samchain/econo-pairs-v1 huggingface dataset:
Risk that banks liquidating buffers to meet outflows in a stress could exacerbate a fire sale. Less effective Mitigants RWCR: Susceptible to expansion into assets with low measured risk. Places no constraint on debt funding. LCR: 30 day time horizon only limits the expansion funded by very short term liabilities. RWCR & LR: Higher capital should in principle help banks retain funding, but does not provide a cushion if a run occurs. RWCR & LR: Require small fraction of liabilities to be non-runnable equity but a small amount relative to illiquid assets. RWCR & LR: Do not directly mitigate the likelihood of deleveraging due to liquidity problems. Capital and Leverage  The objective of the capital framework is to ensure banks have sufficient capital to absorb unexpected losses and continue lending in situations of stress. RWCRs oblige banks to assign granular risk weights to their assets. If true risk of an asset can be estimated accurately – it is a “known known” - then the RWCR is typically better suited than the LR to guarding against solvency risk (Gordy (2003)). Greenwood et al (2017) conclude “the social optimum can be implemented with a single requirement that each bank maintain a sufficient ratio of equity to risk-weighted assets, provided the risk weights are chosen appropriately”. The last part of this sentence is, however, an important proviso. One key question is whether risks in the financial system are likely to be known with sufficient certainty that they can be estimated meaningfully and accurately.

The Securities and Exchange Commission’s Report to Congress contains a detailed assessment of the impact of Basel III and the Volcker Rule on liquidity in US Treasury and corporate debt markets (SEC (2017)). 15  All speeches are available online at www.bankofengland.co.uk/speeches  15  risk-weighted assets (Bank of England (2015c)). Table 1: Overall Implications of Research Findings for Optimal Capital Impact on optimal capital: Benefits: Likelihood and severity of crises Impact of capital on probability of crises Impact of capital on severity of crises Impact of TLAC and resolution regimes on prob. and severity of crises Costs: Impact of capital on credit conditions and growth Impact of capital on market liquidity (leverage ratio) in normal conditions  The System of Financial Regulation  Regulatory reform has tended to progress crisis by crisis, market failure by market failure, regulatory standard by regulatory standard. This is not especially surprising, given the nature of the policy design process. Nonetheless, if we put together the various pieces of recent regulatory reform, we find a fundamentally different regulatory jigsaw, or system of financial regulation, than in the past. One important dimension of that new architecture is the significantly larger number of regulatory rules or constraints that now operate. On top of risk-based capital standards have been added regulatory rules for liquidity, leverage and loss-absorbing capital. In other words, we have moved from a system of largely uni-polar regulation to multi-polar regulation (Haldane (2015)).
Another example is Apple, which is restricting which payment services can be offered on its mobile devices. In addition, plans are constantly being launched for new kinds of money and payment systems that offer both customer services and settlement, most recently Libra, a venture backed by Facebook and other investors. As an authority responsible for promoting an efficient payment system, Norges Bank needs to consider the whole payments chain. We also need to ask ourselves whether it is enough to be a promoter and regulator or whether we need to take on greater operational responsibility in order to perform our social mission. Second, changes are taking place in the ownership of critical parts of the payment system. A relevant example is Mastercard’s planned acquisition of one of the key parts of Nets. The Nordic P27 initiative is hardly the last push for more international ownership of infrastructure for payments in Norwegian kroner. At Norges Bank, we need to assess the best way for us to ensure that society’s interests are being safeguarded. Future structure of real-time payments Norway was an early adopter of digitalisation and its payments infrastructure has been worldclass. We have reaped the benefits for many years. But then the development of common infrastructure came to a halt. A number of neighbouring countries have built payment infrastructures that in some areas are now ahead of ours. Common infrastructure makes sense. It enables us to realise economies of scale, a wellfunctioning payment network and a level playing field.

