samchain/econo-pairs-v1 huggingface dataset:
Fiscal revenues increased 9.0% in annual terms, while budget expenditures were 7.5% lower than the previous year. Our monetary policy easing has also taken into account this feature of fiscal policy that the Bank of Albania has urged and supported. However, the Bank of Albania would like to bring to attention the need for a more uniform distribution of expenditures and budget deficit over the year, to enhance their effectiveness and avoid the fluctuations that their excessive concentration may cause to the country’s economic and financial indicators. BIS central bankers’ speeches  1  The improved foreign demand and positive dynamic of some sectors of the economy were reflected in an increase in annual exports by 10.3% in April. The detailed analysis of trade data reveals encouraging signals about re-exporting and agricultural activities. Trade deficit, however, expanded 1.8% in April, due to the simultaneous increase of imports by 6.0%. In particular, the energy situation continues to burden the trade balance of the country due to high levels of energy imports. Structural improvements to the economy and a more favourable external environment would pave the way for a faster growth of Albanian exports. The Bank of Albania considers this channel as the most appropriate tool to support the country’s sustainable growth in the medium and long term. Projections for low annual inflation rates, against the backdrop of below-potential economic growth, have dictated the pursuit of an easing monetary policy by the Bank of Albania.

Seeking to balance these concerns, I have explored the notion that government support would be triggered by the total losses across an entire group or “vintage” of mortgage-backed securities. Vintage-based support would likely only be triggered by a true systemic shock. A vintage approach would also provide a transparent and finite maximum loss for the private sector to absorb, supporting robustness at the onset, during, and through the aftermath of a crisis. I believe that the costs of the recent devastating economic downturn would have been far less to the taxpayer, and the housing market would have rebounded far quicker, had a vintagebased program containing adequate high-quality private capital been in effect. Attracting private capital to finance residential real estate is another important consideration. It is difficult for institutions that depend on short-term funding to take long-term interest-rate risk – for example, the long-term interest-rate risk posed by 30-year fixed-rate mortgages. It is also difficult for investors who do not do the underwriting themselves to take long-term idiosyncratic credit risk. Securitization backed by a predictable level of government support has a useful function in facilitating the allocation of these different risks to different sets of investors through the To-Be-Announced or “TBA” market. I think the TBA market will be key to ensuring Americans’ continued widespread access to the 30-year fixed-rate mortgage. The TBA market is also important to the role of small banks and lending institutions in a competitive housing finance system.
William C Dudley: Regulatory reform of the global financial system Remarks by Mr William C Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York, at a meeting hosted by the Institute of Regulation & Risk, North Asia, Tokyo, 11 April 2011. *  *  *  I am pleased to be here today to speak about the issue of regulatory reform and the global financial system. But before I begin, I would like to express my deepest sympathies and those of my colleagues at the Federal Reserve to the people of Japan following the tragic events of the past month. We mourn your loss even as we admire the heroism of those who risked their lives to help others and the quiet fortitude with which so many of your citizens have borne their suffering and grief. We know that the character of the Japanese people will enable you to overcome the challenges before you, working together in common national purpose to rebuild and restore. On the subject of my talk today, a stable and resilient financial system that allocates credit in an efficient manner underpins and supports economic growth and rising standards of living around the world. As we saw recently, however, a financial system that is prone to booms and crashes can not only lead to an inefficient allocation of real resources during the booms but can also have devastating consequences for global economic activity and employment during the crashes.

First, a significant number of large, internationally active financial firms reached the brink of failure. Second, the financial system was not very resilient when these firms got into difficulty. Instead, the threat of failure propagated further shocks that reverberated throughout the global financial system. These two shortcomings reflect many factors including inadequate capital and liquidity buffers, poor incentives to correctly measure, price and manage risks ex ante, the opacity of firm balance sheet and counterparty exposures, and the manner in which large financial firms were interconnected within the financial system. In the end, there was too much leverage in which large amounts of highly illiquid, long-term assets were financed by short-term liabilities. The fact that a large amount of the wholesale funding used to finance these assets was provided by leveraged financial intermediaries to other financial intermediaries increased the  BIS central bankers’ speeches  1  system’s vulnerability to adverse shocks. As it turned out, the amount and quality of capital was grossly inadequate relative to the quality of the assets and off-balance-sheet exposures of many of the major global banking institutions. Moreover, many institutions had inadequate liquidity buffers. The lack of liquidity forced the fire sale of assets, which depressed prices and increased the pressure on capital. When troubled institutions did fail, this exacerbated the pressure on the remaining institutions. Aggravated by the lack of transparency about their counterparty exposures and the contingent liabilities they faced, the problems of a single institution quickly became the problems of many.
Prompt and transparent margining and, where possible, central counterparty (CCP) clearing helps avoid the situation in which the perceived stress on one major participant can cause a panic which amplifies stress across the market due to uncertainty about who else, is exposed – and whether those exposures are adequately protected by sufficient margin.1 As a result of those reforms, the financial system entered the Covid crisis in a much stronger position with regard to collateral and counterparty credit risk, with, for example, at least $ in additional collateral against over the counter (OTC) derivative exposures.2 Very significant and sudden changes in asset prices did not lead to counterparty credit risk – actual or anticipated. Margin call is of course pro-cyclical, insofar as it reflects movements in markets. This is not a bug in the system, it is a feature. As markets move, losers have to pay variation margin to winners. And as risks grow, initial margin rises to protect the members of a clearing house from the consequences of a future default by other members. This characteristic of margin is unavoidable if we are to ensure that collateralisation keeps pace with risks and counterparty credit risk is minimised. But it is right to try to dampen this dynamic to the extent practicable and to avoid unwarranted procyclicality. Against that background, let me set out the findings of the FSB group on margin and the proposed next steps.

