samchain/econo-pairs-v1 huggingface dataset:
Notes: Chart shows the sensitivity of different capital flows to a negative "push" shock. Coefficients are standardised by each component’s share of total flows e.g. the red MBF bar shows how total Capital Flows-at-Risk would respond to a one standard deviation tightening in global financial conditions if all capital flows were accounted for by MBF. Estimates are based on the FSB’s measure of ‘collective investment vehicles with features that make them susceptible to runs’, see FSB Global Monitoring Report on Non-Bank Financial Intermediation 2018. 18 The initial version of the speech mistakenly referred to Real Estate Investment Trusts here, instead of open-ended funds. 17  14  All speeches are available online at www.bankofengland.co.uk/speeches  14  The third aspect of the pipes is the global financial safety net (GFSN). Developments in this regard have arguably further increased Capital Flows-at-Risk. The GFSN has become more fragmented over the past two decades and its core – IMF resources – has shrunk relative to the size of the global financial system (Chart 14). As a result, individual countries have chosen to self-insure at high cost to both themselves and the rest of the world. While the IMF’s nominal resources have more than tripled over the past decade, they still only represent around 1% of global gross external liabilities and have been on a downward trend from 2.5% in 1980. Other multilateral arrangements, such as Regional Financing Arrangements (RFAs) and swap lines, are only partial substitutes.

20 To limit the impact of FX reserve accumulation on the domestic money supply, most central banks sterilise their intervention through the issuance of bonds. The fiscal cost of FX reserve accumulation can be calculated as the difference between the interest paid on the sterilisation instrument and the interest received on FX reserve assets, which are typically low-yielding, low-risk foreign government bonds. The IMF estimated this wedge to be around 200 bps on average. It can crowd out domestic investment as central bank sterilisation bonds compete for domestic savings. 21 The increased demand for safe assets driven by this desire for safety – which Ben Bernanke christened a ‘savings glut’ – helped drive down the equilibrium interest rate, the interest rate central banks must deliver in order to balance demand with supply and so achieve stable inflation. 15  All speeches are available online at www.bankofengland.co.uk/speeches  15  Augmenting the Bank of England’s Capital Flows-at-Risk framework with the major structural changes in the global financial system materially changes the Bank’s assessment of the quantum of Capital Flows-at-Risk when there are push shocks.
Monetary policy and the financial crisis In principle, one can say that monetary policy is working as normal within the framework that has been in place since 1995. And unlike earlier crises, not least that at the beginning of the 1990s, we have in the storm now raging a credible nominal anchor for the economy in the form of an inflation target. I think this is worth pointing out. It is actually thanks to the credible inflation target that the Riksbank has the flexibility to forcefully counteract the negative effects of the financial crisis on production and employment. Of course, the financial crisis means that the circumstances for conducting monetary policy are abnormal. For example, there have not been many occasions when the economy has ground to a halt in the way that has happened in recent months. This creates challenges for monetary policy. One such challenge is that historical relationships in the economy have to some extent changed as a result of the crisis. One contributory factor to the repo rate needing to be cut so much during the autumn was that rising risk premiums in the wake of the financial crisis meant that the normal link between the short-term market rates and the repo rate was broken. This was indicated by the reactions to our reduction of the repo rate by a total of 1 percentage point in October. The market rates fell to a much lesser extent. On the other hand, the market rates followed the repo rate downwards in December.