We now have more effective foreclosure law, a credit bureau, and accounting standards such as IAS 39 that conform to international best practices. Moreover, under the Deposit Protection Agency Act which will replace the current blanket deposit guarantee in place since 1997, the establishment of the Deposit Protection Agency should reduce banks’ moral hazard and enhance market discipline. That is by putting pressure on banks to improve financial strengths if they want to attract and retain depositors. As part of Thailand’s efforts to advance reforms, the Bank of Thailand will, under the secondphased financial master plan, focus on improving efficiency and intermediary functions of the financial sector by reducing regulatory costs, enhancing legal and information infrastructure, and increasing the level of competition through further deregulation and liberalisation. Deregulation would potentially involve expanding business scope and enhancing the role of existing players, including banks, non-banks and other niche banks. One of the key factors for deciding the optimal number and type of new players would be the value added that new financial institutions, be they universal banks or niche banks, could bring to the financial system, such as technical expertise and product innovations. Having said this, I wish to emphasize that we will also closely look at the risks from potential concentration of market power and financial instability stemming from disorderly competition and exits. Last but not least is better governance to bring about better risk management.
[14] The guidance covers risk management, operational processes, and stress testing capabilities. The responsibility of ensuring the resilience of LDI funds lies not just with LDI managers. Pension schemes which invest in LDI products must also contribute to resilience. I’ve already spoken about pension schemes’ role in ensuring LDI managers can use their resilience as collateral by remaining invested in LDI funds as they do so. Beyond this, TPR has published guidance on the responsibilities of pension scheme trustees in ensuring LDI resilience. [15] Fred Berry, from TPR, will speak about this later this morning. Pension schemes should also have regard to the Government’s broader strategy[16] to ensure that defined benefit schemes (DB) schemes in the UK are sustainable, well-governed, and that scheme members achieve better outcomes. The government is in the process of encouraging DB scheme trustee boards to more actively detect and respond to risks. Given the potential risks to financial stability from DB pension schemes, this work is essential. How can this framework enhance resilience in non-banks more widely? Now I would like briefly to change tack and think about whether our approach to LDI funds’ resilience might also be relevant when considering the appropriate resilience of other non-banks whose activities can impact UK financial stability. As non-banks play a greater role in the financial system[17] as well as the real economy[18] we will  Page 6  continue to ask questions on the resilience of non-banks[19] so that they absorb rather than amplify shocks. What vulnerabilities have we identified?

But it is worth reiterating that the Bank’s intervention last autumn was to focus on the resilience of the gilt market, rather than to protect the funds and schemes themselves. So LDI funds should carefully consider their individual risk profile. And pension schemes should not mistake naturally occurring variation in resilience, which reflects variation in risks, for a race to the bottom. These proposed resilience levels are broadly consistent with those firms have been maintaining since the co-ordinated regulatory action last autumn. And indeed they have been put to the test recently. Between end March and late May, the benchmark 30-year index-linked gilt yield rose by 82 basis points. During that time, the largest five-day move stood at 27 basis points. These changes in yields mechanically reduced the resilience of LDI funds and led to a number of LDI funds recapitalising in order to replenish their resilience. This recent volatility shows that the resilience framework recommended by the FPC is functioning broadly as intended, with funds holding significantly larger buffers than last year on average and initiating recapitalisation at far higher levels of resilience than they did previously. It means they have managed to absorb rather than amplify this shock. So far so good. We will though assess whether there are any lessons to be learned from this recent experience for the implementation of the FPC recommendations and TPR guidance. Of course, LDI funds are not expected to self-insure against all possible shocks.
Supervision is about how we use it in practice. For me, two critical elements of supervision are that it is forward-looking, and it requires the use of judgement. Sounds obvious, but sadly hasn’t been consistently done well in the past, with bad consequences. Supervision is therefore a skill – in fact it’s quite a few skills. The essence of the job is to understand risks in firms, and where necessary to step in and do a number of things: point out risks, or their significance when the firm seems to have failed to notice – through either lack of awareness or intent; or point out that while the firm may have identified the risk, it has failed to understand or calibrate its significance. This leads me to a couple of important points. First, our assessment of risks can differ from firms because our objective represents the public interest, and there is an externality in the risk in question which affects the public interest in ways that do not register with a definition of private interest. The causes of the financial crisis sadly remind us of this. It means that we have to be very clear and forthright on what is the public interest, and thus why we supervise. Second, risk is our business. This conference is about supervising large, complex financial institutions. I read too often the criticism of supervision that we cannot understand the risks of these institutions, and so we should give up all hope of doing so.

