samchain/econo-pairs-v1 huggingface dataset:
That is what happened in 2007–08. As the IMF have pointed out differences in capital ratios failed to predict which financial institutions would be vulnerable in the crisis (IMF, 2009). Only very much higher levels of capital – levels that would be seen by the industry as wildly excessive most of the time – would prevent such a crisis. Second, the Basel approach calculates the amount of capital required by using a measure of “risk-weighted” assets. Those risk weights are computed from past experience. Yet the circumstances in which capital needs to be available to absorb potential losses are precisely those when earlier judgements about the risk of different assets and their correlation are shown to be wrong. One might well say that a financial crisis occurs when the Basel risk weights turn out to be poor estimates of underlying risk. And that is not because investors, banks or regulators are incompetent. It is because the relevant risks are often impossible to assess in terms of fixed probabilities. Events can take place that we could not have envisaged, let alone to which we could attach probabilities. If only banks were playing in a casino then we probably could calculate appropriate risk weights. Unfortunately, the world is more complicated. So the regulatory framework needs to contain elements that are robust  6  BIS Review 140/2010  with respect to changes in the appropriate risk weights, and that is why the Bank of England advocated a simple leverage ratio as a key backstop to capital requirements.

To achieve greater and more sustainable SME financing, it is necessary to develop market-based approaches which are commercially viable to mobilise private sector investment into the SME sector. I encourage the ADB to further work on this front, including exploring possible mechanisms such as credit enhancement and securitisation. Scaling up private sector lending would require a change in the skill mix of the ADB, in particular in strengthening its market expertise and risk management. Partnering with domestic agencies and private sector financial institutions, other international financial institutions and developed members in the region that have relevant experience would be useful in utilising their expertise, building the capacity of the Bank, and sharing credit risk. There are, of course, other important areas concerning the development of the region where the ADB could play a meaningful role as identified in the new Long-Term Strategic  BIS Review 55/2008  1  Framework. As a member of the Bank and the region, we stand ready to provide support and look forward to strengthening our cooperation with the ADB in furthering the development agenda of the region. And lastly, to successfully implement Strategy 2020, further enhancing the organisational effectiveness of the ADB will be of critical importance. We welcome the Bank’s commitment to develop a more robust results framework and to continue its institutional reforms, and we look forward to ongoing efforts by the Bank in this regard. Thank you. 2  BIS Review 55/2008
I hope that the Financial Stability Board Working Group on the Crisis Management Principles will not hesitate to report back to the FSB, and through it to alert G20 Ministers, if implementation is or looks to be stalling – whether because it is meeting with resistance from the authorities or the industry, or blockages in national laws and practices. 8  BIS Review 83/2009  Concluding comment This crisis has reminded a generation of some old truths. Banks can fail. But they matter enormously to our economies, and so the authorities cannot afford to stand back and allow disorderly systemic failure. Going forward, we cannot have a regime where the upside for risk-taking goes to shareholders and management, but the downside falls to the general taxpayer. All three elements of the Social Contract for banking need to be reformed. Better regulation and supervision, including a macroprudential element. Better arrangements for liquidity insurance, which the Bank has tried to introduce alongside our international peers. And, my main topic today, a new regime for resolving bank distress. In particular, banks must structure and run themselves to permit orderly wind down. And they must invest to provide the authorities with the information they need to do so. This will not be easy. And it will not be cheap. Together with higher capital and liquidity requirements – lower leverage and reduced maturity transformations – over time it may well mean a lower headline return on equity for some banks.

