samchain/econo-pairs-v1 huggingface dataset:
Part of the dynamic at work was that banks were forced to provide financing for – or take over – the assets in a range of structured investment vehicles and conduits financed by asset-backed commercial paper. As some investors attempted to liquidate their holdings of these assets, many of the traditional providers of unsecured funding to banks pulled back from their counterparties in anticipation of the potential withdrawals of funds by their own investors. BIS Review 39/2008  1  Market participants’ willingness to provide term funding even against high-quality collateral declined dramatically. As a consequence, the cost of unsecured term funding rose precipitously and the volume shrunk. Banks were funding themselves at shorter and shorter maturities. As unsecured term funding markets deteriorated, the premium on liquid, marketable collateral – such as Treasury securities – rose considerably. Even with the dramatic actions by the Federal Reserve and other central banks to address these liquidity pressures, the strains in financial markets persisted. In many respects, conditions worsened materially in February and March. Credit spreads on financial institutions widened, equity prices declined and market functioning deteriorated sharply. By the early part of March, the threat of a disorderly adjustment was growing. What we were observing in U.S. and global financial markets was similar to the classic pattern in financial crises. Asset price declines – triggered by concern about the outlook for economic performance – led to a reduction in the willingness to bear risk and to margin calls.

•  We need to substantially simplify and consolidate the regulatory framework, to reduce the opportunity for regulatory arbitrage, not just in the mortgage market, but more broadly. •  We need to make the financial infrastructure more robust, particularly in the derivatives and repo markets, so that the system can better withstand the effects of default by a major participant. •  We need to redesign the set of liquidity facilities that we maintain in normal times, and in extremis, in the United States and across other major central banks. And these changes will have to come with a stronger set of incentives and requirements for the management of liquidity risk by financial institutions with access to central bank liquidity. •  And we need to make sure that the Federal Reserve has the mix of authority and responsibility to respond with adequate speed and force to the prospects of systemic threats to financial stability. Conclusion We look forward to working with the Congress and the Executive Branch to put in place a system of financial sector oversight and crisis management that works well in the context of a 21st-century financial system.
One relevant area of active research is why inflation expectations seem to have been so stable over the past decade – the period of the so-called Great Stability. One supposition is that well anchored expectations reflect the introduction of credible inflation targeting regimes – people have understood that central banks are focussed on keeping inflation low, and will take action to reduce it if necessary. Another view is that people’s expectations reflect simpler rules-of-thumb based on actual inflation rates: if that’s the case stable expectations could simply be due to the fact that, over the past decade and a half, inflation itself has been low and stable. These alternatives are hard to distinguish empirically, on the track record so far. But it may make a great deal of difference which is true when it comes to forecasting what will happen to inflation expectations, if we have to deal with a future in which inflation is likely to be much more variable. If people put their trust in the regime, or a “credible central bank”, they are unlikely to revise their expectations about future inflation much, especially if the nature of the current situation is well and honestly explained, including how long it will take inflation to return to target. But if they forecast future inflation using simple rules of thumb based on past actual inflation rates, anything that dislodges inflation from target will affect what people use as their best forecast for future inflation.

On inflation, there’s only around a one-in-four chance that inflation will lie close to the central projection – that is, between 2 and 2.5%, but a more than one-in-three chance that it will be above 2.5%, and an almost 1 in 5 chance that it will be below 1.5%. As this illustrates, one implication of widening the fan charts has been to increase the perceived risk of some rather unattractive outcomes – either that growth slows too sharply, or that inflation does not return to target following an upward spike. In particular both the upper tail of the inflation forecast – where inflation expectations might well come seriously adrift – and the bottom tail of the output forecast – where there could be a risk of setting off a deflationary spiral – are to be avoided, if at all possible. In this situation, it is not unreasonable to suppose that the Committee will be more sensitive than usual to changes in the balance of risks. Since neither of the key risks to the outlook is readily modelled or measured, monitoring them is not going to be easy. But we do have a framework for thinking about them, and a variety of timely surveys and indicators which can act as early warning signs. On the impact of the credit shock, we will be monitoring our new quarterly credit conditions survey of lenders, and special surveys from our own Agents, as well as the full range of indicators of the price and quantity of credit.
The guarantee is limited to a maximum of NOK 2m per depositor per bank. This represents a tightening for savings banks in relation to earlier statutory rules. For commercial banks this provides clarification in relation to the practice that was chosen during the banking crisis when all  BIS Review 124/1999  2  deposits were covered even if they were not covered by a formal guarantee. In relation to rules in other countries, the deposit guarantee in Norway is very generous. During the banking crisis, subordinated loan capital was not written down in the crisis banks, although the banks’ guarantee funds and later the state had to provide support to ensure continued operations. Subordinated loan capital did not function as a buffer as intended. Under the new Bank Guarantee Act, this capital can, subject to certain criteria, be drawn on while the bank is still operating. This increases the real buffer capital. It also means that banks with insufficient capital, and banks that take excessive risk, have to pay more for subordinated loan capital. This boosts market discipline. The risk of problems in one institution or a market segment spreading to other institutions or markets through the payment system is substantially reduced. A large share of interbank transactions is settled continuously during the day through Norges Bank’s settlement system. The largest interbank payments are settled individually and continuously on a gross basis. This reduces the risk of crediting an account without the payment due being transferred.

