samchain/econo-pairs-v1 huggingface dataset:
What would happen if the threat of sanctions fails to act as a deterrent? Will the European political system be capable of punishing a member state? BIS Review 14/1997  -4-  The main features of the growth and stability pact have been established. It remains to draw up specific rules about, for example, the monitoring of exchange rate stability, the construction of the stability programme and the legal framework. Finally it may be worth mentioning that the monitoring routine and the excessive deficit procedure will be essentially the same for countries outside the euro area, except in one respect - the sanctions. 2. ERM 2 The Dublin meeting also decided that a new exchange rate arrangement, ERM 2, is to be set up as the dominant mechanism for the coordination of monetary policy and other economic policies between the member states in the euro area and those that remain outside. The system will resemble the existing ERM except that this is a multilateral system of rates for conversion between all the member currencies, while in ERM 2 the currencies of nonparticipating countries will be linked directly to the euro. The risk of systemic tensions with ERM 2 will probably be smaller than it has been earlier with ERM because the degree of convergence in the EU area is now greater. Moreover, the band on either side of the central rates will probably be relatively broad. The experience gained in 1992-93 has also resulted in a greater readiness to adjust rates when this is considered necessary.

Mr. Heikensten looks at the consequences for Sweden of joining EMU Speech by the Deputy Governor of the Bank of Sweden, Mr. Lars Heikensten, at the Baker & McKenzie’s EMU seminar held in Stockholm on 5/2/97. First a word of thanks for the invitation to talk with you about Sweden and the European Economic and Monetary Union. Today I have chosen to consider this matter from three angles: general aspects of the issue of Sweden and EMU; the work we did last year in the Union to prepare for EMU; and some consequences of EMU for Sweden’s financial sector. The EU’s preparations for the economic and monetary union are continuing. The member states are doing all they can to fulfil the economic criteria for participation in the euro area. Along with this, intensive political work is being done to remove any remaining obstacles. After the latest meeting of Heads of State or of Government, in Dublin last December, political agreements are in place on, for example, the stability and growth pact and the relationship between the euro and outside currencies. Solutions are still required on a number of important issues. One is how the path into EMU is to be arranged for countries that do not belong to the first group. Then there are many technical details to adjust in the course of the year. But the puzzle’s main pieces are now in place.
In the 1960s he became the first player to earn £ per week (roughly £ in today’s terms) in the British game which was then about four times the average male wage. Top Premiership players now earn more than 200 times the average wage. What has changed is the fact that pay is now being set in a world market. We have in the Premiership as in the City some of the best paid people in an international industry which is developing rapidly. We have imported the top of the world earnings scale and at a time when the stretch at the top world wide is increasing very fast. Just as in the Premiership, the stars of the City – the people who have not just the talent but the recent experience and networks to perform at the top level today – can command a high proportion of the returns from being at the hub of the industry. The growth of hedge funds and private equity can be seen in part as a move by the small group who have sufficient expertise in new instruments and markets to take more of the returns on ownership. 5 To sum up so far, internationalisation and technology favour the clustering of financial markets in London so we should expect London to continue to prosper relative to the financial industry worldwide and to the rest of the UK economy.

