samchain/econo-pairs-v1 huggingface dataset:
In light of the pressures on firms and your and our need to focus on Covid-19 specific stresses we decided to pause the work we needed to do with firms to ensure the results were sufficiently robust to publish. We did learn some lessons from the work we had done that will be useful in our preparation for the climate focussed scenario:  1. Many firms struggled to identify and allocate their investments to sectors identified as having different levels of vulnerability to climate change. 2. Current model designs constrain scenario outcomes – for example, natural catastrophe models often implicitly make allowance for flood defences making it difficult to reflect and assess tipping points as temperature changes become increasingly extreme. 7  NCSC: https://www.ncsc.gov.uk/news/covid-19-exploited-by-cyber-actors-advisory https://www.bankofengland.co.uk/prudential-regulation/publication/2019/enhancing-banks-and-insurersapproaches-to-managing-the-financial-risks-from-climate-change-ss 8  8  All speeches are available online at www.bankofengland.co.uk/news/speeches  8  3. Climate risk management is not yet embedded – for example, for many firms the responses to a questionnaire on adherence to our Climate Supervisory Statement (3/19) suggested greater progress than that indicated in the completion of the stress test. Earlier this month the PRA announced that the launch of the Climate Biennial Exploratory Scenario will be postponed until at least mid-20219. This delay reflects a desire to maintain the ambitious scope of the exercise, and give firms enough time to invest sufficiently in their capabilities to allow them to deliver to a high standard. Conclusions  A core objective of supervision is to ensure that firms are resilient throughout the economic cycle.

“Life beyond Solvency II: A view from the top of the regulator” Speech given by Charlotte Gerken, Executive Director of Insurance Supervision  Remarks delivered at the Association of British Insurers (ABI) Prudential Regulation webinar keynote address 19 May 2020  I would like to thank Megan Bell, Fred Schneider, Alan Sheppard, Manuel Sales, Lewis Webber, Santosh Pandit, Stefan Claus, Paola Vega and Patrick Cleary for their help in preparing these remarks. 1  All speeches are available online at www.bankofengland.co.uk/news/speeches  Good afternoon. Many thanks to the ABI for inviting me to speak at this prudential regulation webinar. When I was asked to give a view from the top of the regulator, I can’t say I’d been expecting to give that view from south west London. Thinking about the theme of today’s webinar, ‘Life beyond Solvency II’, the scope of my talk is two-fold: Firstly to reflect on what we have learned about Solvency II during a first test of the regime, to inform how our regulatory framework may develop following the end of the EU withdrawal implementation period. And secondly beyond the Solvency II regulatory regime, what some of our key supervisory priorities are. As a result of the challenges presented by Covid-19, we – like you – had to shift resource from our longer term business priorities – including supervision and policy reform – to short-term crisis management.
Our own foreign exchange reserve was not sufficiently large to manage such extensive lending in dollars. The increased lending has meant that the Riksbank’s balance sheet has grown since summer 2008 from around SEK 200 billion to around SEK 600 billion. We have also changed our collateral requirements for lending to the banks so that the banks can offer more types of security as collateral and thus more easily sustain their functions in the market. We have provided special liquidity assistance to Kaupthing and Carnegie to safeguard financial stability and the functioning of the financial markets. We have decided to lend at longer maturities, with variable interest rates and with smaller supplements. We have also extended the number of counterparties in our lending. In addition, we have signed swap  BIS Review 56/2009  3  agreements with Iceland, Estonia and Latvia to support crisis management in these countries. Developments in the Baltic are important to the Swedish financial sector. Here the economic downturn has been particularly severe and the necessary adjustments have not been made. In other words, there are substantial risks in our neighbouring area and if things go very badly the Swedish financial sector will suffer negative effects. However, the measures taken by the Riksbank and by government authorities have had a positive effect on the supply of credit in Sweden. So far there are few signs that companies have been affected by a credit crunch over and above the credit tightening caused by a deep recession.