In any event, the question of whether and when government support is to be provided should be unclear, and the conditions triggering support should be very strict. 6. Norges Bank’s liquidity support  Ultimately, it is only the central bank that can secure the liquidity in the financial system, which is why it is called the lender of last resort. The classic example of a liquidity crisis is a situation where there is a rupture of confidence in the banking system. Depositors panic and shift funds to more liquid assets, primarily cash. The conventional formulation of the role of lender of last resort is that the central bank shall supply ample liquidity during the crisis - at a penalty rate - to illiquid but solvent institutions. In the Norges Bank Act this role is anchored in our responsibility for effective payment systems and our duty to exercise the traditional functions of a central bank. 5  BIS Review 124/1999  This raises three questions: •  What instruments are available to Norges Bank? •  How does one determine whether an illiquid institution is solvent or not? •  When is financial stability in jeopardy? These questions are highly interdependent. Norges Bank can use several instruments in the event of a liquidity crisis. If a crisis affects the whole financial system, we can change interest rates and supply large volumes of liquidity to the banking system.
In particular, should central banks continue to use their single monetary policy instrument – in our case Bank Rate, supplemented when necessary by unconventional operations – to aim solely at price stability, or should they aim also at wider financial stability objectives, as some have suggested? For over fifteen years Bank Rate has been set to meet an inflation target. And it was very successful in achieving that objective until commodity prices pushed up inflation in 2007. Since the Monetary Policy Committee was established, the average inflation rate has been only 0.1 percentage points away from the target. The strategy of inflation targeting ensured that the MPC maintained a balance between overall demand and supply in the economy. We could, of course, have pursued a different policy. We could have set interest rates consistently at a higher level in order to lower the growth of domestic demand below the rate at which inflation was stable and close to the target. In the words of my predecessor, we could have rejected the approach of accepting “unbalanced growth rather than no growth”. But to argue that Bank Rate should have been set to achieve not price stability but other objectives would have meant accepting rising unemployment and falling inflation. And that would not have altered long-term interest rates in world capital markets and “irrational exuberance” in financial markets in the US and elsewhere.

Despite these successes, there remains a lot to be done before everyone benefits from increased wealth. Although developments are moving in the right direction, the total number of poor people is still a problem. If the fruits of globalisation do not continue to spread to more countries with a poor population and within countries, there is also a risk of more states collapsing or other political problems that could slow down growth in the poor countries, and also have negative consequences for the rest of the world. The growing discrepancy between different regions is therefore worrying. This was clearly illustrated during the 1990s, when growth in Asia averaged 7 per cent, while the figures for Latin America and Africa south of the Sahara were 3.4 per cent and 2.3 per cent respectively. There is a huge contrast between, for instance, China, which has succeeded in lifting around 400 million people out of extreme poverty over the past twenty years, and Africa south of the Sahara, where the number of poor people increased by 150 million during the same period. In addition to weak states and internal conflicts, the African continent is hard hit by HIV/AIDS, which in some countries has reduced the average length of life from 55 years in 1990 to below 40 years in 2002, and left many children and young people to their own devices, without any adult authority. One of the most important challenges in future is thus to try to integrate Africa into the global economy to a greater extent.
As to the more advanced features under Basel II (such as the internal ratings-based systems), there is occasionally an excessively mechanistic view of what is entailed. This is not a more complicated formula for calculating capital requirements. What the more advanced approaches under Basel demand, and recognise, are more sophisticated internal risk-management systems. Hence, and as the word “management” indicates, the systems should be effectively used and integrated into the bank’s everyday analysis and decision-making at all levels. Capital requirements calculated in a more sophisticated manner, and which encourage better riskmanagement techniques, should be underpinned by a suitable policy for capital. It does not suffice to have a sufficient and even comfortable overall volume of capital: what is needed is a strategy for capital that takes into account factors such as the permanence and quality of capital, market accessibility and the balance between shareholder remuneration and the institution’s capitalisation. Too often, formulas for increasing capital through the use of subordinated debt or hybrid instruments to finance business expansion are resorted to, while at the same time the build-up in reserves from retained earnings slows. It is crucial for banking institutions to evaluate decisions on the level and composition of capital from a strategic and medium-term perspective. These thoughts on the challenges to be faced would be incomplete without addressing the corporate governance of credit institutions. The Banco de España has a particular interest in this area as it considers it a basis for sound risk-management.

