samchain/econo-pairs-v1 huggingface dataset:
BIS central bankers’ speeches  Chart 9:  Chart 10:  Volatility and correlation of S&P 500  Excess volatility Per cent 20  S&P 500 1Y Correlation 70% 1990 - 2004  Per cent 60  1yr Correltaion (LHS) 15  60%  2005 - 2010  Excess correlation (LHS)  1yr Volatility (RHS)  50% 40%  +  30%  -  40  5 0  30  5  20%  20% 30% 40% S&P 500 1Y volatility  10  15  0% 10%  20  10  10%  0%  50  10  20  50%  0 90 92 94 96 98 00 02 04 06 08  Source: JP Morgan and Bank calculations. Source: JP Morgan and Bank calculations. Chart 11:  Chart 12:  Simulated price series under different Hurst coefficients  Distribution of simulated returns at different time horizons with H=0.9(a)  H=0.5 H=0.7 H=0.9  40  T=1  20 + 0  T=20 T=50  20 40 60 80 100 Time Source: Bank of England. -  +  Source: Bank of England (a) Returns at different time horizons have been scaled by the inverse of the square root of time, 1/sqrt(T).

From this mixed bag, only one clear explanation emerges: that there is no clear explanation. To a first approximation, we remain unsure quite what caused the Flash Crash or whether it could recur. 1 That conclusion sits uneasily on the shoulders. Asset markets rely on accurate pricing of risk. And financial regulation relies on an accurate reading of markets. Whether trading assets or regulating exchanges, ignorance is rarely bliss. It is this uncertainty, rather than the Flash Crash itself, which makes this an issue of potential systemic importance. In many respects, this uncertainty should come as no surprise. Driven by a potent cocktail of technology and regulation, trading in financial markets has evolved dramatically during the course of this century. Platforms for trading equities have proliferated and fragmented. And the speed limit for trading has gone through the roof. Technologists now believe the sky is the limit. This rapidly-changing topology of trading raises some big questions for risk management. There are good reasons, theoretically and empirically, to believe that while this evolution in trading may have brought benefits such as a reduction in transaction costs, it may also have increased abnormalities in the distribution of risk and return in the financial system. Such abnormalities hallmarked the Flash Crash. This paper considers some of the evidence on these abnormalities and their impact on systemic risk. Regulation has thin-sliced trading. And technology has thin-sliced time. Among traders, as among stocks on 6 May, there is a race to zero.
The reaction function approach is arguably more robust to uncertainty about the structure of the economy than alternatives that seek to characterise policy by the first-order conditions of the policymaker’s objective function, although that robustness comes at the cost of not being formally the ‘best’ rule for a given model structure. See for example Levin and Williams (2003). 16  BIS central bankers’ speeches  It has always been the case that, because the economy is subject to unforeseen disturbances, the precise path for Bank Rate cannot be preordained.24 But “data driven” means more in the post-crisis world. The economy’s performance will, over time, reduce some of the uncertainty about its supply side and underlying inflation dynamics. Although great uncertainties remain, we are arguably better informed about the dynamics of exchange rate pass through, the prospects for some recovery in productivity growth and the resilience of the UK financial system. Risks to the outlook and uncertainties about the economy are occupational hazards of monetary policy making. The MPC’s job is to assess them constantly and set policy accordingly. There will be no pre-commitments beyond an unwavering focus on conducting policy in a manner consistent with our remit. That means we’ll do the right thing at the right time on rates. Doing the right thing requires taking into account a powerful set of forces, part secular, cyclical, domestic, and global.

For example, a “core” measure that relied exclusively on inflation in the services sector would have run above 2% in the pre-crisis era, when overall inflation was around 2%, in light of low inflation rates in goods prices. A “core” measure with a higher weight on goods prices would have shown the opposite. 22  For example, although they are uncertain, estimates of the pass-through of exchange rate movements to CPI inflation suggest that, on average a 1% appreciation reduces consumer prices by around 0.3%. Those effects take time, though they are mostly complete in around three years – consistent with complete but gradual passthrough of exchange rate changes to consumer prices. That likely reflects, among other things, rigidities in retailers’ pricing decisions. See the box on page 28 of the November 2015 Inflation Report for further discussion.
Bank customers also bear a major responsibility in  BIS central bankers’ speeches  3  protecting their own interests and rights. Indeed I would argue that it is crucial for bank customers to become “smart and responsible” consumers of banking services. Incidentally, at the international level, the G20 in its High-level Principles on Financial Consumer Protection is also emphasising the need for financial consumer literacy. Let me use a couple of examples to illustrate this point. Before a customer shops with a new credit card, he should take time and effort to understand the key terms of the credit card, such as the interest rates for cash advances and any applicable charges for late payments etc. He should learn how to take good care of his credit cards and ATM cards to avoid theft or other kind of scams. When he logs onto internet banking, he should exercise care to avoid bogus bank websites and reduce the risks of being hacked. This is also very true when it comes to investment decisions. Investing one’s savings with the hope of generating higher returns than bank deposits is a natural and legitimate aspiration of most bank customers, but they must also understand the inevitable correlation between returns and risks. So they must use their best endeavours to understand the likely risks and returns of any investment products that are sold to them.

