samchain/econo-pairs-v1 huggingface dataset:
Originally written down by John Hicks in 1937, as a distillation of what he viewed to be the essential arguments in Keynes’s General Theory, it still serves as the introduction to the subject for many students. And right at its heart, IS-LM has this same assumption built into it that monetary policy can only affect demand and inflation via interest rates and asset prices (Chart 6). As described by the “IS” curve, you need lower yields to boost demand ([1] can in fact be seen as a slightly more modern underpinning for this relationship). It’s therefore only by those means – only by lowering interest rates and bond yields – that an injection of money, which serves to shift the “LM” curve to the right, can affect spending or ultimately inflation. Page 11  Chart 6: In the IS-LM framework, monetary policy affects demand via prices  ‘Y’ is real output and ‘r’ is the real interest rate. In ‘IS-LM’, ‘IS’ stands for investment-saving and ‘LM’ for liquidity preference-money supply. How does that happen? The textbooks –the now-ancient tomes I was given as an undergraduate, at least – describe a process very much like QE. Central banks are said to influence the yield curve by buying and selling government debt in the open market, supplying and withdrawing reserves in the process. In Chart 7 the demand for this central bank money is given by the MD line.

Most of the time, they are driven by rapid inflows and outflows of capital. We still vividly remember the crises in Mexico, Asia, Russia and Argentina. Obviously, these crises have not been restricted to the financial sector, but have had a profound impact on the real economy as well. The lifting of restrictions to cross-border holding and trading of financial assets has unleashed massive capital flows. According to World Bank figures, global debt and equity flows (excluding foreign direct 2 investment) expanded by more than five times since 1991, from USD 794 billion to USD 4.3 trillion . Without doubt, this development reflects a long-term trend. More and more investors decide globally and on the basis of risk-adjusted expected returns. Taking place in a system of increasingly integrated capital markets, capital allocation has become more efficient. The other side of the coin, however, is the increased volatility on financial markets. Indeed, portfolio investments, in particular those in markets with relatively high liquidity, have become more erratic, as fund injections and withdrawals respond very quickly to new information. According to the IMF, assets managed by institutional investors on mature markets are estimated at about USD 30 trillion in 1998. Thus, any shift in such a huge portfolio is very likely to exacerbate economic cycles and will possibly lead to contagion among financial markets. The impact of portfolio re-balancing will be all the more powerful as macroeconomic policies seem to be unsustainable and as financial institutions show fundamental weaknesses, often with regard to financial strength, supervision and transparency.
A woman rose from the audience and, with finger pointed, uttered the memorable line: “That’s your bloody GDP, not ours!” There was no right of reply. Issues of inequality have loomed large in many public debates, not just Brexit, over the past decade or so. Recent books on the rising tide of inequality by Thomas Piketty, Tony Atkinson, Joe Stiglitz and Branko 2  Milanovic have, somewhat surprisingly, become best-sellers. So too have books by Martin Ford and Eric Brynjolfsson and Andrew McAfee discussing how the rise of the robots may further worsen these 3  inequality problems. 1 2 3  See, for example, Carney (2016) and World Bank Group (2016). Piketty (2014), Atkinson (2015), Stiglitz (2013), Milanovic (2016). Ford (2016), Brynjolfsson and McAfee (2016). 2  All speeches are available online at www.bankofengland.co.uk/speeches  2  At around the same time, monetary policy in a number of countries became more expansionary than at any time in recent history. Interest rates in a number of advanced economies fell to their lowest-ever levels during the financial crisis. In some countries, additional stimulus was provided through asset purchases – so-called Quantitative Easing or QE. Those asset purchases are currently running at around a cumulative 15% of annual global GDP.