Confidence indicators, net figures, seasonally-adjusted data 40  40  30  30  20  20  10  10  0  0  -10  -10  -20  -20 Househoulds  -30  -30  Total business sector  -40  -40 00  01  02  03  04  05  06  07  08  09  10  Source: National Institute of Economic Research  The recovery will take time But although growth will recover during the final two quarters of this year, we believe that GDP in Sweden will fall by more than 4 per cent in 2009. And it will take a long time before the economy is back at the same level as prior to the crisis. 2009 will be the first year since the 1940s in which GDP falls in the world as a whole. But, all in all, there are many indications that the growth rate abroad and in Sweden has bottomed out and will rise in the years ahead (Figure 2). Figure 2. GDP level, index 2007 Q4 = 100 110  110 USA  108  108 Euro area  106  106  Sweden  104  104  102  102  100  100  98  98  96  96  94  94  92  92 07  08  09  10  11  12  Sources: Bureau of Economic Analysis, Eurostat, Statistics Sweden and the Riksbank.
In my view, it should only be possible to neglect price stability and highest sustainable employment for a limited period if there are clear signs of problems with financial stability, if there are no means of addressing these problems without setting aside price stability and highest sustainable employment and if it can be credibly demonstrated that another, for example a higher, repo-rate path would lead to better target fulfilment for inflation and unemployment in the longer run. This last condition is important. The government bill that contained the proposal for the Sveriges Riksbank Act states namely that the policy rate may only be used to prevent a financial crisis if such a crisis threatens the price stability objective. In my opinion, there are no clear signs of problems with financial stability at present, there is no lack of means to maintain financial stability and if necessary to limit growth in mortgage  1  Sveriges Riksbank Act 1983:1385 and Government Bill 1997/98:40. BIS central bankers’ speeches  1  lending, and nor is there any theoretical or empirical support for the view that a low policy rate would lead to imbalances in Sweden. If anything, a lower policy rate might instead mean that the banks have less incentive to seek short-term funding in foreign currency and thus the risks linked to this funding will decline. If the Riksbank succeeds in stabilising inflation around the target and unemployment around a sustainable rate, average inflation should be in line with the target over a longer period of time.

For instance, a seemingly credible threat by one party to take actions that lead to mutual disadvantage can prompt concessions from the other, (or not). A former American President, 1/3  BIS central bankers' speeches  Richard Nixon, called this his “mad man” theory when applying it to the war in Vietnam and there are echoes of this idea in current international trade disputes. Such behaviour undermines multilateralism which has been an important source of stability and growth over many decades. If strategic uncertainty is a source of unilateral advantage, it will not dissipate but remain a source of latent policy risk. Last, “Structural change and monetary policy” uncertainty There are fundamental structural changes occurring, notably in the euro area economy but also elsewhere, that are poorly understood. The ongoing demographic transition, for example, is changing employment, investment and saving decisions, which will probably lower the natural rate of interest. The monetary policy transmission mechanism also seems to be changing. A sustained period of accommodative monetary policy has boosted growth and employment and is finally showing up in nominal wage growth: this first part of the Phillips curve is at work. But higher nominal wages have not yet been passed through to core inflation. It should eventually, but the more pertinent issues – of when and by how much – are unclear. There is, thus, not a single mechanical relationship between monetary policy instruments and inflation, rather a distribution of likely responses.
Some of us made it clear that, so far as our individual decisions were concerned, we expected, other things being equal, to vote for a gradual withdrawal of monetary accommodation if/as demand recovered and the slack in the economy was gradually absorbed. 17 Crucially, those statements were state contingent. Some policy strategy issues Against that background, I should like briefly to review, without reaching firm conclusions on, four issues that feature in the recent literature. Whether central banks should publish an expected (optimal) path for their policy rate. Second, whether stabilisation policy is subject to a bias, meaning that a central bank will find it optimal not to deliver on promises and that, in consequence, its policies to offset shocks will be less effective than they could be if it could commit itself. Third, whether stabilisation policy could be more effective if the central bank targeted a path for the price level rather than an inflation rate. And, fourth, how central banks should respond to asset price inflation. (a)  Should central banks publish an expected policy path? 16  For a discussion of some implications of different loss functions, see Vickers, J., 1998, ‘Inflation targeting in practice: the UK experience’, Bank of England Quarterly Bulletin, November, pages368-75. 17  For example, Tucker, P.M.W., speech at the National Association of Pension Funds Annual Investment Conference, March 2004, Bank of England Quarterly Bulletin Summer 2004, vol 44, number 2; and ‘Bank’s market man is ready for rate rises’ P.M.W.