Closer coordination will be increasingly important to avoid fragmentation in regulatory frameworks and improve the surveillance of risks to global financial stability. As lessons from previous crises should teach us, we would be well served to ensure that the growth of Islamic finance – on a global scale – is well supported by the strengthening of our collective capacity to understand, monitor and manage the attendant risks. Conclusion In concluding, Islamic finance, through its emphasis on risk-sharing for the attainment of socio-economic goals based on the objectives of Shariah, provides the discipline that enhances the prospect of strengthening the link between finance and the real economy, thus contributing towards overall financial stability. With the global economy now on the recovery path, Islamic finance offers enormous potential in supporting a more inclusive and sustainable economic growth. Developing and emerging economies in particular stand to reap the largest benefits from this potential. To fully realise this potential, regulatory priorities in strengthening financial stability taking into consideration the specificities of Islamic finance will ensure its continued resilience and its potential to effectively service the functioning of economies and the economic wellbeing of societies. 6  BIS central bankers’ speeches
Although the nominal krone exchange rate has depreciated this year, the competitiveness of Norwegian industries is still rather weak. The krone has now reverted to around the level prevailing in the mid-1990s, while labour costs in manufacturing rose by 13 per cent5 more than among our trading partners in the same period. The developments in the krone exchange rate proved to be reversible, but the loss of competitiveness and jobs caused by relatively high wage growth in Norway is difficult to recoup. A precondition for a considerable improvement in competitiveness is probably that real wage growth is lower than productivity growth in the business sector for a period. Experience shows that this occurs in periods when there is excess capacity in the economy. This means that changes in competitiveness over time  4  Q. Farooq Akram (2003): “Reelle likevektsvalutakurser for Norge” (Real equilibrium exchange rates for Norway) in Norges Bank’s Occasional Papers, no. 31 (Norwegian only). 5  Wage figures for trading partners have been revised since the publication of “Report on monetary policy in 2003 – the first eight months”. BIS Review 53/2003  5  depend on real economic factors and on aspects of wage formation and cannot be controlled by monetary policy. However, with flexible inflation targeting, the social partners can normally expect low wage growth to have a greater impact on competitiveness because it can result in a weaker krone.

For a review of Norway’s monetary history, see Eitrheim, Ø., J.T. Klovland and L.F. Øksendal (2017). A monetary history of Norway, 1816-2016, Cambridge University Press. 7 Deposit money is also reduced when customers withdraw cash. However, since cash is part of the money  supply, the total money supply in the economy does not change. 8 8/9  BIS central bankers' speeches  8 In isolation, diversification reduces banks’ funding risk. Increased use of wholesale funding may lead to slower  growth in the money supply than in credit. Banks also hold liquidity portfolios containing highly liquid securities that can be sold to compensate for deposit withdrawals. This also reduces banks’ risk. 9 For a more detailed explanation of how money is created by banks, see “Money creation in a modern economy”,  Bank of England Quarterly Bulletin2014/Q1, and Bernhardsen, T., A. Kloster and O. Syrstad (2016) “Alternative virkemidler i pengepolitikken – Den nødvendige monetære økosirk” . Staff Memo12/2016. Norges Bank (Norwegian only). 10 Lehman Brothers was an investment bank and did not accept customer deposits. However, as the bank issued  short-term paper and took part in repurchase agreements, which are included in M3, Lehman Brothers created money. The closure of Lehman Brothers led to investor flight from money market funds, very high money market volatility and higher demand for cash from US bank customers. 9/9  BIS central bankers' speeches
Constantinos Herodotou: Sustainability, digitization, profitability Statement of Mr Constantinos Herodotou, Governor of the Central Bank of Cyprus, at fireplace chat "Challenges for banks in a new operating environment" at the 10th Banking Forum, Nicosia, 9 December 2022. *** I would first like to thank Andrea for accepting my invitation to participate at today's event and share his valuable insights with us. In the aftermath of the two consecutive crises, the first round adverse effects have been limited for the banking sector. Nevertheless, with the level of uncertainty still tilted to the upside, the full extent of the consequences has not yet materialised especially in the area of credit risk. If we were though to draw a lesson from both crises, this would be the significance that technology plays for the banking sector, not only for the conduct of the normal banking operations but also for the sustainability of its profitability. The banking sector has proven resilient and continued to provide credit to the economy. However, the legacy structural weaknesses of the sector remain. At the same time, competition from challenger banks has been increasing. Therefore, the banks need to move more decisively in the road to digital transformation. This is presumably the only way if they are to address their structural weaknesses while retaining their competitive advantage against new players in the market. Investing in technology can become the catalyst in their effort to strengthen efficiency and build sustainable profitability.

