samchain/econo-pairs-v1 huggingface dataset:
In our case monetary policy set by the MPC should be able to respond to the macro implications of any dislocation to credit markets to the extent that they influence the outlook for inflation and thus deviations of inflation from target, just as the MPC conditions its policy decisions on asset price and balance sheet developments on all other occasions. That's natural. But, what we have not done – and should not do – is in any sense aim off our preferred setting of monetary policy because of financial instability. That has not happened. That outcome depends on having institutional structures governing decisions on monetary policy and financial stability. Internationally the picture remains more mixed on the latter. Let me next move on to the first stage of what I will call developments in money. Many central banks, the Bank of England included, are now implementing Quantitative Tightening (QT), the reversal of the Quantitative Easing (QE) we had previously used. QE has worked through its effects on interest rates and asset prices more generally. Those effects are temporary and their size is state contingent, being larger in times of crisis and market upheaval. We can think of QT likewise, except that we are deliberately implementing it gradually, and not in stressed times. It is not an active tool of monetary policy, but any effects it does have will be captured in the normal way of monetary policy setting, through realised financial conditions.

Physical risks also matter when assessing the ability to pay of borrowers involved in 1  P. Bolton, M. Kacperczyk, H. Hong and X. Vives (forthcoming), “Resilience of the financial system to natural disasters”, IESE Business School and CEPR. 2 See the Financial Stability Board (November 2020): The Implications of Climate Change for Financial Stability. sectors that could be particularly affected, such as agriculture or tourism. Capital destruction could also be very important. Furthermore, since not all geographies would be equally affected, the migration of activities and of the population in some areas will increase, generating an impact on the financial sector as well. Precisely to prevent these risks increasing further, acting to prevent the materialisation of climate change is essential. However, such interventions, and the accompanying changes in consumer and investor sentiment in favour of a greener economy, may also create their own particular risks to the financial sector. Indeed, the transition towards an environmentally sustainable economy implies a sweeping change in production technologies and a reallocation of activity across sectors and companies. Actually, such restructuring will mean that, in the short run, some sectors will increase their profits while others will incur losses, with obvious implications for the financial system and its stability. In this case, for estimating transition risks, the most relevant factors are the carbon footprint and the environmental impact of the sectors and companies to which financial firms are exposed.
Paul Tucker: Clearing houses as system risk managers Speech given by Mr Paul Tucker, Deputy Governor for Financial Stability at the Bank of England, at the Depository Trust & Clearing Corporation (DTCC)-Centre for the Study of Financial Innovation (CSFI) Post Trade Fellowship Launch, London, 1 June 2011. *  *  *  It is a real pleasure to be here this evening. The new “Post-Trade Fellowship” is an excellent idea, and I am delighted Peter Norman is the first incumbent. Like CSFI, Peter has made a very considerable contribution to thinking about the financial system – and no more so than in his latest book, The Risk Controllers. There is hardly a more important topic right now. The community has rediscovered the importance of the financial system’s plumbing. Your new Fellowship will help to sustain that interest as the years pass. And that is of special interest to the Bank of England given the government’s plan to transfer to us responsibility for supervising critical financial infrastructure – settlement systems and clearing houses. CCPs and the financial network Right now, the biggest “plumbing” issues follow from the decision of the G20 that more of the over-the-counter derivatives market should be cleared via central counterparties. But this is not just about derivatives markets. Compared to their origins in clearing commodity futures and then exchange-traded financial derivatives, CCPs have increasingly been clearing cash instruments – notably equities and, in recent years, government bond repos.