The letter says: “The rise in the cost of living in the past three years has been larger than has been seen in many other countries that compete with us in foreign markets. When the cost of living rises, so wages should also rise and consequently so too production costs, with the result that our competitiveness declines. Do we not have to fear this?” Unfortunately we do not know what advice Nurkse gave to Jaakson, and within only a couple of years the question was no longer of any great relevance for Eesti Pank. During the second world war, Ragnar Nurkse focused in his work on inflation and exchange rates. The research that he published on these topics has led many writers to call Nurkse one of the main architects of the Bretton Woods system. After the war Nurkse taught for thirteen years in the prestigious Columbia University in New York. There he mainly focused on development economics, earning a great reputation as an international advisor on the subject. He died unexpectedly and still relatively young at only 51. The view of Ragnar Nurkse of the time notes his thorough knowledge of economic theory and practice, his original ideas, and his clear vision. He was the sort of man who is clearly needed in the world today. When Estonia regained its independence it chose the path of reform, with a unique combination of conservatism, innovation and a recognition of its own limitations. Estonia chose once again the road to Europe.
To sum up so far: yes, there has been a strong regulatory reaction to the crisis, but as I see it, this is appropriate, given –  the pre-crisis regulatory framework,  –  the costs crises give rise to, and  –  the efforts that the Basel Committee has made to mitigate risks of unintended consequences,  The problem is that myopic observers tend to forget these aspects. Are we there yet? Remaining challenges? I would now like to change perspective slightly and ask, are we there yet? Have our efforts done the trick, or are there still challenges to be tackled ? Well, from a Basel Committee perspective I am pleased to be able to say that the Basel III framework is now agreed – in principle. This is a major achievement that all participating parties should be proud of. If I widen the scope, beyond the Basel III framework, and look at other parts of the reform agenda, it is obvious that the work on ending the “too big to fail” problem has been difficult, and that some work still remains to be done. However, the reason we have not yet reached our goal is not lack of effort, but simply that the resolution of very large, cross-border banks is not easy. The main remaining issue here concerns how to ensure that global systemically important banks have sufficient capacity to absorb losses in resolution, without having to ask tax-payers to foot the bill.

After an assessment has been thoroughly debated in the Committee, the final assessment becomes public.7 The assessments, and the publication of the results, have proved to be a powerful tool. To date, more than 200 adjustments have been made by member jurisdictions in response to findings raised by the assessment teams. In addition, the process has also generated a positive feedback loop, meaning that the lessons learnt from assessments are used to improve and clarify the standards. So far, the assessments have concentrated on the capital framework, but from 2015 onwards the scope of this work will widen further to include the implementation of the liquidity coverage ratio and the SIB-requirements. However, for the new, stricter requirements to bring the benefits we are aiming for, it is important that they be properly reflected, not only in national legislation, but also at the level of individual banks. To use an analogy of car safety, if we are now providing banks with air bags, in the form of higher capital requirements, it is important that those air bags are actually activated in case of an accident. For this to happen, the sensors need to be functioning and well-calibrated. For banks, this means that risk weights need to signal appropriately the risks that individual banks actually face. This aspect is captured in the Committee’s thematic assessments. To put it simply, in these assessments we examined whether the banks’ risk-weighted assets could be trusted.
Our latest economic modelling suggests that reaching net zero, if the transition is managed well, might have a small or negligible effect on economic aggregates such as GDP, unemployment and inflation [figure 7]. Indeed depending on what investment means for productivity, there is a chance the transition could prove positive overall. However, these costs depend crucially on whether the transition follows an orderly or disorderly path. Emission reductions may not follow a straight line as shown in many scenarios. It takes time for policy to work and policy adjustments will also be needed along the way. There may be higher investment uncertainty. Markets will not allocate capital perfectly, and without certainty about policy and technological outcomes, there may be bumps in the road as they absorb news about our path. In the NGFS we explicitly capture some of these transmission channels in our disorderly scenarios, for example by modelling delays in policy action and policy fragmentation across countries and sectors. They result in much higher impacts, particularly in countries with greater dependence on fossil fuel consumption or exports. This work underlines that central banks and supervisors, and the financial firms and system that we oversee, need to be prepared for a range of outcomes. But it also underlines that early action brings lower risks. 7  Preliminary analysis for the updated NGFS Climate Scenarios. Third, the impacts from physical risks will be significant.

