samchain/econo-pairs-v1 huggingface dataset:
And the threat posed by climate change means we need to give serious consideration to the resilience of our physical and digital infrastructure. The New York Fed has the appearance of an historic institution, but behind the stone façade 1/2  BIS central bankers' speeches  we’re grappling with these issues in the same way that you are. In our economic research, our supervision of financial institutions, the payments systems we operate, in short – in all that we do. Talent, technology, and innovation challenge us every day. They create incredible opportunity, but they also test us by exposing new vulnerabilities. I know that over the next couple of days there will be lots of valuable insights shared by experts about how to handle the challenges posed by big data, cryptocurrency, and climate change. But first, to kick off the conference, it’s my pleasure to introduce John Dugan, Chair of Citigroup. Citigroup has operations in over 150 countries, with about 200 million customer accounts worldwide.2 As head of a global employer with complex, international operations, John is no stranger to the changing nature of risk. John became Chair of Citigroup at the start of this year. Prior to that he was chair of the Financial Institutions Group at the law firm Covington & Burling LLP, where he spent much of his career. He has also held a number of public sector roles, including Comptroller of the Currency during a critical time for our financial system and economy, from 2005–2010.

When the building was planned and constructed during the early part of the twentieth century, the gold was seen as a real vulnerability. It was conceivable that someone would try to rob the Bank and steal the gold. The only time that’s happened was in the Bruce Willis movie Die Hard 3, which, to be clear, was only a movie! A lot of that owes to the skill of the architects of the building, and the law enforcement who protect it. But the other reason is that the risks we face today in 2019 look very different to the ones we were planning for in 1921. For a thief today, it’s easier to use a laptop to buy some stolen credit card details online and commit fraud than it is to plan a Hollywood-style bank heist. And that’s what I’m going to say a few words about—the changing nature of risk—before handing over to this evening’s keynote speaker, John Dugan, Chair of Citigroup. In previous decades it was easier to identify risk and what to do about it. You could see it, measure it, and fortify against it. But, as the world has changed, so have the risks that demand our attention and our resources. The new risks are harder to predict and inherently ambiguous: Steel and concrete can do little to protect us. Our reliance on technology means we need to think differently about cyber risk. The importance of innovation and intellectual property means we need to look for new approaches to talent and culture.
Consequently, the young may not have access to the credit they need to even out consumption to the extent they would like. A pledge of assets—collateral—can help to solve this problem, since it can be claimed by the lender in the event of a loan default. For most households, the main form of wealth is human capital—the value of the wages that the household members can earn over the course of their lifetimes. But human capital cannot always be credibly pledged as collateral. For funding of educational investments, government intervention in the form of the federally-guaranteed student loan program helps address this problem. While private student loans exist, they typically require a co-signer with a strong credit record. Moreover, these borrowing sources are broadly restricted to education-related spending 1/5  BIS central bankers' speeches  only. The second most important asset on the balance sheet of many households is housing equity. So, in addition to being a source of shelter, housing can be a major form of collateral for borrowing for many households. In fact, for those households that have collateral available to secure loans, housing equity is by far the most important form of collateral. What this tells us is that the performance of the housing and mortgage markets are important to the retail business. When home prices are rising and housing equity can easily be converted into cash, we can expect to see relatively high levels of consumption, all else equal.

We have also carried out a comprehensive review of the supervisory and regulatory frameworks, to better address the risks to the banking sector: operational risk, market risk, credit risk and liquidity risk. Finally, we have actively participated in an international forum for addressing this phenomenon, known as the Vienna Initiative, and have enhanced our communication with international partners and home-country regulatory agencies. Third, we have spent a lot of time and energy administering a consolidation process in the banking sector. As a result of this process, which may now be considered as finalised, the number of banks has now been reduced to 12. This has created the premises for the banking sector to be more motivated to lend, innovative in terms of products, and more competitive in terms of cost. From a broader perspective, the Bank of Albania has worked on improving the regulatory architecture of the financial system in Albania and strengthening financial safety nets. Together with other public agencies, we have, established the Financial Stability Advisory Group; improved the legal framework for the functioning of the Deposit Insurance Agency; approved the Resolution Law; drafted a sub-legal and regulatory framework; and, established the necessary structures for them to function. In parallel, we have adopted a modern framework for formulating and implementing the monetary policy, and steadily maintained an accommodative stance. Monetary stimulus has enabled the financial environment in Albania to be transparent, and have low interest rates, ample liquidity and moderate exchange rate fluctuations.
One metric for that would be the number of human resources devoted to financial regulation. In the UK up until the late-1970s, bank supervision was performed by the Bank of England on an informal basis, with a team of around 30 employees. Even when the Bank was given statutory responsibility in 1979, fewer than 80 people were engaged in the supervision of financial firms. In the period since, the number of UK financial supervisors has increased dramatically, rising almost forty-fold (Chart 1). In response to the current crisis, regulatory numbers are set to rise further. Over the same period, the number of people employed in the UK financial services sector has risen fractionally. In 1980, there was one UK regulator for roughly every 11,000 people employed in the UK financial sector. By 2011, there was one regulator for every 300 people employed in finance. The pattern in the US, looked at over a longer historical sweep, is broadly similar. The FDIC and SEC were set up as part of the regulatory response to the Great Depression. In 1935, together with the OCC and supervisors housed in the Federal Reserve banks, they had combined regulatory resources of around 4,500 people. There was one regulator for every three banks in the US (Chart 2). Today, the combined regulatory resources of the FDIC, OCC, Federal Reserve banks and SEC is closer to 18,500 people. That is three regulators for every US bank. As numbers of regulators have risen, so too have regulatory reporting requirements.

