samchain/econo-pairs-v1 huggingface dataset:
The Committee on Payment and Settlement Systems and the Technical Committee of the International Organization of Securities Commissions are doing a review of standards for payment, clearing and settlement systems. This work will inform the efforts of the Financial Stability Board to strengthen such standards. There is also work underway on the problem of how to ensure that financial institutions have compensation structures that curb rather than encourage excessive risk-taking. Finally, it is critical that we ensure that no firm is too big to fail. This is about both fairness and having proper incentives in the financial system. Having some firms that are too big to fail creates moral hazard. These firms are able to obtain funding on more attractive terms because debt holders expect that the government will intervene rather than allow failure. In addition, too big to fail creates perverse incentives. In a too-big-to-fail regime, firms have an incentive to get large, not because it facilitates greater efficiency, but instead because the implicit government backstop enables the too-big-to-fail firm to achieve lower funding costs. BIS Review 14/2010  3  To solve the too-big-to fail problem, we need to do two things. First, we need to develop a truly robust resolution mechanism that allows for the orderly wind-down of a failing institution and that limits the contagion to the broader financial system. This will require not only domestic legislation, but also intensive work internationally to address a range of legal issues involved in winding down a major global firm.

When a full accounting of the special liquidity facilities is complete, it seems likely that the facilities will have generated substantial incremental earnings that the Federal Reserve will remit to the Treasury. Although these incremental earnings were not the objective of these facilities, they are a pleasant outcome relative to the alternative. As the crisis has abated, our attention has shifted to what we need to do to prevent another crisis in the future. We need to take the necessary steps to build a strong and resilient financial system. In my opinion, three broad sets of actions are needed: •  Effective macroprudential supervision. By this, I mean conducting supervision not just vertically institution by institution, but also horizontally across institutions and markets. We need to better understand how the system operates as a whole and how problems in one area can affect financial stability elsewhere. This means both how the overall system affects individual firms and how the activities of a single firm or market affects the entire financial system. •  Make financial institutions and market infrastructures more robust to withstand shocks and become less prone to failure. •  Change the system so that no financial firm is “too big to fail.”  Macroprudential supervision is essential for two reasons. First, it addresses the problem of gaps in the regulatory regime and the regulatory arbitrage that such gaps can encourage. Second, macroprudential supervision is needed because the financial system is interconnected. Siloed regulatory oversight is not sufficient.
Philipp Hildebrand: Reflections on the gold market Speech by Mr Philipp Hildebrand, Member of the Governing Board of the Swiss National Bank, at the LBMA Conference, Montreux, 26 June 2006. *  *  *  Introduction Thank you for giving me the opportunity to speak to you this morning. The last time a member of the Governing Board of the Swiss National Bank (SNB) had the opportunity to address this audience was in June 1999, when our present Governor Jean-Pierre Roth had the difficult task to explain why the SNB intended to sell 1300 tonnes of its gold reserves. Back then, the gold market environment was quite different: the price of gold had steadily declined to USD 250/oz and there were widespread concerns in the market place that central banks were intending to liquidate a substantial part of their gold reserves. In seven years, the market has, in many ways, come full circle: the price of gold climbed to above USD 700/oz before receding below USD 600/oz, levels that were last seen in 1981. Central bank activity in the gold market is not considered as a threat anymore. The agreements of 1999 and 2004 between 15 European central banks - the so-called Washington agreements - have removed much of the uncertainty regarding central bank sales. Indeed, market rumours today are arguably more concerned about central banks buying gold than they are about central banks selling gold. As many of you know, the SNB completed its gold sales program fifteen months ago 1 .