Alternatively, it is argued that they are so obviously consistent with a ‘standard’ loss function that it does not really add anything to talk about ‘insurance’ or ‘precautionary’ settings as a way of framing policy analysis and decisions. These are both fair points! Possible responses run as follows. First, maybe we (society) are more averse to fairly bad events than to risks that take us just a little distance from target/potential; eg maybe preferences would be better approximated by a loss function with a ‘higher power’ than a quadratic 16 . Second, maybe what is going on can be thought of in terms of how heavily or not we discount future deviations from target/potential relative to very near-term deviations; ie a policymaker may accept the price (premium) of risking slightly higher/lower inflation in the nearish term in order to reduce (insure against) the risk of a bigger or more persistent deviation of inflation from target a little down the road. What the insurance/risk management metaphor does illustrate is that a policymaker has to think beyond the immediate policy decision. Indeed, it would be odd not to. In the great scheme of things, fixing the overnight rate for the next month (in the UK) – or 45 days or so (in the US) – seems neither here nor there. Of course, on both sides of the Atlantic, we have recent examples of policymakers making their strategy clear, albeit in subtly different ways. In the most recent cycle, the Bank of England’s rate troughed at 3.5%.
In the middle of next year, we are introducing a cap on the total mortgage cost — for people to see the fair value of a loan including all tied options. We believe it is essential that the total loan cost, viewed broadly, stops banks from circumventing our restrictions through creative options that add to the total loan cost. That would involve legislative changes, and we need your support there. The subject of debt burden and consumer loans will remain our focus, but I would now like to proceed to comment on the rollout of financial technologies. You will agree that our financial sector is quite advanced technologically, offering many services, digital services and online payments that are still unavailable in other countries. We are committed to ongoing support of innovations in the financial sector, and continue our dialogue on potential areas of development. We report good progress with payments for goods and services in the Faster Payments System. Some time ago, the system only applied to money transfers. Now, people can pay for goods and services via banks’ mobile applications, with a QR code. Companies stand to benefit from the lower costs compared to acquiring. You know how acute that problem has been, especially for small and medium-sized businesses. Payments are routine transactions today, and multiple channels should be available to process them. This is essential to cost reduction. The more competitive the market, the better its product offering. Therefore, we will open the payment market to non-financial organisations, too.

Such understanding would be enhanced by greater focus in academic research on analysis of the intricate interactions in complex financial systems. The appropriate benchmark for the financial system is whether it is providing appropriate financing to the real economy in a stable and sustainable way. Thereby, and thereby only, will it make a valuable contribution to our economy. Thank you for your attention. BIS central bankers’ speeches  5
John Gieve: The credit crunch and the UK economy Speech by Sir John Gieve, Deputy Governor of the Bank of England, to the Family Office Leadership Summit, London, 22 September 2008. *  *  *  Introduction In recent days we have seen extraordinary developments in US financial markets. At the start of last week we saw the collapse of Lehman Brothers and the merger of Merrill Lynch and Bank of America; by Friday the US Treasury had rescued AIG, issued a guarantee of Money Market Funds and an outline plan for a Resolution Trust that is now in Congress. And this morning the Federal Reserve announced that Goldman Sachs and Morgan Stanley would become regulated bank holding companies. But I want today to concentrate on the broader economic impact of the crisis in credit markets, which began over a year ago with the downturn in the US sub-prime housing market. While the epicentre has remained in the US, it has already had a major impact on the structure of our banking sector. Northern Rock was among the first casualties. And this year we are seeing a significant consolidation within the UK banking sector, with Santander purchasing Alliance & Leicester, Nationwide absorbing two smaller building societies, and most recently the merger of HBOS and Lloyds TSB.