  These quantitative results differ sharply from public perceptions of the impact of monetary policy. To illustrate, Charts 23 and 24 compare the welfare impact of lower interest rates among different age cohorts with people’s self-reported survey impact. These differ not just in scale but sign. It suggests the public perception gap around monetary policy is large. This is symptomatic of a deficit of public understanding, and is likely to have contributed to a deficit of public trust, on the public’s part.   These deficits may not be that surprising. It is very difficult for people to identify, much less quantify, the channels through which monetary policy affects their lives, directly and indirectly. For most people, this information is simply not to hand. If it were, in a simple and personal form, this might contribute to closing the gaps in public trust and understanding about monetary policy. 14  All speeches are available online at www.bankofengland.co.uk/speeches  14  That takes me naturally to practical ways of closing the twin deficits. Inequality issues are likely to continue to loom large in public debate in the years ahead, not least due to the impact of technology on jobs and skills. 39  It seems perfectly reasonable that policymakers should periodically explain the impact of their actions on both aggregate outcomes and its distribution. Indeed, doing so consistently and transparently could I think deliver important benefits, helping close the public perception gap and those twin deficits of trust and understanding about monetary policy.
The recent report by the Intergovernmental Panel on Climate Change (IPCC) is sobering. To limit global warming to 1.5 degrees Celsius, global greenhouse gas emissions must peak by 2025 and come down by about 45% by 2030 relative to 2019 levels. This is far from the emissions trajectory we are currently on. Climate change is a long-term risk but whether and how that risk materialises depends on what we do in this “critical decade”. The already tepid transition to net zero has been thrown into disarray by the war in Ukraine. In the short term, the imperative facing some major economies to cut dependence on Russian supplied gas could see them turn to readily available fossil fuel alternatives, including coal. It will take some time for reliable renewable alternatives to fossil fuels to scale up and be widely available at viable costs. At the same time, governments’ fiscal resources are being stretched by the need to provide support to cushion against macroeconomic stresses arising from the war as well as humanitarian relief. This means less fiscal space for public investments in green technologies and infrastructure. But there are also promising efforts to turn the tide. Many governments recognise that environmental sustainability and energy security are complementary goals. We have seen, in recent weeks, new policy proposals that may lead to a more decisive pivot towards renewable energy. The European Commission’s REPowerEU proposal includes targets to further boost renewables development and quadruple green hydrogen supplies by 2030.

Sunil Mendis: Risk management in Sri Lankan banks in the changing environment Inaugural address by Mr Sunil Mendis, Governor of the Central Bank of Sri Lanka, at the CRISILSLBA seminar on risk management in Sri Lankan banks in the changing environment, Colombo, 15-16 November 2004. *  *  *  Good morning ladies and gentlemen, Let me first thank the SLBA (Sri Lanka Banks Association) and the representatives from CRISIL India (Credit Rating Information Services of India Ltd) for the initiative taken to organize this Seminar on a very important aspect of banking business - risk management. As we all know, risk management in banking is a continuous process of planning, organizing and controlling a bank’s assets and liabilities, their volumes, maturities, rates and yields. This is the most simple definition that I can think of. However, its implications on banking business are what we concern ourselves with, especially from the regulatory point of view. In the context of Sri Lankan banks at least, of the major risks confronting financial institutions, credit risk remains the predominant or core risk. Risktaking is part and parcel of banking. The highly leveraged nature of banking business itself illustrates the risk exposure level of banks. Therefore, what is important is how we manage these risks, how we measure and price risk and above all what measures we take to mitigate these risks.
BIS central bankers’ speeches  1  Chart 1: CET1 Capital Ratio (%), Group 1 banks 10  CET1 Ratio  8 6 4 2 0 H1 2011  H2 2011  H1 2012  H2 2012  Basel III fully phased-in  Chart 2: CET1 Shortfall € bn), Group 1 banks 600  EUR Billion  500 400 300 200 100 0 H1 2011 Minimum  H2 2011  H1 2012  H2 2012  Minimum plus buffer plus G-SIB surcharge  Consistency of bank capital regulation An important new mandate for the Committee is to be more active in monitoring the implementation of the international minimum standards within individual member jurisdictions. This stems from the G20 Leaders’ desire that Basel III be implemented in a “full, timely and consistent” manner. Consistent implementation is critical if there is to be a level playing field for international banks. Implementation is more than issuing new rules and regulations. Durable and consistent implementation also requires monitoring, evaluation and analysis of intended prudential outcomes. To this end, the Committee last year instituted the Regulatory Consistency Assessment Programme (RCAP). A key feature is the jurisdiction-specific peer assessment in which a small team of experienced supervisors and regulatory policy experts reviews a member country’s Basel III regulations across all its components and sub-elements. The purpose is to find any divergences from the agreed standards and to weigh the current and  2  BIS central bankers’ speeches  potential materiality of any weaknesses.