In modern times, most societies would demand proper protection of consumers when they purchase a wide variety of goods and services, such as food, electrical appliances, drugs, health care and financial services. Consumers, as compared to suppliers and their intermediaries, are normally in a disadvantaged position in terms of product knowledge and bargaining power. Therefore, they need to be protected from unscrupulous sales practices or misrepresentations. Regardless of what kinds of goods or services are involved, the basic principle in consumer protection is that consumers should be treated fairly. In essence, what it means is that consumers should be able to know what they are buying, the costs involved and all other relevant terms and features of the transactions and should not be subject to high handed sales tactics. In Hong Kong, when a customer walks into a typical retail bank, he or she can undertake a wide variety of financial transactions, ranging from conventional banking services, such as deposits, currency conversion, credit cards, remittances and loans, to the purchase of wealth management or insurance products. This is what we call “universal banking”, a regime in which banks operate like financial supermarkets. Naturally, banks like the universal banking regime as it offers non-interest income such as fees and commission as well as diversification of businesses. At the same time, customers also like universal banking as it offers great convenience in the form of a one-stop service instead of having to go through different firms for different types of financial transactions or products.
The process of monetary cooperation was launched as a response to the potential financial and economic instability stemming from the collapse of the Bretton Woods system. It met with many obstacles and went through several crises. At some point, it came close to being abandoned altogether. But today, the Euro is alive and well: since 2002, it has been the sole currency with legal tender in all countries of the Euro area, providing more than 300 million of European citizens with a new, practical unifying symbol as well as many direct economic benefits. Before addressing the Euro area enlargement issues let me first elaborate on the successes and challenges of monetary integration in Europe. Enlargement should both preserve these successes and help handling the challenges. The first, and most obvious achievement of the Euro, is price stability. Over the last five years, inflation has stayed broadly in line with the price stability objective set by the European Central Bank, i.e. inflation below but close to 2% over the medium-term. Gone are the days when European citizens had to worry about the purchasing power of their savings. This stability goes beyond the behaviour of prices. Inflation expectations themselves have been remarkably stable, including during the recent period when oil prices jumped to new highs. This, by itself, illustrates the credibility achieved by the Eurosystem. Second, the ECB’s clear priority of price stability has reduced the risk premium incorporated in long term interest rates.

-  On the labour market, reforms should aim at protecting the persons, rather than the jobs. Professional mobility can be accompanied without blocking changes, while further progress can be made at improving risk sharing among employers and employees and fostering education. The gains from taking such steps are only reaped in the long run, while the costs are paid in the short run. In addition the gains can be seen as small from an individual point of view because widespread across a large number of agents, while the costs are more visible, concentrated on fewer beneficiaries who lose their position. This means that the reforms have to be well explained and well designed. Besides, a healthy public finance situation is seen as one of the prerequisites for the success of structural reforms: the degrees of freedom are also limited in that respect. In this regard, modernising public administrations can be a key element to ensure control over expenditure and budgetary consolidation. Appropriate monetary policy has a limited, although essential, role, insofar as it can help create favourable conditions for reform by insuring a stable price environment and therefore reducing overall uncertainty. Taking into account the achievements and the prospects for further reform in the present Euro area, what are the challenges facing the New Member States in the process of convergence and what are the prospects for a successful Euro area integration? In contrast with some gloomy predictions made ten years ago, the Euro is a success story.
The 15 per cent risk weight floor is a welcome initial step in partly compensating for the higher loan-to-value ratios of households in relation to disposable income and lower amortisation levels, which could lead to high credit losses ahead. In my opinion, however, risk weights for mortgages need to be raised even further. Not least to better internalise the external effects associated with such lending – for example, the risks to financial stability which may ensue from the drop in consumption of highly indebted households in the event of a decline in house prices. We also need measures which strengthen the buffers of households and contribute to curbing credit growth in the household sector more permanently. It would be preferable if the banks themselves took the responsibility for sounder lending practices. But, if this does not happen soon enough, and forcefully enough, then the authorities must intervene.There are many so-called quantitative regulations which can be used for this. The mortgage cap introduced by Finansinspektionen can be adjusted, and limitations can be introduced on the size of a loan in relation to the household’s income. Another tool is introducing an amortisation requirement, which directly reduces household indebtedness. I believe that, in the current situation, separate amortisation requirements should be considered to supplement the existing measures. Stricter credit terms can also be achieved with so-called qualitative measures which affect borrowing capacity. It would then be a matter of tightening banks’ credit assessment procedures, which can be done in several ways.