In any event, if a strategy were deployed to correct the structural deficit by 0.5 pp of GDP per annum (in line with the Stability and Growth Pact requirement), under plausible macroeconomic scenarios, the public debt ratio would move onto a declining path that would place it towards 2040 at slightly below pre-crisis levels. The reduction would be greater if this strategy were supplemented by a structural reforms programme that increased the economy’s potential growth. One tool that may be enormously useful to this end is the NGEU programme. In terms both of its volume and, above all, the projects it is intended to finance, the programme has, a priori, the ability to substantially raise the economy’s productive capacity. But it can be no substitute for the necessary structural reforms. Spain needs an increase in its potential growth. It needed it before the pandemic and needs it even more now. 6  The Spanish economy’s low potential growth over the past two decades has been essentially due to poor productivity dynamics. Such dynamics have been constrained by several structural problems, including most notably the small average size of our firms, regulatory shortcomings in certain sectors and in the framework that determines business dynamism, and major human capital and technological shortfalls. We must urgently correct the causes behind these shortcomings. Evident, too, are the flaws of the Spanish labour market. A telling fact here is that the unemployment rate has been above that of other developed countries in recent decades.
Most recently, the Federal Reserve increased its key rate by 0.25 percentage point, and it has also announced further interest rate hikes. With the prospect of low inflation, Norway has lagged behind other countries in adjusting interest rates to a more normal level. Two years after we started to lower interest rates it would appear that inflation is moving up, albeit slowly. Inflation is low, but the indices are also influenced by temporary and erratic disturbances. It will still take time before we will have seen the full impact of low interest rates. It may appear that growth in the Norwegian economy has become more self-driven. Capacity utilisation is close to normal and rising. After a period, the interest rate can then gradually be raised to a more normal level. Economic policy tasks The various components of economic policy have varying effects. This is why they have different functions: •  Monetary policy steers inflation in the medium and long term and can also contribute to smoothing swings in output and employment. BIS Review 10/2005  5  •  The central government budget – growth in public expenditure – influences the krone and the size of the internationally exposed business sector in the medium term. Government expenditure and revenues must be in balance in the long term. •  Wage formation, the structure of the economy and incentives determine how efficiently we utilise our labour resources and other economic resources.

There is also an interaction: •  In its budget resolutions, the government authorities will attach importance to the effects of the budget on the Norwegian economy and will therefore take account of interest rate effects. In this way, they avoid a situation where growth in public expenditure and the interest rate push the economy in different directions. •  With a known monetary policy response pattern, the parties to the centralised income settlements can take into account interest rate effects when wage increases are agreed. •  Moreover, the parties to public sector negotiations can take into account that the higher the pay increases are, the fewer there are that can be remunerated over government budgets. The interaction here came into clear evidence when employment in the general government sector fell after the expensive wage settlement in 2002. The authorities can achieve better economic policy results if they can commit in advance to a set of credible policy rules. Households, enterprises and capital markets are forward-looking in their decision-making. It is therefore important that the authorities do not sow doubt, but on the contrary act in a long-term and predictable manner. There must be consistency between plans and actions. Monetary policy’s role is to ensure low and stable inflation. Experience shows that we cannot reduce unemployment over time by simply accepting somewhat higher inflation. In many countries, also in Norway, confidence that inflation will be held at bay has increased because interest rate setting has been delegated to the central bank.
8  ‘Payment systems in eleven developed countries’ Feb 1980, BIS UK Payments statistics, published by the Payments Council 10 Under specified conditions: the Bank of England set these out publically in July 2017: ‘Access to UK Payment Schemes for Non-Bank Payment Service Provider’ 9  7  All speeches are available online at www.bankofengland.co.uk/speeches  7  The actual amount of cash in circulation is not going down. Indeed, over the last few years, demand for cash if anything has gone up slightly growing from about £ at the end of 2014 to over £ at end 2017. 11  Some of this demand can probably be attributed to the use of cash as a store of value – ‘money under the mattress’ and to the reduced cost of holding it in a low inflation, low interest rate environment. But while demand for cash has increased, there has been some fall in recent years in the value of cash payments. This stayed pretty constant for roughly the first decade of the century, but has fallen by around 10% since then. 12  And there have been even more significant changes in the volume of cash payments. In the latest data, the 13  total number of cash payments fell 16% over two years. It looks likely that last year, for the first time, the  number of card payments overtook cash payments.

The driver of these changes is the increasing use of private bank money rather than publicly issued cash for small payments through cards, the internet and new e money providers. It is difficult to predict how far or how fast this shift will go. Cash remains hugely important for payments in the economy. It is still used to settle nearly half of the transactions in the UK. Although the cost of card and smartphone transactions has come down, cash remains materially the cheapest technology for small transactions. Estimates suggest that cash transactions cost retailers less than 1½ pence per transaction, or 0.15% of the value, compared to over 5 pence per transaction for debit cards 0.24% by value. And, behaviourally, many people in the economy clearly prefer to use it for a variety of reasons. That could change quickly, as it has done in one or two countries, such as Sweden. But in many others the use of cash has proved extremely stable. For example, in Spain and Italy cash is still used for over 80% of transactions at the point of sale. 14  Given our general responsibility for money in the UK, what do these changes in the way money is used as a means of payment mean for the Bank of England? Our responsibility is to ensure that people can use the money of the UK to transact safely and, subject to that, as efficiently as possible and in line with their preferences.
The bond market and other markets where there is direct contact between borrower and lender will gain a competitive advantage. New requirements for banks must also be followed up, again with improved regulation. The group comprising the twenty largest economies in the world 8 are now discussing how to tackle the crisis and prevent it happening again. It will be important to avoid protectionism and trade wars. Moreover, the ambition is to establish a new and more sustainable financial architecture. Markets are integrated and banks are global, while the supervisory authorities are national and the application of rules varies. Supervisory authorities must be strengthened and adopt a uniform approach to banks, and regulations must be improved. National supervisory authorities have tended to be reluctant to impose stringent requirements on their banks for fear that their competitiveness will deteriorate. It is important to avoid such slippage in the rules towards an agreed minimum level that is too low. For Norway, it is essential that rules are applied stringently and uniformly in all the Nordic countries since banks based in Sweden and Denmark have large market shares in Norway and Norwegian banks have ambitions in Scandinavia. In recent years, there has been little cooperation across countries in the field of macroeconomic policy. The view has been that all is well as long as each country keeps its own house in order.