Adherence to this requirement will inject transparency, accountability and ensure the integrity of the financial system. It will prevent criminals from hiding their ownership of companies and assets through complex methods and vehicles. I last spoke at this conference in 2011. The theme of the 2011 conference was “Raising the bar in enforcement and compliance”. Looking back and taking stock of the present state, I am glad to see that the whole industry has matured and progressed in such a significant way. This is validated by the NCC report that the sector’s control measures for both money laundering and terrorism financing are strong. Further, fines imposed by the Bank on financial institutions has decreased over the past few years, reflecting the progress made by institutions in ensuring adequate controls. I hope the industry continues to strengthen its capability to fight crime. Another area in which progress has been made is the priority accorded within each institution to compliance. The focus of the compliance function has developed to become more comprehensive as financial institutions have a better understanding of the threats and risks involved. With increasing awareness of the direct and indirect costs of non-compliance, the compliance function is no longer viewed only as adherence to rules set by regulators, but is instead, an integral part of the organisation’s culture. The very fact that the theme of this 4/5  BIS central bankers' speeches  conference is on reshaping the future, governance and transparency is a testament to this.
The Bank of Albania has been present in the foreign exchange market throughout 2003 by buying foreign exchange. The foreign exchange activity of the Bank of Albania helped in injecting liquidity in the market and it has smoothed the Lek appreciating tendencies during the year. The forecasts for the main trends and inflation for 2004, suggest that the Bank of Albania should apply a similar policy in 2004, too. Developments in the consumption prices are characterized by low inflationary pressures. Our forecasts show that the inflation target of the Bank of Albania will be met during 2003. In case no shock phenomena emerge, inflation will be under control also for 2004. Besides, the expectations on the economy seem to speak about an inflation level sticking to the present one. Liquidity ratios and structures seem to be near their historic levels, whereas interests rates were characterized by downward trends during 2003. Therefore, the Bank of Albania might reconsider the possibility of a further reduction of interest rates, a possibility consisting in the future performance of the monetary and inflationary indicators. This will be in support of the economic activity or inflation target. Judging from the analysis of actual trends, we could say that interest rates during 2004 will be generally stable or in downward trend. The analysis of monetary indicators for 2004 shows that the Bank of Albania is going to be present in the foreign exchange market so as to impede the further appreciation of Lek.

The sector composition of the three Scandinavian stock exchanges provides an illustration. The Oslo Stock Exchange is heavily dominated by the energy sector, which is practically absent in Stockholm, Copenhagen and the two other Nordic exchanges. Norway has small traditional industries, but the IT and telecom sector is comparable to the other countries’ in relative size. The different sector composition of the stock exchanges also illustrates the potential for diversification by investing across the Nordic countries. The differences in industrial structure imply that international economic developments will affect the Nordic countries differently. Most notably, an oil price shock will have the opposite effect in Norway than in the other Nordic economies. In 2001, the petroleum sector in Norway accounted for around 20 per cent of total investments, 45 per cent of exports, 24 per cent of GDP and 35 per cent of central government revenues. The government net cash flow from the petroleum sector has increased in recent years. Since 1995, the fiscal surplus has been invested in the Government Petroleum Fund. The size of the Fund has increased rapidly in the last few years, and will reach close to 100 per cent of GDP towards the end of this decade, according to estimates from the Ministry of Finance. By investing a substantial part of petroleum revenues abroad, the Government Petroleum Fund limits the effect of the current account surplus on the exchange rate. GDP growth in Norway has been relatively high since 1990, also when excluding the petroleum sector.
Changes in the compensation instrument can also help – for example, remunerating in equity is better than in cash and remunerating in junior or convertible debt might be better than either.29  (d)  Taxation/Subsidies: Authors have suggested a variety of ways in which government could penalise short-duration holdings of securities, or incentivise longduration holdings, using tax and / or subsidy measures. These measures differ in detail, but the underlying principle is to link them to the duration of an investor’s holdings or the length or nature of a company’s investment.30  Some of these initiatives have been tried and tested in differing degrees, at different times and in different countries. They have not obviously arrested the short-termism trend. It might be time to increase the level of policy ambition if the telescope is to be corrected, the voting  26  Aspen Institute (2009), CFA (2006). 27  Duruigbo (2011). 28  Securities and Exchange Commission (2010), Aspen Institute (2009). 29  Haldane (2011). 30  Aspen Institute (op.cit. ), Poterba and Summers (1995). BIS central bankers’ speeches  13  machine socialised, the savage civilised. Public policy could help keep the plums in the pudding. Without intervention, the long could become shorter still. References Aspen Institute (2009), “Overcoming Short-termism: A Call for a More Responsible Approach to Investment and Business Management”, The Aspen Institute Business and Society Program, September 9. Barton, D (2011), “Capitalism for the Long Term”, Harvard Business Review, March.