Takaful agents can play a key role in reaching out to this broader market, particularly by understanding the takaful products, and being able to explain them simply without diluting the distinct value propositions of takaful. Part of this will require greater acumen and empathy on the part of agents for the diverse needs and preferences of customers from all walks of life. But it is also about developing long-term strategic value: By being well-versed in both fields, agents stand to position themselves as an authoritative voice in advising both takaful operators and insurance firms in relation to the changing trends in the demands and needs of consumers and product features that would better cater to these. 3/5  BIS central bankers' speeches  Embody what you sell I’ve spoken at length about the tools and methods that can help sharpen the niche of takaful agents as they enter a new, potentially disruptive phase in the industry’s development. But my final point makes a recourse back to unchanging core of this profession: In particular, the values embodied by takaful. The very existence of this industry rests on the ultimate objective of attaining the well-being of mankind as called for in Islam. Takaful agents, being an essential part of this ecosystem, must embody their role as ‘wakeel’ of takaful to the highest standards. Trust, honesty and fairness are values that I am sure everyone in this room seeks to exemplify in all their dealings with customers.
Third, in a payments industry that is experiencing a period of rapid change in technology, Cloud technologies are growing in importance. The Bank is taking steps to facilitate its adoption, including issuing a supervisory statement later this year. The use of a Cloud model is an evolution of, and a key element in, the supply chain for many financial institutions – including those who access CHAPS. We believe the use of Cloud technologies has the potential, if used appropriately, to minimise end-to-end risk and improve operational resiliency of the CHAPS system, taken as a whole. As the operator of CHAPS we want to enable our current and potential Direct Participant to realise these benefits in a safe and controlled way, without compromising the resilience of the CHAPS ecosystem. We are assessing the risks that the use of Cloud technology  8 9  https://www.nist.gov/cyberframework https://www.fca.org.uk/publication/research/technology-cyber-resilience-questionnaire-cross-sector-report.pdf 4  All speeches are available online at www.bankofengland.co.uk/news/speeches  4  presents to the CHAPS system, and the nature of mitigating controls that we require. In due course, we expect to propose new controls for Cloud usage as it relates to CHAPS. Policy Development  Development and implementation of requirements must be supported by strong and innovative policy thinking. The Bank works collaboratively on policy with other FMIs and central banks internationally. Some work-streams focus on resilience, others support greater innovation: and increasingly we look to combine the two.