(*)  Significant at the 10% level  (**)  Significant at the 5% level  (***)  Significant at the 1% level  BIS central bankers’ speeches  25  Table 4: Horse-race between different indicators of bank solvency for major global banks(a) Model 1  Model 2  Model 3  Model 4  Model 5  –0.23 (0.20)  T1 Risk-based  –0.55 *** (0.18)  T1 Leverage  –0.44 * (0.25)  CT1 Risk-based  –0.70 *** (0.23)  CT1 Leverage  –0.08 (0.05)  Market risk-based Market leverage McFadden R2  Model 6  0.023  0.177  0.070  0.203  0.071  –0.20 *** (0.06) 0.216  Model 7 0.97 (1.47) –0.48 (2.04) –1.52 (1.36) 1.22 (1.99) 0.13 (0.11) –0.35 * (0.20) 0.317  (a) Regression based on a smaller sample (45 global banks). This is because of missing information on market capitalisation (where banks were not publicly listed) or on consistent pre-crisis estimates of Core Tier 1 capital. Notes:  For all models, the dependent variable is “failure”. Standard errors are shown in brackets. (*)  Significant at the 10% level  (**)  Significant at the 5% level  (***)  Significant at the 1% level  Table 5: Risk-based capital versus leverage, FDIC-insured banks(a) Variable  Model 1  Leverage ratio  –0.01 (0.01)  Risk-based capital ratio  Model 2  Model 3  –0.06*** (0.01)  0.27*** (0.03) –0.22*** (0.03)  (a) Sample excludes outlier banks with very large risk-based capital and leverage ratios.
The nature of future monetary policy will largely depend on the success of the largest central banks to get out of this situation in a controlled and timely manner, without causing excess inflation and damaging central banks hard-earned credibility. These developments will affect monetary policy in the emerging markets through interest and exchange rates, but most importantly in the way central banks conduct their monetary policy. Influenced by current practices of leading central banks, some other central banks have reoriented their objectives and engaged in activities which are traditional for development banks and governments. We have been careful to stay away from adopting and targeting such objectives not only in monetary policy but also in our macro-prudential policy. The Bank of Albania has traditionally based its policy on two important pillars. Our first focus has been to achieve our inflation target and manage inflation expectations to preserve the purchasing power of our currency. This policy has simultaneously provided necessary stimulus to economic activity. Second, our focus on banking supervision and financial stability has enhanced the confidence on our financial system and therefore increased the efficiency and credibility of our monetary policy. As I have said in April of 2008, during the annual conference with the banking system in Albania, “every investment we make today in financial stability yields increased efficiency in our monetary policy”. 2  BIS central bankers’ speeches  Recently, the Bank of Albania has introduced financial literacy as a third pillar of our policy and independence.