These projects are often felt to yield the highest long-term (private and social) returns and hence offer the biggest boost to future growth. That makes short-termism a public policy issue. But what would be an appropriate public policy response to this capital market failure? A number of proposals have been suggested by various authors. These include: (a)  Transparency: The lightest touch approach would be to require greater disclosures by financial and non-financial firms of their long-term intentions – for example, their long-term performance, strategy and compensation practices.26 For financial firms, this might include metrics of portfolio churn. This could be accompanied by a programme of educating managers, investors and advisors of their fiduciary responsibilities. (b)  Governance: A more intensive approach would involve acting directly on shareholder incentives through their voting rights. For example, fiduciary duties could be expanded to recognise explicitly long-term objectives.27 More concretely, shareholder rights could be enhanced for long-term investors, perhaps with a duration-dependent sliding scale of voting rights.28  (c)  Contract Design: There have been various attempts over the past few years to make compensation contracts more sensitive to long-term performance and risk. This includes employment contracts conditioned on long-term performance, or with deferral or clawback.
6  All speeches are available online at www.bankofengland.co.uk/news/speeches  6  The state of play in sterling so far I’ve highlighted the problems with continuing to rely on Libor, but the positive side of this is the progress that continues to be made in creating deep and liquid markets in robust alternatives. In sterling, the chosen alternative is SONIA, produced by the Bank of England. The market for SONIA linked derivatives is well established. The share of swaps traded using SONIA is broadly equivalent to that linked to Libor, with continued growth at longer maturities. Volumes in Libor linked options are decreasing and there are promising signs of a SONIA options market developing; we have also seen growth in SONIA futures during the first half of 2020. There is now a fully functioning SONIA linked bond market with 40 Floating Rate Notes issued, totalling over £ so far this year. In total, there has now been issuance of over £ of bonds referencing compounded SONIA. There has also been in excess of £ of publicly distributed SONIA linked securitisations since April 2019. We have seen businesses such as Shell, South West Water, Associated British Ports, National Express Group and Riverside Group all move borrowing on to near risk-free rates. March saw the first multi-currency revolving credit facility linked to both SONIA and SOFR. The industry is making progress on the conventions underlying these products and infrastructure vendors are ensuring their products can support SONIA linked products.

And from next month, as previously announced, the Bank of England will begin publication of a freely available compounded SONIA index to support use of the rate across a wide range of sterling products. Avoiding the problem won’t make it smaller or change the need to transition. The answer is for us collectively to confront the challenge and make the necessary progress over the next 18 months. In September, the Working Group on Sterling Risk-Free Reference Rates will begin a further program of public communications to help those with Libor linked exposures navigate onto more robust alternatives. But well done is better than well said, and from October UK banks should all be offering alternatives to Libor. Indeed, a number of the largest UK lenders are already doing this. I’d suggest if you are borrowing past the end of 2021 you consider seriously the greater certainty that those alternatives offer. If you do decide to borrow linked to Libor then your bank should discuss how that contract will change from Libor to an alternative rate ahead of the end of 2021. We would not expect to see any further sterling Libor linked lending after the end of March 2021. Regulated firms in the UK should expect their supervisors to monitor and discuss their progress with these important milestones.
And it is the combination of the uncertainty derived from the war (and more in general from geopolitical tensions) with the increase of inflation and the rising interest rates that has generated, ultimately, a general deterioration of the economic outlook with, for example, one-year ahead recession probabilities having increased markedly, in both the euro area and other major advanced economies. This challenging financial stability outlook is well laid out in the Warning on vulnerabilities in the EU financial system that the European Systemic Risk Board issued last September. Indeed, the ESRB has alerted of the heightened uncertainty and the increased probability of tail-risk scenarios materialising. In particular, the ESRB has warned of three severe systemic risks :  1/3  BIS - Central bankers' speeches  (i) first, the deterioration in the macroeconomic outlook combined with the tightening of financing conditions, leading to negative consequences in terms of balance sheet stress for non-financial corporations and households, especially in sectors and Member States that are most affected by rapidly increasing energy prices. (ii) second, a possible sharp fall in asset prices, leading to large mark-to-market losses, amplified market volatility and liquidity strains. In addition, the increase in the level and volatility of energy and commodity prices has generated large margin calls for participants in these markets and this has created liquidity strains for some participants. (iii) and third, the potential deterioration of asset quality and the profitability outlook of credit institutions.