Norges Bank is the source for figures from 1996. BIS Review 16/2009  Equity capital in investment banks in the US and Europe was very low, as low as 2-3 per cent of total assets. Many of these banks have now collapsed. The authorities in many countries are working to enhance financial market resilience. For Norway, it would not be appropriate to return to the regulatory regime of the postwar period. Interest rate regulation, credit budgets, a wide range of state banks, regulation of crossborder capital movements and a fixed exchange rate are not the answer. Instead, new and higher capital requirements must be imposed on banks. Banks calculate how much capital they need using their own risk models. The models capture losses and gains previously generated by lending. Equity capital requirements are determined by previous experience of the risk exposure of investments. One drawback is that the historical basis for the models, and hence for the risk assessments, is too limited. With losses now rising, as a result of the abrupt and pronounced turnaround, banks must increase equity capital. Thus the rules governing capital requirements amplify the economic cycle. Three changes are particularly relevant: First, for a given risk assessment, capital requirements must be higher. Second, banks must not be able to reduce capital below a minimum level even if they extend loans that, according to the models, seemingly involve low risk. Third, banks must build up strong capital buffers over and above the minimum requirement in normal times.
Although government-owned, the Fund has no role at all in Norwegian foreign policy. The Fund is managed within an ethical framework. This framework has two pillars. Some companies are excluded from the investment universe, by the Ministry of Finance. And Norges Bank has a corporate governance department which works together with the companies we invest in. The overall principle for the investment strategy of the Fund is to keep a medium risk profile, defined by the Parliament and Ministry. Norges Bank makes investment decisions within this  4  BIS central bankers’ speeches  risk profile, to achieve as good a return as possible. As time has gone by and crises have emerged and subsided, the Norwegian parliament and public have increased their risk tolerance. From the start, the Fund was invested alongside our foreign currency reserves, exclusively in government bonds with high liquidity, low risk and mediocre return. In 1998 we started investing in stocks, placing 40 per cent of the Fund in equity and keeping 60 per cent in bonds. In the following years, the investment universe was gradually expanded. Emerging markets were included, as were corporate bonds and stocks from small companies. In 2007, the Norwegian parliament decided to increase the Fund’s equity share to 60 per cent. Last year, we started investing in real estate. When the real estate target of 5 per cent is reached, bonds will constitute only 35 per cent of the Fund.

In the euro countries, the Maastricht Treaty and the Stability and Growth Pact provide guidelines for fiscal policy, including requirements to reduce government debt and to record a budget surplus during upturns and the establishment of limits on deficits during recessions. Sweden has placed a cap on government expenditure in the medium term, and is systematically reducing government debt. The UK is complying with a guideline stating that public consumption should not be debt-financed. They have also placed a cap on government net debt. The US has created a significant budget surplus, and government debt is being reduced. In Norway it is important that the annual budgets are anchored in a long-term strategy which takes into account that oil revenues may fluctuate from one year to the next. It is an advantage if fiscal policy can also be used to counter fluctuations in demand and production. Given the policy objective, the government budget should not have a procyclical effect. It would be undesirable for government budgets to contribute to increased demand for labour at times when price and wage inflation is appreciably higher than the rate in other countries. Transparency in monetary policy In order to contribute to greater credibility and confidence, Norges Bank places emphasis on transparency with regard to its interest rate policy. Transparency promotes predictability in the behaviour of the central bank and helps reduce uncertainty for economic agents.
Thus, for financial institutions with insuperable solvency problems, it is proposed that the appropriate rescue solution be implemented. For other institutions, that are solvent, but in difficulties that make a strengthening of their capital advisable, many governments have made capital available to them through shares, or other debt instruments that are, for regulatory purposes, deemed to be capital, such as preference shares. Apart from capital strengthening, and in order that solvent institutions should start to function again as normal and have access once more to financial markets that have remained blocked, government guarantees are going to be granted for issues of bank debt. This latter line of action, i.e. that relating to the availability of liquidity and financing, has been supplemented in the case of Spain by the purchase of highquality assets. Finally, and in order to boost the confidence of depositors, practically all countries have increased the amount covered by deposit guarantee schemes and have proposed reducing the period within which such deposits must, where necessary, be returned to depositors. The Spanish government has prepared a roadmap that envisages all these actions. It will be implemented not so much to alleviate solvency problems, which have not materialised in our country, as to help restore confidence and facilitate institutions’ access to financing. The ultimate aim is to avoid institutions’ financing difficulties being the cause of a reduction in lending to firms and households.