To foster transparency, the resulting assessments are made public, together with an overall review of compliance with the Basel standards. Some comment that this effort, well intended as it is, will ultimately be fairly limited in its impact because the Committee has no enforcement power and cannot override the sovereign regulatory power of national authorities. It is true that the Committee does not have this power, and nor should it. But that does not mean that the peer reviews and the RCAP process as a whole lack impact. We have thus far published five monitoring reports, and completed assessments on the final Basel III rules in Japan, Singapore, Switzerland and China. In all cases, the implementation of Basel III was deemed compliant with the international standards. But importantly, in all cases the assessment process also generated a number of changes to the domestic regulatory framework to fill gaps and improve the alignment with the international standards. This shows that a peer review programme, coupled with transparency, can make an impact even without a suite of legal powers to back it up.
 My point is that the analysis would benefit from having a broader perspective. We should look beyond the household stretch to household strain, which encompasses more structural factors.  I would refer to two dimensions of the household strain: quality of living and inequality of income, savings, and access to credit.  1. Quality of living: - overcrowding – CEE countries have the highest concentration of dependent children, and the lowest number of rooms per person (Figure 4 and 5); - poor living conditions – CEE countries have the largest share of population living in poor conditions (Figure 6); - high risk of poverty or social exclusion (Figure 7) – despite having high ownership rates, CEE countries have high shares of people at risk of poverty or social exclusion (slightly declining after EU integration); 2  - To partially compensate for the low quality of living, and given the social pressure of a high ownership rate, property taxes are relatively low in CEE countries (Figure 8); - Low quality of living creates pressure for new housing, despite financial difficulties to service new loans. It also creates pressure for migration, with longterm implications for financial stability.  2. Inequality: - Income inequality: Romania, Bulgaria and Czech Republic have the highest Gini coefficient in the EU (Figure 9); -  Housing cost overburden: If we adjust for rent-related costs (as CEE countries  have high ownership), many CEE countries are on top.

 However, the report and the subsequent analysis are restricted in the definition of structural features, in particular on the demand-side. 1   Financial stability is seen in the narrow sense of households being able to repay loans, and banks being exposed to the risk of non-performing loans, mainly because of sharp changes in the house prices. Much emphasis is put on the flow and on trends, and little attention is being paid to the stock.  I would like to focus on these structural features at households’ level, which eventually influence not only the RRE markets but also pose risks to financial stability in a broader sense. The discussion is particularly timely, as residential real estate prices have resumed an upward cycle in the last three years in all EU countries except Greece and Cyprus.  Ex-communist countries in CEE have high ownership rates (mostly as a result of a policy in the early 90’s to sell the state’s houses at affordable prices in the urban areas, as well as due to their large share of rural population). (Figure 1).  They also have low households debt to GDP ratios and low household mortgage debt to income ratio (Figure 2 and 3). However, these countries started from a very low debt level (practically zero), and they witnessed only one major boom and bust cycle of RRE prices in recent history.  These combined features seem to spare them of RRE vulnerabilities. But the devil is in details...meaning the structural features of households in CEE.
The existence of more banks with a pan-European outlook would amount to a private national risk pooling mechanism that would help weaken the link between the macroeconomic risks existing in each country and the stability of its banking system, adding robustness to the monetary and banking union. It is therefore important to identify and attempt to eliminate those obstacles that continue to hinder such banking consolidation in Europe, in spite of the establishment of the banking union. In particular, we must consider whether regulation and supervisory practices tend to unduly penalise geographical diversification of a bank’s business. It would also be desirable to ascertain whether the current structure of the industry in various countries, characterised by the existence of numerous banks that are not listed public companies and that maintain strong links with national business sectors, hampers the participation of foreign competitors, whether directly or through acquisitions. All told, in the short or medium term it is likely that the need to continue reducing costs will encourage bank mergers and acquisitions within each country in order to harness potential economies of scale. In the largest European countries, there would seem to be room for more consolidation. In fact, in many countries the level of concentration in the industry, as measured by the Herfindahl-Hirschman index, is below that which might be considered to pose a possible threat to competition (see Chart 8).

6  BIS central bankers’ speeches  Unquestionably, this scenario of new technologies and new emerging competitors poses a challenge to the traditional banking business. However, technical progress is also an opportunity for the more dynamic banks to generate efficiency and to extend the services provided to their customers. For instance, banks are proving very adept at developing instant payment services. And some of them might be well-positioned to develop direct lending facilities (P2P) competing with the new non-bank operators (e.g. crowdfunding). Banks retain advantages in terms of experience, market roots and the ability to offer a full range of transactional and intermediation services which should help them face competition which, nonetheless, will be increasingly intense. In our capacity as regulators and supervisors, we should seek to strike a balance between facilitating technical progress, supporting the development of new products and services, and properly safeguarding customers and financial stability. 3.3  Consolidation  Finally, orderly correction of the excess capacity in the banking industry will foreseeably require greater consolidation in the sector. I spoke to you about this exactly a year ago in this same forum and I believe that since then the view that such a process is becoming increasingly likely has become widespread. Ideally, consolidation should take place at the European level, in order to overcome the strictly domestic vocation of the overwhelming majority of banks.
For example, systemic firms subject to systemic leverage buffers in the UK can use their buffers with no distribution consequences. 7. The analysis suggests that in 2007, the UK CCyB rate would have needed to be set in the range of 3.5%–5% for the UK banking system to have had sufficiently large usable capital buffers to absorb losses that followed the credit boom without severely restricting lending to the real economy. A complementary analysis based on historical data on bank losses conditioned on elevated risks environment suggested a UK CCyB rate of around 5% could be warranted in these circumstances. See Bank of England Financial Stability Report ‘Financial Policy Committee Record and stress testing results’, December 2019 8. The last three shocks that hit the UK economy – the Brexit referendum, the Covid-19 pandemic and the RussianUkrainian war – did not originate in the financial system and were not related to the credit and financial cycle. 9. BCBS (2021), ‘Early lessons from the Covid-19 pandemic on the Basel reforms’  , Implementation report. 10. A bank with a preference for stable dividends is expected to be more concerned about a policy that reduces their control over those distributions and introduces volatility in pay-out profiles through the triggering of automatic restrictions. Such a bank would have incentives to reduce the likelihood of triggering these restrictions by building material voluntary capital surpluses over their regulatory buffers, potentially by constraining lending. 11.