Our policy response was conditioned by the concerns of financial stability, assuming that interest rate cuts would speed up deposit withdrawals from the banking system. Bank of Albania took bold and decisive steps to control these problems and restore the credibility in banking system. As the effects of the fiscal stimulus began to phase out and  BIS central bankers’ speeches  1  confidence was restored in the banking system, we reduced our policy rate to its historic low in order to provide further stimulus for the economy. More importantly, our supervision of the banking system has been enhanced by establishing a thoroughly new Department of Financial Stability and by bringing financial stability issues in the decision-making process of monetary policy. As a result, the set of tools available to the Bank of Albania has extended to include several macro-prudential measures, which aim to address simultaneously both economic growth and financial stability concerns. I believe that similar steps have been taken by most central banks around the world. Willingly or not, the objective of financial stability is now seen as the central duty of our institutions. It does not matter whether the legal mandate of the central bank is amended to include this new objective or not. What matters is that financial stability is a prerequisite to overall macroeconomic stability and monetary stability.
Figure 16 shows the development of unemployment in a number of countries that have been hit by major adjustments on the housing market. Many factors have contributed to these adjustments, but access to cheap loans during the upturn is one of  6  According to the Swedish Public Employment Service, there are four groups who have a relatively vulnerable position on the labour market and who find it difficult to get a new job if they become unemployed: those born outside Europe, people with less than upper-secondary school education, people in the age group 55–64 and people with a physical disability which reduces their capacity to work. BIS central bankers’ speeches  5  them. There are thus risks associated with setting the repo rate too low and this applies not least to unemployment, although perhaps beyond the rather short economic horizon that normally attracts almost all the attention. An appropriate balance I have now provided some background to some aspects of the difficult balancing act that we must perform when determining monetary policy. Let me conclude by illustrating this with reference to our latest monetary policy decision and our latest forecast for the repo rate. Here we have achieved what I believe is an appropriate balance. The weaker economic prospects and the low inflationary pressures justify keeping the repo rate low. This will help inflation to rise towards the target of 2 per cent and to strengthen economic activity (see Figure 17).

In the last rate tightening cycle, we observed that banks with larger concentrations of long-term earning assets experienced lower margins. It will be important for community banks that are very sensitive to interest rate risk to evaluate the risk management of their loan portfolios. Finally, when I meet with community bankers, I am often asked the following question: “When will we see regulatory relief?” My simple answer is soon, I hope. There is wide ranging consensus—across party lines and among regulators, the Federal 1/2  BIS central bankers' speeches  Reserve included—that we need to reform the regulatory requirements for small banks. As I have said, I favor regulatory relief for smaller banking organizations.2 Their size and complexity do not pose a significant risk to the system, and they lack the scale to absorb large compliance and other regulatory costs. Given broad agreement on this issue, I am hopeful that relief will be forthcoming. Let me conclude by saying that we continue to recognize the important role community banks play in our economy. According to a study by our colleagues at the Kansas City Fed, the U.S. banking system is unique because of its balance between a small number of large banks and thousands of community banks.3 That balance helps serve the needs of a large and diverse U.S. economy that includes businesses of all sizes and consumers with different needs and preferences.
Together with the parallel deceleration in loan growth, this points to a lower pace of underlying monetary dynamics and thus moderate inflationary pressures. However, in times of financial turmoil and economic uncertainties, the behaviour of money holders, borrowers and lenders may give rise to sudden changes in money and credit dynamics, and the backward-looking nature of annual growth rates may then not immediately provide a reliable signal for current dynamics. Looking forward, a complementary perspective, however, would focus less on the analysis of growth rates and more on the level of excess money accumulated in the past. The level of excess monetary liquidity that may have built up during a boom phase can be reabsorbed through a de-leveraging process. More precisely, over the medium term, the deceleration in the pace of money growth may lead to a direct unwinding of accumulated monetary liquidity (i.e. via de-leveraging in a number of sectors of the economy), thereby dampening price pressures. However, a protracted destruction of monetary liquidity would most likely have adverse effects on the real economy and increase the risk of deflation. On the other hand, if the excess monetary liquidity is not reabsorbed via de-leveraging, then the existing liquidity accumulation of recent years would still be available once the economy improves and may then lead to spending and inflationary pressures over the medium to longer term. Another useful monetary indicator is provided by the growth rates of M1.