The euro area In an international setting, as described, of a moderately expanding world economy and heightened geopolitical tension, the pace of growth in the euro area in 2002 was markedly weak. At 0.8%, it was far lower than had been expected at the end of the previous year. This performance has highlighted  2  BIS Review 31/2003  the considerable exposure of the euro area to global shocks and the burden the structural deficiencies still beleaguering the area entail for it. However, although economic buoyancy has diminished across the board, there have been considerable differences in the growth of the different Member States. In particular, among the four major countries in the area, only Spain has remained moderately dynamic in this unfavourable setting, while the biggest economy, Germany, has deteriorated markedly. Thus, while high and growing synchrony has been observed over the past decade, this still remains below what should be the case for a fully integrated economic area. Persisting divergences underscore the need to refine the single market and reaffirm the role to be played by national policies when it comes to ensuring the proper functioning of each of the member economies. It is also significant that the scant growth in the euro area in 2002 was mostly based on the contribution of the external sector. As a result, the shocks buffeting the European economy had a particular influence on internal demand, which was considerably slack throughout the year.
Takaful operators have started publishing and 3/6  BIS central bankers' speeches  implementing new customer service charters. The industry must now walk the talk. In the next few months, a Customer Satisfaction Index Survey will be carried out to measure actual service levels against what operators promise. The results will be made public. Customers can shop around and make better informed choices when deciding who to trust to protect them. In this digital age, technology has changed the way we live, the way we save, and the way we bank. But it seems that little has changed in the takaful and insurance space. This perplexes me. This is quite telling from the industry’s attitude towards efficiency and innovation more generally. Mobile and internet penetration in Malaysia stand at about 132% and 81% respectively. There is potential to increase the offering of supplementary services online, such as vehicle anti-theft services and health advice, as a recent study by Bain & Company on insurance customers in 19 countries confirms. The industry can invest in its own capacity to deploy new technological solutions itself, or it can partner with others. The point is that it has to respond proactively, or risk being disrupted by others. Just a few weeks ago, Amazon, Berkshire Hathaway and JPMorgan announced a new venture to disrupt health insurance in the U.S. This is the reality that the industry has to face. Another issue that the industry is lagging behind is in terms of migration to e-payments. The use of cheques is still prevalent.

Yet the most notable thing is that, despite these difficulties, we have succeeded in keeping the Libor around the middle of the target band. This is, after all, what counts for the implementation of monetary policy. So neither the current criticisms levelled at the Libor nor the actual movements in the Libor are an immediate reason to dispense with this rate as the operational target of the SNB. Conclusion Let me briefly conclude. Despite clear signs of a return to calm, the money market has not yet gone back to “business as usual”. The Libor/TOIS differentials continue to indicate a certain degree of tension. The various waves of turbulence also show how difficult it is to predict what will happen next. Central bank actions have helped to defuse the situation. Nevertheless, they can only treat the symptoms of the malaise, or fever. An effective cure and the restoration of confidence between market participants are primarily a matter for the banks themselves. The SNB’s tools – its medicine cabinet – have so far proved their worth during the turbulence. Yet the crisis provides a reason to review and where necessary adapt them. For central banks, it is important to consider, not just the immediate effect of an instrument, but also the longer-term repercussions. Thanks to their monopoly in issuing currency, central banks can engage in almost unlimited short-term intervention when markets and market participants are threatened with collapse. However, such extreme measures carry high risks for the longer term.
In other words, the likelihood that the central bank will have to provide liquidity support to a financial institution is partly determined by the quality of supervision. At the same time, the central bank may very well need the supervisor’s analytical or informational support to be able to decide on whether or not and how to intervene. Finally, in crisis resolution, even if the Ministry of Finance takes the lead, it is likely to rely extensively on the supervisor and the central bank for advice and execution. If we agree that there is a link between the soundness of institutions and financial stability, then supervisors must be interested in crisis management and resolution and central banks must be interested in certain aspects of supervision. In the last decade, at least in Sweden, the macro and micro perspective have grown gradually closer. Indeed, the Swedish FSA now has an explicit interest in the stability of the system, while the Riksbank has taken a greater interest in the stability of single institutions, if they are judged as systemically relevant. We have regular contacts to share information and assessments and coordinate policy. If before, the relationship between the two authorities might have been described as polite but uninterested, it is now a mix of curiosity, some competition and frequent flirting. BIS Review 35/2005  1  The times they are a-changin’ This could have been the happy end of our story but recently there have appeared challenges to this set-up.

