samchain/econo-pairs-v1 huggingface dataset:
Most importantly, for loans that are priced against the sovereign yield curve nominal rates are now extremely low across nearly all euro area countries, with real rates lower still. Our purchases of non-sovereign public assets are also reinforcing a revival in credit, albeit through different channels. For example, our purchases are effectively lowering the funding costs of 2  BIS central bankers’ speeches  supranational lending institutions, such as the European Investment Bank, and of national development agencies, such as KfW in Germany. And we continue to broaden our universe of eligible agency bonds , because our aim is not to become the largest creditor on the euro area. Second, our programme is creating portfolio rebalancing effects as investors are displaced across asset classes – affecting risk preferences – and across jurisdictions – affecting the exchange rate. This process has multiple transmission channels to real economy but one key one is through banks: on the liability side, portfolio rebalancing reduces the cost of market debt for banks, and on the asset side, it increases the opportunity cost of holding henceforth still risk-free securities, such as government bonds, over extending loans to the real economy. Third, asset purchases have a strong signalling effect. They send a powerful signal that we will not allow price stability to be jeopardized, which helps re-anchor inflation expectations and lower real interest rates.

Following the introduction of CRDIV we now have a wide range of new tools available to the competent authorities in the euro area and, with the creation of the SSM, a stronger framework to coordinate those tools and prevent inaction bias at the national level. Should we see any indications that low interest rates are leading to financial imbalances, the first line of defence is for the competent authorities to make full use of these new but hardly tested instruments. The division of labour is clear: monetary policy should focus on price stability; macroprudential policy on financial stability. Yet I am also sympathetic to the view expressed by the BIS that we need to approach macro-prudential with “a mix of ambition and humility” – that is, we need to be ambitious in using the new tools we have, but we also need to be humble in recognising their limitations. Research is so far relatively limited about the channels through which macro-prudential policies work and the magnitude of their effects. Moreover, as most macro-prudential tools are in fact micro-prudential, conflicts of competence between respective authorities could occur. This all the more that the degree of Europeanisation of micro- and macro-prudential  4  BIS central bankers’ speeches  competencies is not the same – not to speak of the competence pooling of sovereignty in monetary policy. And in any event, macro-prudential tools tend to be more effective in building resilience against financial shocks than preventing those shocks in the first place.
1,8 1,6 1,4 1,2 1 0,8 0,6 0,4 0,2 0 Month May Feb Nov Aug May Feb Year 1996 1997 1997 1998 1999 2000  Lending by mortgage institutions to the household sector amounted to about SEK600 billion by the end of September 2000, compared to SEK581,6 billion at the beginning of the year. About 35% of the households’ total borrowing raised in mortgage institutions are loans with floating interest rates, ie about SEK210 billion. Another reason why cross-border activities have been limited so far is that the mortgage markets are governed by national regulations. A third reason is that cross-border activities are exposed to foreign exchange risk. As long as Sweden is not a member of EMU, foreign players wishing to establish operations on the Swedish mortgage market will have to offer loans in Swedish kronor, since Swedish borrowers are unlikely to want to expose themselves to foreign exchange risks. However, if Sweden joins EMU, interest rates offered to borrowers in EMU-affiliated countries will be directly comparable. A common currency would make it easier for borrowers to assess which credit institution in the common currency area offers the best conditions. Swedish borrowers will be able to raise loans in euro without being exposed to foreign exchange risk, and access to potential lenders will increase. BIS Review 99/2000  4  The Swedish mortgage sector is currently dominated by five companies, one of which - SBAB - is state-owned (Figures 7 and 8). These five companies cover around 97% of the market.

