker Panel (DMP). The latest results from the DMP appear broadly consistent with this. Updating Staff’s nowcasts for these high-frequency data gives an estimated fall in Q2 GDP of around 20% relative to its pre-Covid peak. While this is an exceptionally weak number, that is not in itself news. The news is that it is 7 percentage points less than in the May MPR scenario. By comparison, an estimate based on the stringency-based model implies a broadly similar contraction in UK GDP in Q2 of 19% (Chart 7). It could be argued that, while these are large upward revisions in an absolute sense, they are still relatively modest by comparison with the falls already seen. And of course, some of this rise in spending might simply be the release of pent-up demand, which could dissipate subsequently. Against that, the evidence so far suggests the recovery is not simply the bringing-forward of spending. Were this higher level of spending maintained, it would put GDP on a different path than in the May MPR scenario. The cumulative loss of annual GDP in the May scenario, relative to the January MPR forecast, was around  11  All speeches are available online at www.bankofengland.co.uk/speeches  11  17%.
Third, the Basel framework still focuses largely on the assets side of a bank’s balance sheet. Basel II excluded consideration of the liquidity and liability structure of the balance sheet, so much so that when the UK adopted Basel II in 2007, of all the major banks the one with the highest capital ratio was, believe it or not, Northern Rock. Within weeks of announcing that it intended to return excess capital to its shareholders, Northern Rock ran out of money. Basel II was based on a judgement that mortgages were the safest form of lending irrespective of how they were financed. If a business model is based around a particular funding model that suddenly becomes unviable, then the business model becomes unviable too, as events in 2007 showed. Whether the measures included in Basel III will be able to deal properly with the risks that result from inadequate levels of liquid assets and a risky structure of liabilities remains to be seen. One criticism of Basel III with which I have no truck is the length of the transition period. Banks have up to 2019 to adjust fully to the new requirements. Although some of the calculations of the alleged economic cost of higher capital requirements presented by the industry seem to me exaggerated (Institute of International Finance, 2010), I do believe that it is important in the present phase of de-leveraging not to exacerbate the challenge banks face in raising capital today.

The practice of banking:  For almost a century after Bagehot wrote Lombard Street, the size of the banking sector in the UK, relative to GDP, was broadly stable at around 50%. But, over the past fifty years, bank balance sheets have grown so fast that today they are over five times annual GDP. The size of the US banking industry has grown from around 20% in Bagehot’s time to around 100% of GDP today. And, until recently, the true scale of balance sheets was understated by these figures because banks were allowed to put exposures to entities such as special purpose vehicles off balance sheet. Surprisingly, such an extraordinary rate of expansion has been accompanied by increasing concentration: the largest institutions have expanded the most. Table 1 shows that the asset holdings of the top ten banks in the UK amount to over 450% of GDP, with RBS, Barclays  BIS Review 140/2010  1  and HSBC each individually having assets in excess of UK GDP. Table 2 shows that in the US, the top ten banks amount to over 60% of GDP, six times larger than the top ten fifty years ago. Bank of America today accounts for the same proportion of the US banking system as all of the top 10 banks put together in 1960. While banks’ balance sheets have exploded, so have the risks associated with those balance sheets. Bagehot would have been used to banks with leverage ratios (total assets, or liabilities, to capital) of around six to one.