Large countries have been toughening restrictions on foreign acquisitions and flow of technologies. The US Committee on Foreign Investments objected to a record number of requests by overseas investors in 2017. The EU is planning to implement a screening framework for cross-border acquisitions. US tax reforms may potentially have adverse consequences for international trade and investment flows. The finance ministers of France, Germany, Italy, Spain and the UK have written to the US, warning that some provisions of the US Tax Cuts and Jobs Act may contravene international trade agreements and tax treaties. For example, a 20% excise tax could be imposed on payments an American company makes for buying goods or services from its foreign subsidiary. We will do well not to get complacent about the return of “mama bear” because the underlying causes for populist anger and support for protectionism are deeply rooted. Income inequality in many advanced economies remains wide. According to research by McKinsey, two-thirds of households in the US and Western Europe have experienced stagnating or falling real income between 2005 and 2014. Trade and immigration are the obvious scapegoats for voters frustrated by the stagnation in living standards. The risk remains that some countries may erect trade and investment barriers and others may do so in retaliation. A protectionist spiral will almost certainly derail the growth momentum, not just for 2018 but beyond. “Baby Bear” - Financial Instability And finally, the “baby bear” of financial instability.
In this context, the conflicting schools of thought, for example, the Keynesian and monetarists, serve no purpose. Those who did not understand the crisis were those who, in some way or another, were trapped in simplified models without understanding that these models are the starting and not the finishing points of an analytical path aimed at understanding reality. On the one hand, those who have made the neo-Keynesian models extreme, excluding money and the financial markets, have made the search for model elegance an end in itself, without understanding that it does not actually help to explain reality. This may seem absurd nowadays, but at a conference organised by the European Central Bank, in the autumn of 2006, to explain its own monetary policy strategy – a strategy in which money and the financial markets play an important role – the majority of academics, above all on the other side of the Atlantic, played down the usefulness of taking money and financial markets into account in economic models. In the more sophisticated neo-Keynesian models, they managed to completely get rid of money! Consequently, monetary policy could also get rid of money, and focus only on the interest rate as the variable representative of the equilibrium on the money and financial markets. With such models, it was sufficient to align the interest rate with the equilibrium level, or the so-called “neutral” level, in order to ensure a monetary policy in line with the general equilibrium.

However, the point is not to intervene to remedy problems of solvency resulting from wrong decisions regarding investment or resulting from insufficient capital. In this regard, a central bank is not in a position to deal with these problems, nor is it its job to. This is the responsibility of the political authorities. Following the collapse of Lehman Brothers, this has become clear in Europe. Only the heads of state and government, in their meeting in Paris prompted by President Sarkozy, were able to commit public funds to avoid several banks going under. The programme aimed at supporting banks’ capital and at guaranteeing bonds was a government initiative, even if the ECB made a technical contribution. And this is exactly how it should be. If something can be said to have gone wrong, it was with the implementation of the measures, not with the decision itself. The ECB has repeated its invitation to financial institutions many times to make full use of the state measures for increasing capitalisation in the banking system. If this doesn’t happen, there is a risk that the retroactive effect of the current recession on banks’ accounts will cause the banks ultimately to reduce their financing of the real sector, thereby further exacerbating the economic crisis. Evidently, there is not enough incentive for bank shareholders and bank managers to make use of such instruments, the shareholders out of fear that their shares will drop in value, and the managers for fear of operational and pay structure constraints.
Therefore monetary policy cannot be governed by how one or another interest rate level might feel. To finish where I began: In an experimental world, with many uncertainties, clear game rules are needed so that all parties in the economy can take well-founded decisions on economic transactions. Reliable price stability, in terms of purchasing power, is one such game rule. The alternative, which would lead to inflation developing more unsteadily, would be a poor contribution from monetary policy to Sweden's changeable society. 5 [5]

Third, reduced technology sharing and collaboration will hamper the widespread adoption of best practices, thereby reducing efficiency and increasing costs. Fragmentation in the real economy will also have an impact on capital flows and financial markets. Geoeconomic fragmentation elevates financial market risk and disruption, as capital flows become more regionalised and less global. Consequently, this reduces market liquidity and returns and increases market volatility. The impact of disruptions in cross-border capital flows falls disproportionately on the less developed countries. In short, no country will emerge unscathed with rising geoeconomic fragmentation, with emerging market economies set to bear the brunt of reduced trade and capital mobility. In the last decade, emerging market financial assets benefitted from the rising tide of capital inflows that created a virtuous cycle of capital market reforms, deeper liquidity, and vibrant market development, which in turn drew in more capital inflows. The impact of a slowdown in capital inflows would be felt most acutely in those countries with the least developed capital markets and rely the most on foreign capital, putting them at risk of financial or balance of payments crises. Emerging markets that have already reached a more advanced stage of development, included in global indices, and run healthy external balances may be more resilient. LONG TERM: CLIMATE CHANGE  Perhaps the most significant financial risk for investors over the long term is climate change. This risk can materialise in two ways.
This is partly because about 60% of all investment funds fall under the Undertakings for Collective Investment in Transferable Securities (UCITS) Directive and so face tight leverage constraints. On the other hand, many alternative investment funds do not face any binding restrictions on leverage. Among those alternative funds, we find a tail of highly leveraged bond and hedge funds, which sometimes have a leverage multiplier of more than 30. I urge authorities to use the new data which is available to shed more light on this highly leveraged part of the sector. 5 This may help to better understand some of the lightly regulated and less transparent activities where risks may be building up. For instance, private loan funds may potentially erode credit standards and take on higher credit risk in the current market environment, whereas private equity funds may facilitate excessive leverage in the non-financial sector. Some of these activities may be escaping our attention, as statistics on them are scarce and they are often conducted by funds outside the euro area. Leverage may be building up, for instance, by the use of derivatives or in off-shore centres. Therefore, consistent reporting frameworks have to be developed with a view to gaining a system-wide perspective on evolving risks, also at global level.