Although Albania has been “a net importer” of global developments, its economy has shown high level of resistance and absorption. In the third quarter the present year, the Albanian economy continued to maintain its previous course. The available data on the first nine-month period show that the economic growth has been in line with the projections. Macroeconomic balances remain stable and the banking system continues to be sound. Economic growth at home has maintained its upward tendency. Services and trade sector in particular have provided the main contribution to the economic growth. CPI inflation continued to fall in October to 2.7 percent. Developments in core inflation indicate that the macroeconomic balances at home and the monetary conditions have been adequate to ensure an inflation rate close to the Bank of Albania target. The achieved stability has been also prompted by the inflationary expectations of economic agents which have been anchored at around 3 percent. These developments attest to the fact that the central bank’s measures have been effective in terms of containing the inflationary pressures. The fiscal policy pursued during the entire year 2008 has observed the targets set in the Medium-term Budget Programme for 2008-2010; consequently, it has not yielded any repressions in economy and performance of prices. The Albanian banking system continues to operate under optimal parameters, in line with the standards of prudent banking supervision. The latest data indicate that the domino effect induced by the developments in the international financial market has been handled with satisfactorily.
Now this audience of lawyers will pay special attention to both quotations, because each notes that the central bank must act within the bounds of its legal authority. It is not simply “whatever it takes” come hell or high water; it is “whatever it takes” within the central bank’s mandate, thereby turning attention to the limits set by the substantive law. The Bernanke and Draghi statements are consequential not only because they highlight objectives of critical importance to each central bank, namely financial stability for the Federal Reserve and preservation of the euro for the ECB. The statements also highlight that the central bank  1  Ben S. Bernanke, Chairman, Board of Governors of the Federal Reserve System, Speech at the National Press Club Luncheon, February 18, 2009. 2  Mario Draghi, President of the European Central Bank, Speech at the Global Investment Conference in London, July 26, 2012. BIS central bankers’ speeches  1  objective is to be achieved within the boundaries set by the rule of law. Who is it that is called upon to declare and interpret the boundaries of the central bank mandate? It is the central bank’s legal counsel. I am asked periodically about the legal basis for the Federal Reserve’s financial stability objective. Students of the Federal Reserve read our nearly 100-year-old enabling statute, the Federal Reserve Act, and cannot find the words “financial stability” anywhere in the Act. How, then, can financial stability be a part of the Federal Reserve’s mandate?

Rather, in most cases, many institutions act more or less similarly, encouraged by overoptimistic expectations that macroeconomic conditions can be extrapolated uncritically into the future. The second problem with prudential regulation is that the tools are themselves often based on perceptions of risk which are not independent of the credit and asset price cycle itself. On the one hand, underlying actual risk  BIS Review 68/2002  1  builds up as expansion and leverage continue and the financial cycle proceeds On the other hand, apparent risk declines with the rise in collateral values. This causes difficulties for supervisors who tend to concentrate on individual institutions and treat risks as exogenous. This is not to deny that by improving prudential regulation, setting international standards (for example Basle II) etc, the risk of financial instability can be significantly reduced. Supervisors are also recognizing the shortcomings I just mentioned and are increasingly focusing on developments that generate systemic macroeconomic risks and on constructing built-in mechanisms to dampen the financial amplification of the business cycle. For example, supervisors are trying to encourage stress-testing by private sector risk managers to enable them to better see through asset market misalignments. Another way is to make provisioning practices more forward-looking than at present and to adopt more conservative, less cyclically sensitive measures of value. The idea is to build capital cushions in good times that can be used in bad times. Hence financial cycles could be milder.
Preference biases Public policy involves making choices on society’s behalf. Society typically delegates these choices to an individual or set of individuals, often either politicians or bureaucrats. That act of delegated authority means that policy decisions usually involve both a principal (society) and an agent (such as government). The nature of that principal/agent relationship then becomes crucial for effective policy. 8 Yet history suggests that this relationship is not always entirely harmonious. One potential source of friction is that the agent may have preferences which are not perfectly aligned with society at large. This is human nature. For example, it might arise from the agent putting personal objectives over societal ones, such as personal power or wealth. 9 These problems have been widely studied in political and management science. In their extreme form, this preference misalignment can manifest itself as autocracy (the pursuit of personal power at society’s expense) or corruption (the pursuit of personal wealth at society’s expense). Historically, such “extractive regimes” have had dire consequences for societal welfare. Indeed, they may explain “Why Nations Fail”. 10 Historically at least, the antidote to these preference problems is typically found in institutions – property rights, the rule of law, democratic processes. Strong institutions have often laid the foundation on which nations have been built. Typically, these institutional structures comprise an ex-ante mandate (agreed by society) and ex-post accountability mechanisms (assessed by society). Colloquially, these are often called checks and balances.