National differences will not entirely disappear While monetary policy is determined by developments in the euro area as a whole, there will inevitably be some differences in the performances of individual countries and also regions within the euro area. Since the start of the year, the focus of attention in the media has rightly switched more towards looking at the euro area as a whole, but this also provides a natural benchmark against which to compare national developments. That is why some attention has been directed towards the differences that exist in some areas between euro area countries, particularly differences in economic growth and inflation rate differentials. The latter is true for the Netherlands, which currently has an inflation rate which is about 1 percentage point higher than that of the euro area. 1  BIS Review 123/1999  There are a number of reasons why such differences will occur. These may broadly be considered under two headings. First, there are a number of reasons why, over relatively short periods of time, there may be clear differences in economic performances. Second, national rates of output growth and inflation may also differ within a single currency area over longer periods of time as a result of more structural factors. Short-term divergences among euro area countries Considering the short-term factors, with regard to price developments, there are various “country-specific” factors of a very temporary nature. Among these, government policies are perhaps the most obvious.
Taken to its limit, the argument that monetary policy can be used to expand demand with little or no implications for inflation challenges the consensus that the best contribution that monetary policy can make to the long-term health and prosperity of the economy is to deliver price stability. That consensus is based on painful experience that monetary policy can’t affect the level of output in the long run. That we can’t generate permanently higher output and permanently higher employment simply by printing more money.9 We should be nervous about how quickly we overturn that consensus. Conclusion and summary Let me conclude. The financial crisis has thrust the rather reserved world of central banking and monetary policy into the spotlight. That is both understandable and healthy. Monetary policy failed to prevent the financial crisis. And in many countries, including the UK, it has failed to stimulate the growth that we all long to see. It’s only right that inflation targeting – the dominant paradigm governing the operation of monetary policy in much of the industrialised world – should be questioned and challenged. And to my mind it has a good story to tell. The inflation target ensures that the primary objective of monetary policy is to deliver price stability. But it affords the flexibility that it can be operated in such a way as to support output and employment.

Here, the latest development on sovereign debt crises in Europe underscores the importance of the restoration of our fiscal discipline. If there are no changes in our policy, the ratio of public debt to GDP will increase to over 60 percent by 2012. This will not only leave little room for the government to use more fiscal stimulus should there be a new crisis in the region or in the global economy but it could also put Thailand in the spotlight of the foreign investors who have become much more sensitive to the issue of fiscal sustainability. This is why we have to rethink the stance of our fiscal policy once the short-term political and economic uncertainties fade away. Furthermore, to ensure fiscal sustainability over the medium to longer term, Thailand will need fiscal reforms that include: •  Continued fiscal consolidation;  •  Broadening of our tax bases;  •  Reforms to increase the efficiency and equality of the tax system; and  •  Greater allocation of public spending toward investment expenditures. Indeed, the government realizes the need for fiscal consolidation and reforms. With the better-than-expected tax revenues, thanks to the solid economic recovery, the budget deficit for this fiscal year and the extent of public debt will probably be lower than originally expected. The government has also taken initiatives to work on some reform measures such as the introduction of property taxes. These are commendable initiatives that remain to be seen whether will be successfully implemented.
In doing so, it is important that we not lose sight of one of the longerterm goals of the New Capital Accord - that it will enhance the capabilities of banks and supervisors to better understand and address risk. 4. Next steps in finalizing the New Accord  Most of my remarks today have been centered on implementation of the new framework. I’d like to conclude by spending a few moments discussing where we are in the process to finalize the New Accord. As you may be aware, the Committee has just finished gathering data from the industry for its third impact study. The aim of the study was to collect and to analyze information from banks worldwide regarding the capital impact of the new proposals on their existing portfolios. The results are under review and will help us to determine whether any adjustments will be needed prior to release of the final consultative package this spring. This information, as well as feedback received through our ongoing discussions with industry participants, will be critical in shaping the final document. It will also help to ensure that the final framework meets the objectives the Committee has set out for itself in developing the New Accord. I'm very pleased to say that the preliminary indications from all of our efforts suggest that we look to be on track in meeting our primary goals.

Ensuring that everyone understands the nature and level of risks facing a bank will depend on the timely delivery of the right information. We expect many banks will need to make greater investments in their reporting systems with the aim of facilitating the flow of information about a bank’s ratings practices to senior management and directors. (c)  Challenges for supervisors  I've focused on the challenges banks may confront in implementing the new Accord. Let me now spend a few moments discussing how our supervisory approach is also likely to evolve over time. The New Accord will present supervisors with an opportunity to re-evaluate and further develop their current approaches to looking at banks. Going forward, supervisors, like banks, will have to take a more dynamic view of risk management. Change will occur in response to the new Basel framework. I must add that change would also occur as part of the natural evolution of banking supervision. Basel II’s emphasis on risk management strongly supports our current effort to make evaluations of banks’ internal processes the heart of a more forward-looking supervisory approach. 4  BIS Review 7/2003  In terms of credit risk, we will focus less on point-in-time assessments of financial condition, and much more on internal processes and control structures that are intended to help safeguard the health of banks.