As a result, the structure of the euro area financial sector is changing. In 2008, total assets held by investment funds were only 15% of banking sector assets. In 2017, euro area investment fund assets had grown to 42% of total banking sector assets, amounting to EUR 12 trillion. This major growth in relative size is likely to have far-reaching implications for the ability of the financial system to absorb shocks and for the financing of the economy more broadly. On the positive side, an increase in market-based finance through the issuance of debt and equity instruments can help diversify the funding base of the real economy. It also gives investors more choice and enables them to benefit from diversification effects offered by investment products. This holds true for retail and institutional investors alike, as an increasing share of institutional investors are using professional asset management services. The growing share of investors outside the core financial system tends to increase the system’s risk-bearing capacity, as traditional end-investors, typically not leveraged, can absorb any potential losses more smoothly. One should also acknowledge that thanks to significant efforts in the last ten years, investment funds in the EU are subject to an enhanced regulatory framework.
But the fact that much of the increase in debt occurred within the financial sector means that the necessary unwinding of balance sheets could and should take place primarily within the financial sector. That is why the Bank of England has been monitoring carefully the lending by banks to the non-financial sector – businesses and households – and why the lending agreements announced yesterday which will be negotiated between Government and individual banks will focus on lending to those sectors. There is scope for a reduction in the leverage of banks without restricting lending to the “real” economy. But to bring that about much of the necessary “netting” of exposures would be cross-border, demonstrating that almost every aspect of the present crisis has an international dimension. What is the appropriate policy response in present circumstances? Some say that because the massive increase in indebtedness contributed to the crisis the right response is to save and repay debt. Others argue that the only way out of our present difficulties is to borrow and spend more. Who is right? Both are – up to a point. We cannot avoid the necessary long-term adjustment. To pretend otherwise would only store up problems for the future. But we can try to slow the pace of the adjustment to domestic demand in order to limit its impact on output and employment. So we need to take actions now that will dampen the adjustment in the short term while recognising that the adjustment will ultimately need to be made.

Some have suggested as a result that Bank Rate be directed not only at meeting the inflation target but also at preventing excessive increases in debt and asset prices. Leaving to one side the feasibility of targeting the latter, the obvious question is how one can meet two objectives with one instrument. The answer of course is by accepting a trade-off between the two objectives. But why should we accept unemployment or high inflation in order to reduce  2  BIS Review 8/2009  financial imbalances? It would be more sensible to use Bank Rate for its traditional task of targeting inflation to maintain a balance between demand and supply in the economy, and to create a new instrument to limit the build up of debt. What is required is an additional policy instrument to stabilise the growth of the financial sector balance sheet. There is an active international debate as to the optimal design of such an instrument, but one way or another it must provide incentives for banks to reduce the volatility of their balance sheet. It is also clear that at the heart of the crisis was the problem identified but not solved at Bretton Woods – the need to impose symmetric obligations on countries that run persistent current account surpluses and not just on countries that run deficits. From that failure stemmed a chain of events, no one of which alone appeared to threaten stability, but which taken together led to the worst financial crisis any of us can recall.
But in a situation where we are going to have much longer lives, it is critical that we have the ability to earn a living and to save money over more years, so as to provide security and assurance through our retirement years. 22. It’s true everywhere in the world. Some countries have already recognised it through legislation. Denmark is a good example, of having linked their retirement age and pension age to life expectancy. Sweden intends to follow. Several other countries are considering the same thing. 23. But it is not just about pushing back the retirement age or pension age. It is critical that we make it attractive for older citizens to work. That means not just providing jobs but rearranging the work place so that it becomes part of the culture to have older persons, experienced persons, in the team, in the work place. The culture of the work place has to change and the culture of the consumers has to change in a whole range of industries so as to accept and celebrate the presence of older persons at work. 24. So that’s one important reform over the next 10 to 15 years – enabling older persons to work for longer, it may be full time or part time, but make it attractive to work. 25. The second important reform concerns the financial industry. We have to reduce the costs that ordinary savers face in saving for the retirement. 26.