In my mind, a location policy is the most efficient tool: first, it would make it possible to maintain effective control over the activities denominated in EU currencies; and second, it would foster a better and more balanced clearing market structure, less dependent on “too big to fail entities”, which would enhance global – and not only EU – financial stability. In this regard, I would like to acknowledge the valuable proposals recently made by the European Commission, even if they could be strengthened and streamlined: those CCPs whose activities are "super-systemic" for the EU market should indeed establish themselves in the European Union. A location policy is the only viable mechanism to guarantee that European authorities, and the Eurosystem in particular, can control and manage the risks that CCPs are likely to pose to the financial stability of the European Union. In order to do so, the concept of “substantially systemically important CCPs” should however be clearly defined with objective, rule-based requirements; euro-denominated clearing activities should be located in the European Union when they exceed certain thresholds. 2. Speed up the creation of a “Financing Union for Investment and Innovation” The second imperative is to speed up the creation of a “Financing Union for Investment and Innovation” at the European level. The need for such a Financing Union stems both from a weakness and an opportunity. The weakness is that the euro area faces persistent financial fragmentation.
The exchange rate therefore serves as a buffer against changes in the terms of trade. Norway’s terms of trade also fluctuate considerably, primarily reflecting changes in oil prices. However, a substantial portion of petroleum revenues is invested in foreign equities and bonds through the Government Petroleum Fund. Changes in oil prices influence the size of the Fund, but have little effect on the use of petroleum revenues at home. The Government Petroleum Fund thus serves as a buffer against swings in the oil price, and thereby stabilises the krone exchange rate. The Norwegian economy may nevertheless be exposed to disturbances of a type that cannot be absorbed by the Petroleum Fund. We have to be prepared for fluctuations in the value of our currency that are more in line with the fluctuations observed in other countries. The exchange rate will vary. This means that economic agents cannot assume that the krone will be stable against the euro, the US dollar or a weighted average of foreign currencies. It is the inflation target that is the economy’s nominal anchor. The increase in labour costs is important when Norges Bank’s assesses the outlook for price inflation and sets interest rates. High wage growth, both in manufacturing and other sectors, will affect the internationally exposed sector through two channels. First, high wage growth will weaken earnings and employment. Second, the interest rate will be increased. Normally, this will lead to an appreciation of the krone, with a further weakening of earnings and employment.

Over time, the inflation target and labour productivity set the standard for wage growth. Thank you for your attention. BIS Review 11/2002  13
To summarise, probably all of these factors have had some significance in stabilising the world economy. However, one must remember that 20 years is a short period when analysing economic cycles. Perhaps the current downturn will give us reason to reconsider the conclusion that the fluctuations have declined? In this context one usually mentions the importance of the extended period of high growth in some emerging economies. First and foremost China, but also India, has had an increasing significance for the world economy over the past decade. If domestic demand can be sustained in these countries, despite declining economic activity in the United States, Japan and Europe, it may lessen the downturn for the world as a whole. However, their growth opportunities should slow down as the economies enter a more mature phase. In the long term, they cannot support world growth. 2. Sweden  As each economic cycle is to some extent unique, one can never say exactly what will happen in any phase of a cycle. There is quite simply no such thing as a typical economic cycle. But it may nevertheless be interesting to look at how different variables can vary in the economic cycle in Sweden. As Sweden is a small, open economy with a large export sector, we are very much affected by what happens abroad. It is therefore often claimed that Swedish economic cycles are "imported”.

If we take into account the overall euro area inflation market, it is now the third biggest market in terms of market capitalisation, just behind the United States and the United Kingdom. However, in 2003, it was not only the fastest growing market in terms  3  See Barr, D.G. and J.Y. Campbell (1996) : “Inflation, Real Interest Rates and the Bond market: A study of UK Nominal and Index-linket Government Bond Prices”, NBER Working Paper, # 5821, November. 2  BIS Review 37/2004  of issuance but also the largest and most liquid inflation derivatives market, characterised by both the broadest range of products (government bonds, agency bonds, inflation swaps, etc.) and the largest number of frequent issuers (France, Italy, Greece, CADES, CNA, etc.). What has the Eurosystem learned to date from inflation-indexed securities? First, since the inception of the euro, long-term expected inflation, i.e. the break-even inflation rate, as derived from the French OAT indexed bond and the French OATei - indexed on the euro area HICP - has been broadly stable in a range of 1,7%-1,9%, i.e. broadly in line with the ECB’s definition of price stability, a year-on year increase of the euro area HICP close to, but below, 2% over the medium term. This could be interpreted as the sign of the ECB’s credibility and as an illustration of its ability to anchor inflation expectations at a fairly low level, consistent with price stability.
Some institutions have an explicit policy of raising half of their borrowing requirement abroad in their own name, while others manage their borrowing abroad via their parent bank, which issues securities in the banking group’s name so as to ensure the lowest possible borrowing costs. Neither is it unusual for banks that own mortgage institutions to buy bonds issued by the mortgage institutions of competing banking groups. The reason for doing so is that banks are not allowed to use bonds issued by their own institutions as collateral when borrowing from the Riksbank, while they are allowed to pledge bonds issued by institutions outside their own banking group. As a result, mortgage bonds are largely owned by the banks, which contributes to reducing liquidity in the mortgage market. There are several factors that affect the ability of companies to borrow in the market. These include, of course, the possibility to easily assess the borrowers’ credit ratings and the quality of their assets. This is made easier if the borrower has an extensive contact network so that institutional investors are familiar with the borrower and its activities. Building up and maintaining this type of contact network and credibility requires time and considerable resources. The Swedish mortgage institutions have long established such contact networks, primarily in the Swedish securities market, where the liquidity for Swedish mortgage bonds is greatest.