Given the exceptional nature of the circumstances that would justify a CCoB release we would seek to limit the duration and scope of the distribution restrictions to the minimum required to address the risks faced. This would be dependent on the severity of the shock and the level of  Page 6  uncertainty that the banking system might have to face. [15] Enough said on capital buffers. I expect the debate on this to continue at the Basel Committee and the Financial Stability Board (FSB). Let me now turn to liquidity buffers. Liquidity framework and liquid assets usability The global financial crisis exposed the lack of sufficient liquidity in banks’ balance sheets and led to regulatory reform, including the introduction of the Liquidity Coverage Ratio (LCR), which enhances the resilience of banks to short-term liquidity runs. [16] Alongside the LCR, the net stable funding ratio (NSFR) was also introduced to ensure that banks maintain a stable funding profile over a longer horizon in relation to the composition of their assets and off-balance sheet activities. Following these reforms, we find ourselves in a much better place than before the global financial crisis. Liquidity regulation has helped banks to build strong liquidity buffers that can be used to absorb shocks. A decade after the onset of the financial crisis, liquid assets accounted for 17.2% of major UK banks’ total assets – more than double the level in 2007. Similarly, banks’ reliance on short-term funding reduced substantially – falling by more than three quarters over the same period.
Andrew Bailey: Financial stability – objective and resolution Speech by Mr Andrew Bailey, Executive Director of the Bank of England, at the Pro Manchester Business and Professional Services Conference, Manchester, 17 March 2011. *  *  *  Thank you for inviting me to speak at Pro-Manchester. It is a pleasure to be here. Today, I will talk about the financial crisis that is now in its fourth year, and particularly about the new regime of financial regulation that is being put in place. There is, I am afraid, nothing new about financial crises. On one count there have been sixty different crises since the early seventeenth century, and the first record of a bank panic dates back to at least Rome in AD331. A common theme of the antecedents of financial crises is that they begin with a wave of optimism and borrowing among consumers, companies, investors and governments. One of the best modern descriptions of this sequence can be found in a book by the economists Carmen Reinhart and Kenneth Rogoff. They summarise the sequence as one where: “excessive debt accumulation, whether it be by the government, banks, corporations, or consumers, often poses greater systemic risks than it seems during a boom. Most of these booms end badly”.2 Reinhart and Rogoff’s book goes under the title “This Time is Different: Eight Centuries of Financial Folly”.

Neither is it possible to say whether funded pension wealth mitigates the negative effects of expansionary monetary policy and elevated asset prices on wealth distribution. However, it is clear that no such mitigating effect can reasonably exist in most euro countries, as there is no funded pension wealth in these countries. Negative effects alleviated in Sweden The reasoning in this speech is not about three things. First, the introduction of the national supplementary pension system with associated National Pension Funds was controversial at the time.8 However, the National Pension Funds are now with us. Second, opinion is divided as to whether funded pension systems are to be preferred to paying pensions from day-to-day tax revenue. But, as I said, the pension funds are now with us. Third, the global downward trend in real interest rates has made it more difficult to receive return on wealth, especially if investors want to hold safe financial assets like government securities. The assets whose prices have increased are riskier. But this is not what the reasoning in this speech is about. This is what the speech is about: In Sweden, there is a comparatively large share of wealth in collective pension funds that has been built up with the help of mandatory contributions based on the labour income of individuals. This wealth is therefore more evenly distributed than other wealth. When asset prices rise, more people therefore benefit from the increase in wealth than if there had been no collective pension funds.