First, the efforts already made on the fiscal front by euro area countries are already bearing fruit: the primary position of the euro area should be close to balance by the end of 2012, which is a remarkable achievement compared to the other major economic areas (Japan, the United States and the United Kingdom will all run deficits of around 9%, 6% and 5% respectively). At the current juncture, this is clearly an asset for us and an element of confidence both for the markets and economic agents, and needs to be further enhanced. In addition to these efforts at the national level, a stronger framework for common discipline has been put in place, which represents a major step forward towards a more integrated economic union. The legislative package (known as the “six-pack”) which came into force last December considerably reinforces the Stability and Growth Pact: the surveillance powers of the European Commission regarding national budgets have been enhanced, sanctions have become quasi-automatic and the public debt and public spending criteria are being more closely monitored. In addition, the Treaty on Stability, Coordination and Governance puts in place a new “fiscal compact”, notably including the requirement that the annual structural government deficit does not exceed 0.5% of GDP. 2  BIS central bankers’ speeches  At current debt levels, economic agents would respond to loose fiscal policy by delaying their own private spending. The financial markets would continue to impose very punitive interest rates on our countries to compensate for the uncertainty surrounding the fiscal outlook.
More than one banker and merchant in the City has said to me recently, “I cannot recall a time when credit was more easily available”. How worried should we be? Let me begin with the implications for the stability of markets and institutions before turning to monetary policy. Securitisation is transforming banking from the traditional model in which banks originate and retain credit risk on their balance sheets into a new model in which credit risk is distributed around a much wider range of investors. As a result, risks are no longer so concentrated in a small number of regulated institutions but are spread across the financial system. That is a positive development because it has reduced the market failure associated with traditional banking – the mismatch between illiquid assets and liquid liabilities – that led Henry Thornton and, later, Walter Bagehot to promote the role of the Bank of England as the “lender of last resort” in a financial crisis. But the historical model is only a partial description of banking today. New and ever more complex financial instruments create different risks. Exotic instruments are now issued for which the distribution of returns is considerably more complicated than that on the basic loans underlying them. A standard collateralised debt obligation divides the risk and return of a portfolio of bonds, or credit default swaps, into tranches. But what is known as a CDO-squared instrument invests in tranches of CDOs.

This is an expanded definition to cater for the operational needs of private banks. Once we have defined who qualifies as a “Private Banking Customer”, the next step is to consider specific measures that would help make private banking more “user friendly” without compromising the need to accord appropriate protection to private banking customers. First of all, let’s talk about suitability assessment. The HKMA agrees that private banks need not mechanically match their client’s overall risk tolerance level to product risk level. This is because in private banking, customers often look to their private bankers for investment advice on a continuous basis having regard to the customers’ entire portfolios or balance sheets. This is quite different from the retail end of the market in which one-off sales transactions are common. We therefore consider that suitability assessment for private banking customers can be conducted on a holistic or portfolio basis, taking into account all the relevant circumstances of the customers. For example, as long as the portfolio allocation and the overall risk level agreed with the client is adhered to, a low or medium risk tolerance client buying high risk products that only constitute a minor proportion of his portfolio is not necessarily a “mismatch”. The same principle applies to some other aspects like investment tenor and concentration risk of AUM with any individual private bank because the entire portfolio of the customer will be taken into account. Also, we agree that the documentation of rationale for recommendations need not be on a per transaction basis.