In time, we will consider the case for reducing the 2% threshold to further enhance financial stability. Payments fraud and economic crime are becoming increasingly sophisticated, and the Bank as operator of CHAPS is engaging in initiatives to tackle these threats. The Committee on Payments and Market Infrastructures (CPMI) has developed guidance on reducing the risk of wholesale payments fraud related to endpoint security.10 The Bank is currently undertaking a number of initiatives to strengthen our position and support our CHAPS Direct Participants in line with CPMI strategy, which includes adjusting our CHAPS rulebook to focus on detection, prevention and response to security issues as I described earlier. 10  https://www.bis.org/cpmi/publ/d178.htm 5  All speeches are available online at www.bankofengland.co.uk/news/speeches  5  At the level where fraud is most likely to touch on end-users, Vocalink piloted an anti-money laundering tool known as Mule Insights Tactical Solution (MITS)11 for a number of Faster Payments participants. MITS can retrospectively track fraudulent payments as they move between customer accounts, thereby helping to quickly identify and highlight to Payment Service Providers any suspected ‘mule accounts’. They can then take action to block funds and close these accounts, making it more difficult for fraudsters to undertake scams. We are currently in the exploratory phase of a pilot to use MITS on a subset of CHAPS data. The additional insights generated should help participating Direct Participants to better tackle further fraud activity.
This morning, I would like to talk about some of the changes we are seeing in the practice of risk management and reflect on important priorities for risk management as observed from our work at Bank Negara Malaysia with the financial industry. I will then offer some brief perspectives on business continuity management and close with some final thoughts on the prospects for the insurance industry in Malaysia to contribute towards the advancement of risk management capabilities across Malaysian businesses. Changing practices in risk management Since the financial crisis, risk management practices have come under intense scrutiny. The spectacular failures in risk management in the lead up to the crisis prompted deep reflections on what had gone wrong with risk management systems and practices – not least of all among companies that had invested heavily in sophisticated risk measurement and management systems only to have them ultimately fail to detect or control risk exposures. Closer to home, businesses in Malaysia are currently facing a set of challenging business conditions and some are likely to find themselves ill-prepared to respond to the challenges, with important implications for their future prospects. So what can we learn about the changing practice of risk management from these experiences? A first observation to my mind concerns the importance of building a strong risk culture supported by governance arrangements that are explicitly aligned to a firm’s risk appetite.

Few companies have robust risk management frameworks that incorporate measures of how their products and services affect the well-being of consumers or if consumers are being treated fairly, as long as legal exposures are contained. And efforts to adopt triple bottom line approaches to reporting firm performance are only beginning to gain traction. Within Asia, fewer than 10 banking institutions today subscribe to the Equator Principles for assessing and managing the environmental and social risks for projects. Clearly the gap between the existing risk management practices and a whole-of-business approach which fully embraces broader aspects of risks remains large. Regulation and greater shareholder activism will remain important drivers of change, and in my view, so will a new breed of risk managers who effectively integrate traditional and emerging risk perspectives, and who can speak to these perspectives in a compelling and cohesive way to an organisation’s key stakeholders. A third observation that I want to make today relates to the increasing importance of viewing risks over a longer-term horizon, and imagining the unthinkable. I mention these together for a reason. When one is focused on looking both backward and forward over a reasonably long horizon, the universe of what is unthinkable becomes smaller and our vision is less likely to be blinkered by limited experiences of only the most recent past. We are also likely to become more open to broader possibilities of new and emerging risks on the horizon.
We need to ensure that when the next economic downturn occurs, the financial system will bend, but not break. Of course, increased resilience does not come without costs. It is important to continually reassess whether those costs are appropriately balanced with the evolving risks. There are a number of potential areas that may be worth reassessing. One place to start is with regulations pertaining to smaller banks. People of all political stripes tend to agree that Congress and regulators should reassess the effect that regulations have had on these firms and whether such regulations are commensurate with their level of risk. For these smaller banks, whose failure will not directly inflict large costs or stress on the broader financial system, the regulatory and compliance requirements should be reconsidered. Indeed, banking agencies have announced many proposals for small banks,11 including one that would simplify the capital rules for such banks consistent with their risk.12 With respect to systemically important firms, I think it would be terribly myopic to forget the crisis. There have been a number of different types of changes proposed with respect to these firms. Today, I’d like to focus on the proposals relating to resolution regimes. Congress established OLA when memories of Lehman Brothers’ failure were fresh.

(2021). Several of the world’s large economies are now in a period of slower labour force growth, making it less profitable for companies to undertake major investments. Even if savings are falling, companies’ incentives to invest are declining even further. The prediction is therefore that the global real interest rate will fall for a long time to come. 6 When the inflation target was introduced at the beginning of the 1990s, the Riksbank had support from the then prevailing economic crisis, in the sense that inflation was pushed down to a level close to the target, making the task then ‘only’ to try to keep inflation at this level. 4 [15]  way that companies set their prices and the wage demands that households put forward. The inflation that results from the inflationary price-setting and wage formation confirms expectations and in turn affects the new expectations of future inflation. This gives a new round of effects on price-setting and wage formation, and the high inflation thus becomes a self-generating process. One reason why the high inflation was built into expectations among households and companies was that it was not sufficiently counteracted by the overall economic policy. Instead, this policy became systematically too expansionary. At that time, Sweden had a fixed exchange rate. The idea was that this would have a disciplinary effect on price-setting and wage formation: If Swedish prices and wages increased faster than prices and wages abroad, our competitiveness would weaken, exports would decline and unemployment would increase.