Furthermore, the recovery in exports may be slower than expected if international tourism – and foreign demand generally – take longer than expected to recover, or if sectors worst hit by the pandemic fail to restructure to remain competitive. Turning to the banking sector, the local banks entered the COVID-19 crisis from a solid financial position since they were operating with ample liquidity and high capital ratios, good profitability and declining NPLs. However, the banking sector, just like virtually all other businesses, was certainly not immune to the effects of the spread of COVID-19. It presented banks with unprecedented challenges, both from an operational perspective and financially. Firstly, banks have focused on keeping their employees and customers physically safe and followed the guidelines and recommendations issued by the authorities. The banks ensured that all their business functions continued to operate as seamlessly as possible with the least possible impact on customer services. In particular, their digital banking platforms allowed their customers to continue to undertake banking transactions from the safety of their own homes. Overall, domestic banks responded positively to this challenge and they are proving to be instrumental in supporting both businesses and households, and in providing credit to facilitate the economic recovery. Banks were pro-active and had voluntarily already began providing moratoria before the coming into effect of Directive No. 18. This was necessary to support both businesses and households that had experienced a sudden stop or reduction in income flows as a result of the pandemic.
More specifically, it is a question of finding the interest rate that will minimise the squared forecast deviations during the forecast period between actual inflation and the inflation target and between actual and normal resource utilisation, where the latter deviation is weighted by λ – a bit of a tongue-twister to put into words. But it can be illustrated relatively conveniently with the aid of a figure. The figure measures the variation in inflation along the horizontal axel and the variation in the real economy along the vertical axel. The variations are measured using the mean squared gap, that is, the average squared deviation across the forecast horizon. Such mean squared gaps can be calculated for various possible interest rate paths and one can then compare different interest rate paths by marking the mean squared gap in the figure. The closer to origo, or the further south-west in the figure, the smaller the two mean squared gaps are, and the better success the accompanying interest rate path has in stabilising inflation and the real economy.2 We say that inflation targeting, or the interest rate path, is effective if it is not possible to reduce one of the mean squared gaps without the other gap increasing in size at the same time. Theoretically, we could imagine there is a very large number of effective points. These points form a “front” as illustrated in the figure.

The loss function can be written as  , is the forecast where π is the forecast for inflation, π* is the inflation target and deviation between actual resource utilisation in the economy and the long-run sustainable, or  BIS central bankers’ speeches  1  “normal” level of resource utilisation.1 The first term represents the central bank’s target of stabilising inflation and the second its ambition to stabilise the real economy. The parameter λ represents the importance the central bank gives to stabilising the economy in relation to stabilising inflation. If λ were zero, this would mean that the central bank does not care at all about developments in the real economy, but merely tries to bring inflation as close to the target as possible. If λ is large, this means that the central bank places great emphasis on stabilising the real economy in relation to stabilising inflation. The term loss function comes from the fact that the larger the deviation, or “gap”, the further away we are from where we want to be, and thereby the greater the “loss”. In this theoretical description the central bank’s task is described in slightly more detail than the general wording of “finding a suitable balance between stabilising inflation and stabilising the real economy”.
The progressive easing of underwriting standards that was needed to support housing demand could only persist as long as housing prices were rising rapidly. But for home prices to rise rapidly, underwriting standards had to be progressively relaxed in order to generate more buyers. When home prices began to slip beginning in 2006, the dynamic swung into reverse. The collateral values supporting borrowing and spending began to fall. As banks’ and other financial intermediaries’ credit losses began to mount, credit availability became impaired and this exacerbated the downward pressure on home prices and on borrowing and spending. Not only did households that had overextended themselves have to cut back; others also retrenched because they were also affected by declines in wealth and heightened uncertainty about the economic outlook and their job prospects. It is not surprising that the workout from the excesses of this type of boom would take a long time. Just as it took several years for the boom to begin and run its course, so it would take years, not months, for households and financial intermediaries to adjust their balance sheets and behavior to the new environment. Households had to raise their saving rates in order to rebuild their balance sheets. Financial intermediaries had to replenish their capital to replace losses via loan charge-offs and other credit impairments. Both adjustments would need to occur before the economy could grow rapidly.