For example, an unfavourable scenario in which a burst asset bubble leads to a deflationary situation that is hard to overcome will be assigned greater importance than a high-inflation scenario. Experience from Japan in the 1990s illustrates this. Assessments of this type must be taken into account in the monetary policy decision. The moral of the story is that monetary policy cannot be reduced to a mechanical reading exercise. However well-prepared the material on which monetary policy decisions are based, there will always be complex and important aspects that policymakers must take a stance on. It is important that these aspects are discussed from several different perspectives. This is one reason why we have an Executive Board made up of economists with different backgrounds and expertise. It is beneficial and important for us to conduct a wide-ranging debate on monetary policy at the Riksbank and not just externally. I believe that it leads to better monetary policy decisions. 10  BIS central bankers’ speeches
Inflation prospects difficult to assess One consequence of the Riksbank basing its analysis on conditions in Sweden — and not being guided by the actions of other central banks — is that in the past the repo rate has been held at a considerably lower level than in the United States. There have also been periods when our instrumental rate has been below that of the European Central Bank. The central factor when the Riksbank sets its instrumental rate is the prospects for inflation one to two years ahead. A prospect of inflation above the 2 per cent target normally leads to a repo rate increase, while if inflation is expected to be lower than the target level, the repo rate should normally be lowered, and if the rate of price increases is forecast to lie around the target level of 2 per cent, the rate should be left unchanged. The economic outlook in the rest of the world ought to imply a weak tendency in Sweden as well, with an attendant easing of inflationary pressure and consequently a further reduction of the repo rate. However, the decision-making situation is not that simple. Three things in particular make the picture more complicated: ·  Firstly, inflation is currently above the Riksbank’s 2 per cent target. The greater part of the increase is admittedly attributable to a number of clearly defined transitory factors that are calculated to drop out next spring. Food prices, for example, moved up in connection with mad-cow and foot-and-mouth disease.

Other value-add services for these bond investors would likely be launched in the months ahead. Mainland-Related Lending 10. The bread and butter of banks are of course their lending businesses. There is no point in collecting deposits from customers if the bank cannot find useful and hopefully profitable outlet for these funds. With the rapid development of the Mainland economy and the deepening of the Reform and Opening Programme, Hong Kong has become the most important financial intermediation hub for investments into and out of Mainland. The HKMA has been collecting statistics under the category of “Mainland-related lending” by banks in Hong Kong. This category includes lending to Hong Kong and foreign corporates investing in the Mainland and to Mainland corporates, mostly large state–owned enterprises. As Hong Kong is becoming an important source of funds for foreign direct investments into the Mainland and overseas direct investments from the Mainland to overseas markets, the size of Mainland-related lending has grown from a very small amount in 2009 to $ trillion now, which accounts for around 45% of the total bank loans in Hong Kong. This is a very significant component of our banking system and is of critical importance to the profitability as well as soundness of our banks. So clearly it is crucial that, in growing this lending business, banks must maintain a high standard of risk management in underwriting these 2/4  BIS central bankers' speeches  loans.
Depending on the resolution there and the progress of the EU accession negotiations, the problem could be resolved in connection with the accession process itself. At this point, it is unclear what form such outside assistance would take, but the more it takes the form of declarations concerning limits to exchange rate fluctuations backed by credibility and strong ability to intervene in the foreign exchange market, and the less it takes the form of offering loans, the better. On the other hand, it appears inevitable that, if Iceland joins the euro area, it would be necessary to convert all krónur at the same exchange rate, for the same reasons as with a currency board or unilateral adoption of another currency. Although the interaction between the capital controls and Iceland’s currency options is complex in many respects, this is not true to the same extent of prudential rules restricting the international activities of domestic financial institutions. For instance, it would be safe to relax such rules if Iceland were a member of the euro area and its financial institutions could carry out a large share of its cross-border business in its home currency. This would be even more true if the EU framework for cross-border banking were reformed so as to provide for EU supervision of banks operating throughout the region, a pan-European deposit insurance scheme, and intervention in distressed financial institutions by a joint EU body.