Regulation on the EU-level also faces another trade-off that is not present on the national level – that between the value of a level playing field and the cost of an overly detailed or inadequate regulation. A completely level playing field presupposes detailed rules that are applied in the same way in every market. But too detailed rules on the EU level risk being inadequate on the national level since national markets often differ widely. This could give rise to costly overregulation hampering financial development or driving financial institutions to settle elsewhere. Hence, it might be wise to leave some degree of freedom to the member countries. Historically, institutional competition has proved to be very positive for development in the long run. BIS Review 35/2005  3  At the same time, EU directives (as most international rules) tend to leave plenty of room for national discretions, effectively reducing the value of the convergence/harmonisation that probably was the motivation for the directive in the first place. We risk ending up with the worst of two worlds – very detailed rules on the EU level and loads of discretions on the national level. This makes the rules opaque and their implementation difficult to predict for the private sector. The starting point for EU rules should be the least common denominator. Today instead, it often seems like the starting point is the sum of all member states’ national rules.
On the contrary, it is well understood that bank managers have the most complete understanding of the risks their institutions face, and it is they and the bank’s directors who have primary responsibility for overseeing those risks. The task for supervisors in this framework is to evaluate how well banks are assessing their capital needs relative to their risks, including whether banks are appropriately addressing the relationship between different types of risks. Most importantly, in proposing this second pillar the Basel Committee intends to foster a more active dialogue between banks and their supervisors. The third element in the proposed new capital adequacy framework is market discipline. As I discussed earlier, more extensive disclosure and a greater dependence on market discipline complements improvements in bank-level management, official supervision and minimum capital standards. Some areas that we at the Federal Reserve believe are good candidates for greater disclosure would include components of regulatory capital, risk concentrations and transactions involving recourse, such as securitizations. To the extent that banks develop disciplined internal approaches to evaluating capital adequacy, and greater disclosure enhances market discipline, supervisors will be able to place greater reliance on all three pillars and reduce regulatory inconsistencies. The common interest is to keep the Basel standards as a floor sufficient to ensure financial soundness, but above which banks themselves will choose to operate. Conclusion In conclusion, we clearly have an ambitious agenda for perfecting and refining the supervisory framework for the twenty-first century.

Mr McDonough discusses sound banking systems: a new growth imperative  Speech by Mr William J McDonough, President of the Federal Reserve Bank of New York, before The Monetary Authority of Singapore, Singapore, on 24 March 2000. *  *  *  I am delighted to be with you today. It’s a special pleasure to be among so many old friends and colleagues. It’s also a great pleasure to be in Singapore under such happy and promising circumstances. Just two years ago, financial and economic conditions throughout Asia were rather grim and the outlook was uncertain. But since then, to the great credit of the people of Asia, significant progress has been achieved. In Thailand, Indonesia, Malaysia and especially Korea, meaningful headway has been made toward recapitalizing the banking systems, ridding banks’ balance sheets of problem assets, and improving supervisory and regulatory frameworks. And that hard-earned progress on the banking front is already bearing fruit. The economic contraction that devastated so many in the region has generally been halted and even, in some countries, impressively reversed. Equity markets have rebounded impressively, and yields on government securities have been cut by nearly two-thirds as foreign capital has begun to return. Without question, this is truly a remarkable turnaround. It must also be acknowledged that the economies of Asia are not out of the woods just yet. Important and even difficult work still lies ahead.