I don’t have any great ideas on how to address this, but it is a problem that needs to be fixed. •  Collateral and haircuts. When volatility rises and that leads to increased haircuts, the result can be a vicious cycle of forced asset sales, higher volatility and still higher haircuts. •  Compensation tied to short-term revenue generation, rather than long-term profitability over the cycle. This causes risk-takers to take on too much risk because they are compensated on the upside. This extends the boom. Incentives Incentives may be very important in determining whether we have a system that is dampening rather than amplifying. I think bad outcomes are not just about bad luck, they are also about bad incentives. The problem with incentives may be due to faulty compensation schemes, poor risk management or the fact that participants do not bear the full costs of their actions. One problem that we had in the U.S. banking system over the past year was a reluctance of banks to raise sufficient capital to be able to withstand bad states of nature. They didn’t want to do this because this might unnecessarily dilute their shareholders. As a result, many banks did not hold sufficient capital and market participants knew this. This led to tighter financial and credit conditions, which made the bad state of the world more likely. This is an example of both bad incentives and an amplifying mechanism.
If customer data are required to be available to all players, then it seems reasonable that there should be no exceptions to that requirement and that its scope should be clearly defined, while always respecting customers’ rights and without undermining individual incentives to gather and manage such data. In addition, competition from BigTech heaps further pressure on the sector’s profitability, which is already weakened by the impact of the pandemic and banking business developments following the global financial crisis. To address this challenge, it is essential for banks to continue to make efficiency gains, by cutting costs and making more intensive use of new technologies. Specifically, banks should seek to enhance their efficiency by making better use of the information they hold. This requires significant investment in digitalisation and also the incorporation of new data processing technologies to allow them to change their business model while controlling their risk profile. Consolidation processes in the industry were revitalised in Spain last year with the announcement of two major operations and could prove to be an additional useful tool for attaining this goal. Nevertheless, the merits of each merger proposal need to be individually assessed. Our role as supervisors is to analyse the impact on financial stability as a whole, guarantee the solvency of the resulting institutions and their prudent and effective management, and oversee the execution of the operations to ensure that the potential synergies are indeed harnessed.

In the case of Archegos, for example, individual counterparties were not sighted on the total size of the firms’ sizeable and concentrated swap positions, meaning they had imperfect information on which to manage counterparty credit risk. In fact, when margin was called as prices moved against Archegos in March 2021, the firm was forced to liquidate its concentrated positions, further amplifying adverse price movements, through the market channel I just described. The end result was that Archegos could not meet all of its margin calls, and its default left its bank-affiliated prime brokers sharing around $ billion in counterparty credit losses. Just as with LTCM in the late-1990s, the Archegos case highlights how financial strains on leveraged non-bank investors can transmit directly to the large banks at the core of the financial system. And it highlights again that if leveraged investors use several counterparties, overall leverage is hidden from each of them. Banks and CCPs may therefore need to have access to more information on the risk positions and balance sheets of their leveraged counterparties if they to understand fully concentrated and hidden exposures. A second lesson for banks’ and CCPs’ counterparty credit risk management from recent extraordinary events is that the past is not always a good guide for the future. And so they need to be creative in identifying stress scenarios that best illustrate their counterparties’ credit risk and so the conditions under which margin calls might not be met.