The future challenges will arise, on one hand, from the international financial crisis, a phenomenon affecting all European banks; and, on the other, from the weak macroeconomic situation, which has global dimensions, but also elements particular to Spain. Both forces are going to affect the income statement, and therefore the ability to generate profits which, as we all know, are banks’ first line of defence against future problems. In the first place, banks are already suffering difficulties arising from the international financial crisis and, in particular, the consequences of the closure of financing markets. In this regard, the particular structure of the liabilities of Spanish banks, characterised by a broad deposit base and debt with mostly medium and long-term maturities, together with the plans recently approved by the Spanish parliament in coordination with other EU countries, mitigates the problem, but does not make it disappear. The cost of financing will certainly not be the same as that prevailing prior to the summer of 2007, when investors began to rapidly reassess the risk of financial instruments. Even if the wholesale markets gradually re-open, it is highly unlikely that the differentials required by the various products will return to their exceptionally low pre-crisis levels. 6  BIS Review 133/2008  Greater competition among banks to attract deposits, and the fact that they are replacing lower-remunerated sight deposits with time deposits, will also put pressure on the financial costs Spanish banks have to bear.
•  Fabrication demand for gold, by contrast, for jewellery as well as for industrial uses, has contracted in recent months. In the industrialised countries, this decline has been mainly brought about by the economic slowdown. The high gold price, however, has also played a role, especially in developing countries. In countries such as India, which accounts for a quarter of gold demand, the precious metal is held in the first place for saving purposes. Investors use a more or less fixed portion of their disposable income to purchase gold. In times of rising gold prices, investors buy correspondingly less gold. From these developments we can draw two conclusions: •  In the long term, the main elements influencing gold price expectations are changes in private investors' demand, mines' production costs as well as the central banks' fundamental attitude towards their gold reserves. •  In the short and medium term, any change in producers' hedging policies and in the central banks' gold holdings, as well as speculative demand can trigger noticeable shifts in the gold price. These price movements, both upward and downward, may be relatively significant because the gold market is not very liquid, as experience has shown. Under this point of view, the central bank gold sales agreement of September 1999 has had a stabilising effect, since it has made the operations of central banks transparent and eliminated an important source of uncertainty. Our sales will continue until we have completed our programme, i.e. until we have sold 1,300 tonnes of gold.

A New Horizon  Speech given by Mark Carney, Governor Bank of England  European Commission Conference: A global approach to sustainable finance 21 March 2019  I am grateful to Jennifer Nemeth for her assistance in drafting these remarks and to Ryan Barrett, Sarah Breeden, Emma Dalhuijsen, Edd Denbee, Chris Faint, Ronan Hodge and Sini Matikainen for their input. 1  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  A New Horizon? A few years ago, I spoke of the Tragedy of the Horizon – how the catastrophic impacts of climate change will be felt beyond the traditional horizons of most banks, investors and financial policymakers, imposing costs on future generations that the current one has no direct incentives to fix.1 Once climate change becomes a clear and present danger to financial stability it could already be too late to stabilise the atmosphere at two degrees. The paradox is that risks will ultimately be minimised if the transition to a low-carbon economy begins early and follows a predictable path. But for markets to anticipate and smooth the transition to a 2-degree world, they need the right information, proper risk management, and coherent, credible public policy frameworks. Today, catalysed by the COP21 Paris Agreement, and national policies such as the UK Government’s Clean Growth Strategy, some of these elements are coming into place, creating a potential path to break the Tragedy of the Horizon. But the task is large, the window of opportunity is short, and the stakes are existential.