A rational domestic demand and import policies will be required (with a 5.3% rise in imports, given the oil price growth), in order to keep the current account deficit at about 6.5% of GDP (EUR 3 billion), the same as in the current year. Of course, this implies a continuation of heavy dependence on foreign sources of financing in 2010. (2)  Given stagnation in direct and portfolio investments (EUR 2.1 billion in 2009 vs. EUR 2.3 billion in 2010), this would mean that: −  the current account deficit will have to be financed by foreign borrowing;  −  the external debt-to-GDP ratio will increase from 83% last year and about 93% in 2009, to about 100%, which is feasible, but will certainly not improve the country’s credit rating, and the question is to what extent the global downward trend in interest rates can carry over to this country. This is all too important, as we know that in 2010:  (3)  −  total debt repayments (EUR 8.3 billion in principal and EUR 1.4 billion in interest) will amount to EUR 9.6 billion (EUR 10.8 billion in 2009); and  −  total utilisation of foreign sources of financing will stand at EUR 12.6 billion (13.5 billion in 2009). The anticipated fiscal deficit reduction, in terms of consolidated general government (including HAC), from HRK 15 billion to HRK 12.1 billion, i.e.
8  BIS Review 95/2010  To some extent, these strategies and their implications were captured to a degree in performance measures. For example, the rise in reported average ROEs of banks over the past few decades occurred alongside a rise in its variability. At the same time as average ROEs in banking were trebling, so too was their standard deviation (Chart 17). In that sense, the banking “productivity miracle” may have been, at least in part, a mirage – a simple, if dramatic, case of risk illusion by banks, investors and regulators. (a)  Increased leverage  Banks’ balance sheets have grown dramatically in relation to underlying economic activity over the past century. Charts 19 and 20 plot this ratio for the UK and the US over the past 130 years. For the US, there has been a secular rise in banks’ assets from around 20% to over 100% of GDP. For the UK, a century of flat-lining at around 50% of GDP was broken in the early 1970s, since when banks’ assets in relation to national income have risen tenfold to over 500% of GDP. This century has seen an intensification of this growth. According to data compiled by the Banker, the balance sheets of the world’s largest 1000 banks increased by around 150% between 2001 and 2009 (Chart 21). In cross-section terms, the scale of assets in the banking system now dwarfs that in other sectors.

And that expectation is factored into their own behaviour, whether it is negotiating wages, setting prices, or deciding how much to borrow and consume. All of that goes a long way towards ensuring that inflation is well anchored to the target. Of course, from month to month, inflation will still vary somewhat around 2½%. In recent months, RPIX has been a little below target, and there has even been some interest in whether it might reach 1.5%, the point at which the Governor would have to write a formal letter to the Chancellor explaining what was going on. The pick up of inflation to 2.6% in January has silenced this discussion, at least for the time being. We pore over the reasons for such developments in enormous detail at the Bank. But in the bigger scheme of things these month-to-month movements are quite small, and are I hope likely to play very little - if any - role in the key decisions of your businesses, or those you represent. People often ask if our relative success at targeting inflation has come at a cost in terms of lost output or employment. It is increasingly accepted, I think, that there is no such trade-off in the long run. And, looking at recent data, it is hard to see a trade-off even in the short run. Unemployment remains close to its lowest level for a quarter of a century - a trend seen in Northern Ireland just as much as in the UK as a whole.
The last year has been characterised by large moves in exchange rates and falls in risky asset prices but the repricing of government bonds and of expectations for monetary policy have been particularly striking. Significant UK specific factors emerged in September and October, which have been covered in detail elsewhere12. The UK policy premia which opened up have now disappeared. The cumulative increase in yields on UK 10 gilts over the last year is now very closely in line with the change in US and German 10 year bonds (Chart 7). Having peaked at 4.6% in late September yields on 10 year gilts were back down at 3.2% at close yesterday, their level at the start of September. Source: Bloomberg L.P., and Bank calculations Notes: The path for Bank Rate implied by forward market interest rates are based on overnight index swap rates. Latest yield curve refers to forward market interest rates at cob 21 November 2021. UK fiscal policy developments in response to the energy price shock have been a key contributor to the outlook for inflation. In early September the Government announced an Energy Price Guarantee (EPG) for households (and a business equivalent) to cap average energy bills at £ up until April 2023. In the Autumn Statement on 17 November, the Government announced an increase in the cap to £ for the year to April 2024.