Hong Kong may also be able to take advantage of the increased flow of funds for global investment which may be forthcoming from a greatly enlarged European capital market. Furthermore, to the extent that an offshore euro market develops, Hong Kong would be an obvious location for this in Asia. This reflects the existing large presence of European banks in Hong Kong and our role as a bridge between Europe and mainland China. Finally, Hong Kong is one of the world’s largest holders of foreign exchange reserves and the euro will provide interesting opportunities for diversification of our portfolio. Of course, the advent of the single currency also brings with it certain risks. The discipline imposed by the single currency will not always be comfortable, particularly when the business cycles diverge in different member countries. This could set up tensions which could at worst lead to a break-up of monetary union or at least undermine confidence in the euro. The current dispute between politicians and the European Central Bank over interest rate policy might be a foretaste of what is to come. A break-up of monetary union seems highly unlikely, but the potential for internal wrangling is clearly there and that could be disruptive to world financial markets. There must also be at least a possibility that closer integration of the EU could make it more self-contained and inward-looking. Intra-EU trade could increase, while that with the rest of the world and Hong Kong could diminish.
Taking my previous comments on the most likely public spending and revenue developments in 2021 together, we may conclude that there is a significant risk that the budget deficit will overshoot its reference level of 7.7% of GDP next year. As I have already said, public spending forecasts are subject to certain upside risks, basically deriving from a possible intensification of the pandemic, which we have in fact been seeing in recent weeks in Spain and in the rest of Europe. This may require some of the discretionary measures adopted to protect households, the self-employed and businesses to be extended for longer than initially envisaged. At the same time, we cannot rule out the unemployment rate, and thus spending on unemployment benefit, behaving less favourably than expected. In turn, public revenue projections face downside risks mainly linked to a relatively optimistic forecast for GDP growth and, consequently, for the increase in the tax base in 2021. As regards the fiscal policy stance, this is usually approximated by the change, from one year to the next, in the general government structural balance, a variable that is not directly observable and can only be estimated with a high degree of uncertainty. According to the information contained in the Draft Budgetary Plan, the structural balance will deteriorate from -4.1% of GDP in 2019 to -5.4% in 2020, and again in 2021 to -6.3% (see Chart 14). Accordingly, the fiscal policy stance will be expansionary in 2020 (-1.4 pp), 24  and in 2021 (-0.8 pp).

A strong krone and low external price impulses will continue to have a dampening impact on inflation, and inflation will remain below target for some time. Further ahead, higher capacity utilisation and profitability in the business sector point to a pickup in wage growth. At the same time, the fall in import prices will slow. To conclude: Norway has weathered the financial crisis better than most countries, and the economic recovery in Norway is now on a firm footing. Currently, interest rates are low, with the key policy rate at 2 per cent. In the years ahead, there are prospects for fairly strong growth in the Norwegian economy, driven by solid income growth, rising investment and high population growth. On balance, the consideration of stabilising inflation, as well as developments in output and employment, imply a gradual increase in the key policy rate towards a more normal level. Thank you for your attention. BIS central bankers’ speeches  11
Chart 6 shows that ground rent loans, student accommodation and equity release mortgages have the highest MA benefit relative to their market values. Chart 7 shows that, at industry level, there's no apparent over-reliance on any single illiquid asset class, but at the individual firm level we are closely monitoring exposures to any group of assets with similar risk characteristics. Given the growing concentration to private assets and the associated material MA benefit, we see a risk of insurers becoming over-reliant on models to drive investment and capital decisions, models that are inherently reliant on public market performance as proxies and limited history. Page 7  Supervisory expectations and the Prudent Person Principle Both trends I have outlined demand strong governance and risk management in insurers to evaluate why they are undertaking particular transactions, and how they align with their business purpose and risk appetite. For example, a fundamental consideration for the PRA is whether asset origination activities are suitably aligned with the Restrictions on Business rules. Following the question on the business purpose, boards also need to evaluate the capabilities in the firm to assess the complex interaction of risks where concentrations may arise. They also need to ensure that the right combination of skills and expertise are available and utilised. One of the most powerful and flexible tools that firms and the regulator have to mitigate these concentration risks is the Prudent Person Principle or the ‘PPP’.

Page 1  Who’s concentrating? Trends in the life insurance sector and the need for strong reinsurance and investment risk management − speech by Charlotte Gerken Given at the Bank of America 27th Annual Financials CEO Conference  Page 2  Published on 20 September 2022  Charlotte Gerken speaks about concentration risks in Life Insurance, coming from: increasing longevity reinsurance; use of funded reinsurance; and growth of illiquid assets. Charlotte says the Prudent Person Principle (PPP) is important to address these risks. But regulatory requirements need to support good risk management. The PRA is thinking about how to address concentration risk. This includes how to manage risk from reinsurance, and the matching adjustment (MA) review. Speech Good afternoon and thank you to Bank of America for inviting me today. The role of insurance is to protect individuals and businesses from uncertainty: to diversify and manage risks that participants in the wider economy cannot diversify and manage themselves. The subject of risk diversification and concentration will be well-understood by this institutional investor audience. I will take a prudential regulatory lens to this subject, focussing on developments in the UK life insurance sector and our supervisory response. Core to every insurer’s business model are the ideas of risk pooling from a large population, leveraging their specialist expertise as long-term investors, making insurance safe and affordable for policyholders and returns attractive to capital providers.