Therefore, the euro area is currently battling a fiscal crisis in some member countries, a competitiveness and current account crisis in the region as a whole, a deep banking crisis in some countries, and a fragile banking system in many others, which would be exacerbated if the sovereign debt crisis should end in default by any of the countries concerned. A currency crisis as such is not part of the problem, however, any more than it was in the US. As is discussed further in Chapters 16 and 25, a number of reforms have already been adopted in response to the shortcomings in the design of the euro area, but it is not certain that they will suffice to preserve the currency union in its current form. Forecasting near-term developments in the euro area crisis is beyond the scope of this report, however. The results of the reforms made to date have not yet been fully tested. If they prove inadequate, the crisis could be amplified and, in the worst-case scenario, could have severe repercussions for the future of the euro area in its current form. If they are successful, the reforms could strengthen the eurozone. The outcome has yet to be determined.
As for the audit role, we will have to provide internal control assurances to the ECB on all the functions we will be carrying out on their behalf. All of this, of course, has important implications for essential support functions such as information technology and human resources. I need only mention the fact that euro area membership entails considerable electronic reporting obligations and the maintenance of several statistical databases. The Bank is gearing up to take on these new, more specialized functions, and I would like to note that it is only able to do so with confidence because it has a substantial core of qualified and dedicated professionals in all these areas. 6  BIS Review 16/2006

Direct financing via capital markets is growing in importance, even though banks are still the most important source of financing in the euro area. Such changes in the financial landscape make the allocation of funds more efficient and are hence most welcome. At the same time, however, they alter the transmission mechanism of monetary policy, and insofar as this alteration is difficult to measure, add uncertainty to monetary policy decisions. Apart from the financial environment, the real economy in the euro area is also currently subject to significant change. Monetary Union has enhanced competition between economic agents in the participating countries. Price transparency between the countries has increased. Both consumers and companies are becoming increasingly more aware of price differences and are reacting accordingly. Greater price differences will be harder to justify and maintain, even though differences in the tax systems and in product specifications will continue to exert an influence on price setting. Fiscal policy may be affected, both by increased competition between countries and by the general need to foster employment and growth in order to comply with the challenges of ageing populations. These realities have triggered tax cuts and the start of more fundamental benefit reforms. However, these efforts must be accompanied by a structural reduction in expenditure in order to support price stability, make further progress in fiscal consolidation and boost economic growth. Overall, the increase in competition, less rigidity and a more flexible structure of the economy should lead to an increase in the sustainable rate of economic growth.
3  See Barrell, R, Davis, E, Fic, T, Holland, D, Kirby, S, and Liadze, I (2009), “Optimal regulation of bank capital and liquidity: how to calibrate new international standards”, FSA Occasional Paper 38. The paper indicates that a 1% rise in capital requirements could reduce output by 0.08% of GDP in the long run. Discounted at a rate of 3% this would imply a 2.7% reduction in current GDP. BIS Review 100/2010  5  GDP in present value terms, though it also finds that the GDP benefits from increasing capital requirements from their current level substantially outweigh these costs 4. The NIESR and FSR estimates look much lower than the IIF figure. But the IIF estimate is for the impact of a range of adjustments which include a more than 1% rise in bank capital. Nonetheless that estimate looks likely to be higher than the illustrative calculation in the FSR. But rather than seeing the FSR calculations as generating a very low estimate of the cost of higher capital requirements, I think they are more likely to be a conservative assessment that reflects the care taken not to underestimate the cost of higher bank capital. The costs of extra bank capital Many assessments from commentators and practitioners, though often not precisely quantified, suggest that the costs of significantly higher capital requirements for banks are very substantial.