15  Chart 6: MPC has managed the trade-off  16  3.0 November 2016  Inflation (%)  February 2017 2.5  August 2016 May 2017 August 2017 -1.5  -1.0 August 2016, no stimulus  November 2017 February 2018  -0.5  Excess demand (%)  May 2018  2.0 0.0  0.5  1.0  1.5  Preferred trade-off if λ=0.1  1.5  Preferred trade-off if λ=1 1.0  Since then, the Committee has managed policy to diminish steadily the trade-off, increasing employment, using up the expected degree of spare capacity in the economy, and reducing the expected overshoot of the inflation target. Throughout this period, inflation expectations have remained well anchored,  17  the volatility of interest rates  very low, and financial conditions highly supportive. Over the course of 2017, the steady absorption of slack and the prospect of moving into excess demand by Year 3 – evident in the dots showing the successive Inflation Report projections in Chart 6 – reduced the degree to which it was appropriate to accommodate an extended period of inflation above the target. As a consequence, the MPC began to remove some of the stimulus policy had been providing raising Bank Rate to ½ percent last November (the pink dot in Chart 7). 15  Calculations at the time suggested that returning inflation to target at a conventional horizon could have cost ¼ million jobs and widened the output gap to 1½%.
After all, on the other side of the ledger, the policy response following the crisis has been much more aggressive than is typical. On the monetary policy side, the Federal Reserve cut short-term interest rates close to zero, communicated that short-term rates were likely to stay exceptionally low far into the future, and undertook a series of large-scale asset purchases in order to ease financial conditions further. On the fiscal side, in 2009 the Congress and Administration enacted the largest fiscal stimulus program in history and some of these fiscal actions were renewed (e.g., extended unemployment compensation benefits) and new initiatives undertaken (e.g., the payroll tax holiday) once it became clear that the recovery was faltering. Also, there were significant  1  These lessons are evident in surveys of past financial crises and are examined in detail by Carmen Reinhart and Ken Rogoff in their superlative book, This Time is Different: Eight Centuries of Financial Folly. 2  BIS central bankers’ speeches  policy actions taken to strengthen the banking system, including forcing banks to recapitalize so that they would have the capacity to sustain their lending. So why has the recovery disappointed? One possibility is that the negative dynamics of a post-bubble environment are even more potent than had been appreciated. Feedback loops may be more powerful and frictions may be larger. In the U.S. case, this is particularly germane with respect to housing and mortgage finance.

On the other hand, the realization of such projects enables strengthening of the cooperation between the central banks of the region and the central banks of the EU, which is inevitable in the process of integrating the entire region in the EU. Let me finally thank the ECB and the EU for enabling the NBRM to participate in this project. I wish success for all the institutions involved in the project in anticipation of even greater cooperation and I thank our hosts for organizing this event. BIS central bankers’ speeches  1
The drafting of the Report took into account several constraints, two of which I would like to mention. 3/14  On one hand, the obligation to maintain the confidentiality of individual banks’ data. The Report contains ample information on credit institutions, including intervention processes and the public aid granted, but it cannot go into details linked to the supervision of individual institutions whose confidentiality is legally protected, or assess those matters that are currently the subject of proceedings initiated in the courts. As to the period studied, although 2008 is the year the crisis started, the analysis is from 2000, on the understanding that it is impossible to explain the crisis without reviewing its sources and causes, which go back to the previous decade. Moreover, the year 2014 has been chosen as the date to close off the period considered, bearing in mind that it was the end of this year that saw the start-up of the Single Supervisory Mechanism, and that the measures envisaged in the Memorandum of Understanding entered into with the European Commission in July 2012 may be deemed to be concluded. In short, the seven years from 2008 to 2014 match quite closely the period which saw the emergence and development of the crisis, its treatment and the start of the recovery. The Report explains the measures applied, which should be considered in their macroeconomic and financial setting, one which progressively changed over the period in question.

Bandid Nijathaworn: Challenges for central banks in the new globalisation Remarks by Mr Bandid Nijathaworn, Deputy Governor of the Bank of Thailand, at the Bank of Thailand International Symposium 2010 “Challenges to Central Banks in the Era of the New Globalisation”, Bangkok, 15 October 2010. *  *  *  I think it is clear from the discussion we had that the post-crisis global economy will not be the same as the one we remember three or four years ago. The global financial crisis was serious, causing much dislocation to the global economy, the banking sector and financial markets, and the process of regaining full normality will take time. Therefore, at least for the next few years, the post-crisis global environment will be characterized by a world of two halves: the advanced economies and emerging markets, each exhibiting different growth prospects, different economic challenges, and different policy stance. And it is this divergence in policies and performance that will drive uncertainty and volatility in global financial markets, accompanied by shifts in risk appetite, global asset allocation, and relative prices. This, in essence, is the context in which new challenges for central banks are being shaped. What implications will this post-crisis environment have on central banks’ roles and responsibilities in maintaining economic stability? To me, three implications are clear. The first is the need for central banks to expand their mandates to formally recognize both price and financial stability as their core policy objectives.