The structural reforms, that we are badly in need of, must be implemented as rapidly as possible if we want Europe to be up to its historical challenges. The Chinese say “It is later than you think” has never been so true. In any case, history itself does not wait for us. And when I look back, over the last twenty years, it seems to me that an unfortunately well-founded criticism could be that we have constantly under-assessed the rapidity of the stream of history: the rapidity of the deterioration of the situation in the USSR, the rapidity of the collapse itself, the rapidity of the enlargement process, the depth, the strength and the intensity of the “desire of Europe” which is spreading in the countries in transition. Second word: stability. Economic and financial stability, in a period of excessive volatility and of wide boom-bust episode, financial and real stability appear to be a very precious asset. Over the last twenty years, we have constructed a new world: technology has permitted instantaneous communication and incredibly powerful real-time computation. Globalization has created new cultural, conceptual, commercial and financial links between all economies including previously centrally planned systems; together technology and globalization are progressively driving us to a unified planet of universal rules and regulations, code of conduct and practices, market procedures and market instruments, accounting standards, etc.
Unfortunately, this came at the cost of significant macroeconomic imbalances: at the start of the crisis, Romania had a sizeable structural fiscal gap (around –8 percent of GDP in 2008), a current account deficit in the double-digit area and high inflation readings. When the crisis hit, there was no other option but to make the necessary adjustments. They appear to have produced the expected results: with the current account deficit below 1 percent of GDP, a structural fiscal position in the vicinity of 1 percent of GDP, and an annual inflation rate currently at 1.2 percent, we can safely say macroeconomic equilibria have been restored. At the same time, the economy resumed its growth at rates that can be regarded as robust when compared with the European performance (around 3 percent in both 2013 and 2014 and an even better 4.3 percent in the first quarter of 2015). As a consequence, the output lost in the first two years of the crisis has been completely recovered. Public debt is currently below 40 percent of GDP and looks set to decrease over the medium-term, assuming fiscal consolidation gains are maintained and the economic growth stays at current levels. Positive developments also occurred in terms of the external debt, whose share in GDP decreased by more than 12 percentage points since 2012, mainly due to the cross-border deleveraging and the near complete repayment of the IMF loan.

As elsewhere in Central and Eastern Europe, in Romania too the vulnerabilities exposed by the crisis in the model of centralised fund management at the level of cross-border banking groups led to a new paradigm, which emphasises the local funding of credit activities. The cross-border deleveraging which accompanied this switch, while sizeable, has nevertheless unfolded in an orderly manner. The shift towards the domestic market in terms of financing sources was accompanied by an increase in the relative importance of local currency-denominated loans: after a long time, their share exceeded 45 percent and will possibly overtake foreign currency lending by the end of the year. This is, undoubtedly, a positive development for both debtors, who avoid currency risk exposure, and central banks, due to the increased effectiveness of monetary policy. Looking ahead, the constraints on both credit supply and demand are expected to continue to prevail, as the effects of a balance-sheet crisis, such as the one we have recently encountered, tend to be longer-lasting. In such an environment, the quality of credit allocation appears more important than the volume, although the latter is not at all irrelevant in our case given a still low financial intermediation at 31.7 percent of GDP (not even during the credit boom period did it exceed 40 percent). In order to put the economy onto a self-sustained growth path, I believe it is necessary for banks to channel credit to productive investment, avoiding the overburdening of good debtors with the costs of past misallocations.
I’ll also meet with the leaders of New Jersey Community Capital to learn about their cutting-edge programs for helping distressed homeowners and then I’ll speak to the students, faculty and alumni at Montclair State University. In addition, my colleagues and I at the New York Fed continually track conditions in our District, and we have created a number of tools for that purpose. For example, my staff produces indices of economic activity for New York City, New York State and New Jersey. We also track local household credit conditions, including the amount and type of personal debt and whether payments are being made in a timely way. We also conduct a periodic poll about the credit needs of small businesses, which are an important source of new jobs in the region. In our latest poll of several hundred firms, many report that they did not apply for credit because they were “discouraged.” Perhaps surprisingly, many of these non-applicants have credit profiles similar to other firms who successfully sought credit. This finding suggests that the demand for credit could pick up as some “discouraged” firms learn that they might be able to obtain credit now. If you, as a representative of a small business, would like to participate in our next poll, please pass your card to my colleagues, who are in the audience, or see me after the speech and we will be glad to add you as a respondent.

We therefore seek to minimize how far employment is from its long run normal level and inflation is from our longer-run goal of 2 percent on the PCE measure. Because monetary policy works with a time lag, we base policy not just on where the economy is today but where we expect it to be in the future. To do this, we make economic forecasts, based on data and insights from a broad range of economic models. We also take into account the balance of risks around our base case outlook. Looking ahead, in the absence of further monetary easing, I concluded that growth would remain too subdued over the next several years to make big inroads into the spare capacity that remains from the Great Recession. As a result, unemployment would remain unacceptably high, with economic risks skewed to the downside. Meanwhile, with substantial slack in labor markets and inflation expectations stable, inflation was likely to remain a bit below our 2 per cent longer-run objective. In this situation, I concluded that our policy framework means that further monetary policy easing was appropriate provided that the benefits of using the tools available outweighed the costs. In my judgment, this standard has been satisfied here. I am confident that the costs are manageable, based in part on the experience we have of using the tools these past four years and that the benefits substantially exceed the costs, recognizing, of course, that our actions are not so powerful that they will instantly transform the economic outlook.