Allow me to recapitulate the consequences in a few words: various banks, stock brokerage firms and securities houses lost part or even all of their staff, their business premises, their backup facilities and their lines of communication. The markets remained closed on the following day, the equity markets even until the end of the week. From a systemic point of view, of even greater consequence than the closing of the equity market was the fact that the two markets for US government paper and for commercial paper, the main vehicles for short-term liquidity equalisation between market participants, had ceased to operate. Payment and settlement systems started to break down. Securities and credit balances totalling billions were thus blocked at some banks while lacking at others. Even though the terror attacks were concentrated on New York and Washington, in the beginning they not only paralysed Wall Street but they also threatened to undermine significant parts of the international financial system. It is much too soon, and this is not the proper place, to make an assessment of the profound human, social and political implications of the terror attacks. The resilience of the banks and the financial markets must be emphasised, however. A week after the attacks, business was almost back to usual again. In most cases, the banks and securities houses affected managed to solve their problems, some of which were immense. Neither a stock market crash nor a breakdown of parts of the financial system set in either in the United States or anywhere else.
The SNB has therefore emphasised the importance of diversification and limiting the concentration risks of our foreign currency investments. Today, 53% of the SNB’s FX reserves are invested in euro-denominated securities. This is in line with the share of Swiss exports to the euro area, and only five percentage points more than our allocation three years ago, though the size of our FX reserves, excluding swaps, increased from CHF 50 billion in 2008 to over CHF 225 billion by the end of September 2011. In order to promote further diversification, in 2010 the SNB added four new currencies to its reserves, namely Australian and Singapore dollars, Danish krone and Swedish krona. As a result, in addition to euros and these four currencies, the SNB’s portfolio is now composed of 26% US dollars, 9% Japanese yen, 5% pounds sterling and 4% Canadian dollars. Central banks generally have large holdings of government bonds due to their need for liquidity. As is widely known, in recent months the ratings agencies have been reviewing or have downgraded the credit ratings of many sovereign bonds. Despite this turn of events, approximately 96% of all our investments in fixed-income assets are rated AAA or AA. In closing, I would like to emphasise that we are actively exploring and monitoring new asset classes and currencies in developed and developing markets. The aim of this process is to continually reduce concentration risks and to further diversify the SNB’s FX reserves.

Likewise, the iTraxx Sovereign Western Europe Index, consisting of 15 sovereign CDS across Europe, rose by approximately 70% in the same period. 2  This is an approximation of the real effective exchange rate, assuming constant weights and inflation differentials. 3  Annualised volatility computed over one calendar month on the basis of daily movements. BIS central bankers’ speeches  1  rate on 6 September, EUR/CHF volatility has fallen below 10%, though it remains high from a historical perspective. The introduction of the minimum exchange rate also had an impact on some of the dynamic properties of the Swiss franc. As the red bar on the left side of chart 2 suggests, there was previously a positive correlation between the movements of the Swiss franc and those of risk indicators such as the VIX Index, i.e. investors tend to buy Swiss francs when perceived risk increases. In the same vein, the blue bar on the left of the chart shows that the correlation between the movements of the Swiss franc and those of risky assets, such as the equity shares on the MSCI World Index, has historically been negative. In other words, negative market developments have often been accompanied by a rising Swiss franc. Intriguingly, as the right side of chart 2 shows, the introduction of the minimum exchange rate appears to have had a significant impact on these correlations. The SNB’s implementation of monetary policy: liquidity measures On 3 August, the SNB started to implement liquidity measures against the massively overvalued Swiss franc.
Those wishing to sell housing loans on the Swedish market must, however, accept offering loans in kronor for the time being if they are to meet anything other than sporadic interest. This restricts competition to those who really actively want to sell their products in Sweden. If we enter EMU, it will be a different matter. We can then borrow in euro without being exposed to an exchange risk and access to potential lenders will increase dramatically. Mainly as a result of the deregulations in the 1980s and 1990s and the ensuing increasing competition, the Swedish housing loan sector has been condensed to five companies, of which four are subsidiaries of banks and the fifth is state-owned. These five companies cover around 95% of the market (figure 2). As housing loans are very standardised products, it is natural that the price, i.e. the interest rate, will be a crucial factor in competition for customers. This means in turn that refinancing costs will be absolutely decisive for running a profitable business. Market share for lending of major swedish banks end 1998. Per cent S E Bolån 10%  Venantius 2% Stadshypotek (inkl SHB Hyp) 32%  NB Hyp 12%  SBAB 14%  Spintab 29%  In the light of this, there is every reason to discuss what EMU and the euro can mean for the future financing opportunities and how Swedish businesses stand up to European competition?

In part, this no doubt reflects the fact that the euro is, for the moment, the new kid on the block which everyone wants to meet. But more fundamentally it is a clear vote of confidence in the new currency that such international interest should already be apparent in borrowing and investing in the euro, and in adapting and rebalancing portfolios to take account of this major change in the structure of the capital markets. A hugely important contribution to this process has, of course, been the vast exercise to prepare conventions, processes and systems for the euro, both within firms and in the shared market infrastructure. The scale of work undertaken in all centres – but notably in London, because of London’s pre-eminent position as the international centre for the bond markets – has been immense and I want to pay tribute to the high professionalism with which the preparations and the conversion itself were conducted. People commented on how empty the bars and restaurants were in the City of London over conversion weekend – which is remarkable in itself; but inside and indoors, 30,000 or more people achieved a remarkable feat of engineering, all within the space of a three-day holiday weekend. It may not have been everyone’s preferred way of spending New Year’s Eve, but it was certainly a very productive one. The good news is that everyone can come back and do it again this year for Y2K!