I am rather sceptical about the claims that substantially higher capital requirements must mean significantly higher costs of funds for those who borrow to invest and that total investment and output in the economy will be significantly lower. There are two reasons for my scepticism. First, a simple historical point. In the UK and in the USA economic performance was not obviously far worse when banks held very much higher levels of capital. Investment – relative to GDP – was not lower. This is prime facie evidence that much higher levels of bank capital do not cripple development, and the financing of investment. Conversely, there is little evidence that investment or the average (or potential) growth rate of the UK economy picked up as spreads on bank lending narrowed over the past decade, and the volume of bank credit expanded sharply (Chart 5). Chart 5 UK GDP growth GDP Growth  10 Year Rolling Average  % 8 6 4 2 0 -2 -4 -6  1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005  Source: Bank of England, Monetary and Financial Statistics. Second, the most straightforward and logically consistent model of the overall impact of higher equity capital (and less debt) on the total cost of finance of a company implies that the effect is zero. The Modigliani Miller (MM) theorem implies that as more equity capital is  4  See Box 7 in chapter 5 of Bank of England, Financial Stability Report, June 2010.
The FPC links the severity of the stress scenario used in its tests to its assessment of vulnerabilities in the financial system and in household and corporate balance sheets. When vulnerabilities are judged to be elevated, the scenarios used in the test will be more severe and vice versa. 29 Having a positive 2% resting rate for the CCyB when risks are standard means that the FPC is better able to increase the CCyB gradually when vulnerabilities build. Gradual increases in capital requirements are less costly than large, discrete changes, as banks are then able to generate the required capital via retained earnings. 26  All speeches are available online at www.bankofengland.co.uk/news/speeches  26  forecast distribution of GDP) could have been around a quarter less were capital levels just 1pp higher. And that the cost to the central GDP forecast of raising this capital might have been around 0.1 - 0.2pp.

To adjust the average daily value data to equate to the same reporting convention used by the Bank for International Settlements, the gross values should be divided by two. 3  BIS Triennial Central Bank Survey, FX turnover in April 2013. 2  BIS central bankers’ speeches  20. So, what’s next? I expect markets to keep changing, and they will only change faster in the coming years. 21. As technology advances, and Asia providing the engine for global growth in the medium term, I see plenty of opportunities for CLS to put its strategic focus in the region. The HKMA welcomes the CLS’ efforts to put more new currencies and members into its orbit. 22. I look forward to seeing this happen sooner rather than later, and welcome opportunities for cooperation and knowledge sharing between us. This is all because of what I said earlier – that we shared a common vision, and a more widely participated system should mean even less settlement risks for market players. 23. I look forward to celebrating our silver anniversary in 2029. Thank you. BIS central bankers’ speeches  3
Within the framework that I have drawn up so far, we forecast inflation, with 70 percent probability, to be between 4.1 percent and 6.9 percent (midpoint 5.5) at the end of 2008, and between 1.8 percent and 5.5 percent (midpoint 3.7) at the end of 2009 (Figure 15). The forecasts are based on the scenario in which policy rates display a limited decline in 2008. Main message of the forecast is that continuation of the gradual easing cycle that started in 2007 September will remain conditional on favorable data and developments. In that sense, the current policy stance envisages a more moderate decline in policy interest rates than indicated in the previous Inflation Report. I would like to emphasize once more that any new data or information on the inflation outlook may lead to a revision in the future policy stance of the Central Bank. Therefore, the policy path that was indicated above should not be perceived as a commitment on behalf of the CBRT. BIS Review 20/2008  11  4. Risks and monetary policy  Distinguished Guests, I would like to dedicate the last part of my speech to the upside and downside risks to the inflation and monetary policy outlook in the upcoming period. The main upside risk factor for the current medium term inflation outlook pertains to the potential second round effects of the accumulated supply shocks, which may also create a higher than expected inflation inertia, as currently manifested in the medium term inflation expectations.

Esteemed Press Members, Overall, we expect aggregate demand conditions to support the downward trend in the underlying inflation, i.e., inflation excluding items beyond the control of monetary policy such as energy, food and tobacco prices. Hence, barring new supply shocks, headline inflation should continue to move towards the target. The speed of the convergence to the target, however, will depend mainly on the course of food and energy prices. Distinguished Guests,  10  BIS Review 20/2008  Our forecast in the 2007 October Inflation Report incorporated two main assumptions: The assumption for oil price was set as 70 USD per barrel. Observing the high base created by the unusually elevated food prices in 2006, we assumed food inflation to correct towards the values consistent with medium term inflation in 2007. However, food and energy inflation turned out to be more persistent than we had envisaged, as the prices of oil and agricultural commodities continued to rise throughout 2007. These developments not only led to an undershooting of our inflation projections for end-year 2007, but also necessitated an upward revision in our medium term forecasts. In this framework, we revised our assumption for oil prices from USD 70 to USD 85 per barrel in 2008. Higher oil price assumption added about 0.5 percentage points to the end2008 inflation forecasts.