This is associated with oil price trends and external demand. The financial account balance of the private sector will shrink to about 1% of GDP in 2020–2022. As usual, making our decisions, we also factored in risks. We are currently talking a lot about disinflationary factors, and they do prevail for the moment. However, there are also proinflationary risks over the forecast horizon. First, such risks are associated with external factors, which include the world economy and global financial markets. Second, it is hard to exactly assess the extent to which the inflation slowdown in the food market is caused by temporary factors, the timing and the likelihood of the turnaround in their dynamics and the intensity of balancing changes in food prices given the current low base. Third, as we have noted, the aggregate effect of five earlier key rate cuts will be gradual and its estimation will take time. As for the fiscal policy, the situation seems more balanced in terms of its effect on inflation in 2020, given that budget spending, including into the national projects, will be distributed over time. Let me remind you that the next policy meeting of the Board of Directors will also be a core one, same as today. This is associated with the changes in the schedule of the Board of Directors’ policy meetings. We are going to sum up the results of 2019 at our next meeting.
However, as from last  BIS Review79/2009  7  autumn a second wave of shocks was unleashed, resulting in a real global crisis which, naturally, is impacting Spanish banks. The Spanish economy’s entry into recession has consequences for banking and bad debts. In particular, such repercussions include those arising from the high sensitivity of employment – and, therefore, of households’ ability to pay – to the deterioration in activity, and those from the adjustment of the real estate sector, the relative weight of which in bank balance sheets had become significant. The deterioration in the economic situation reduces the demand for credit of bank customers, whose spending plans and income expectations are normally revised downwards during economic downturns. Likewise, banks become more cautious about granting loans as a result of the subsequent upward revision of the risk profile of borrowers. In combination, these two factors translate, as we have actually seen, into a substantial slowdown in bank credit. Based on the past cyclical behaviour of this variable, the growth rate of bank credit will tend to stand below that of GDP. This cyclical component of credit is currently being reinforced by the difficulties still besetting wholesale funding markets and by the need both in Spain and in the rest of the international financial system to redress the high levels of leverage attained in the past. The behaviour of banks’ bad debts also follows certain cyclical patterns.

As regards microprudential supervision, the Report proposes the creation of a European Financial Supervision System. Under this system, the current Level 3 Committees for banking, insurance and securities would be transformed into three European supervisory authorities with the power to take binding decisions in certain fields. As to macroprudential supervision, the creation of a European Systemic Risk Board was proposed. Its main purpose would be to detect general risks, apprising the competent European authorities thereof, where pertinent, so they might take the appropriate decisions. These are some of the initial steps of a process which will no doubt be long, but which will profoundly affect the systems of each and every European country. It is thus important that Spain should participate actively in the work of these international fora. In this respect, it is most satisfying that Spain has been welcomed as a member of the Financial Stability Board,  BIS Review79/2009  9  the successor of the Financial Stability Forum created in 1999, in which we had not hitherto participated. To be sure, the Banco de España’s experience in the design and implementation of a regulatory and supervisory system that has proven most effective during this crisis has been one of the factors that have helped Spain merit this position. And here I shall conclude, though not without first thanking the Governing Council, the Executive Commission, the Directors General and all our staff for their work this year.
If the countries of the world deliver on the commitments made in the Paris Agreement, carbon taxes may be much higher than they are today. This may make our oil production less profitable, but it will strengthen the work on climate change. A large portion of government revenues from oil production has been transferred to the Government Pension Fund Global – the oil fund – which is invested widely in equities, bonds and real estate. This has provided for good returns and risk diversification. Interest rates worldwide have fallen to low levels in recent years. The prospect of continued moderate global growth means that interest rates may remain low ahead. The estimated expected real return on the oil fund has therefore been revised down and is now quite a bit lower than 4 percent. In December, Norges Bank advised the Ministry of Finance to increase the equity allocation in the fund.2 Historically, equities have produced higher returns than bonds, but the returns have also been more volatile. A lower return on bonds is the price we pay for dampening volatility in the fund’s value. In recent years bonds have become a more effective, but also more expensive, hedge against volatility. Both conditions suggest a somewhat lower allocation to bonds. Changes in the Norway’s overall petroleum wealth also warrant a lower allocation to bonds. Apart from the oil fund, this wealth consists of oil and gas still in the ground.

Looking after our money Speech given by Sir Jon Cunliffe, Deputy Governor Financial Stability, Member of the Monetary Policy Committee, Member of the Financial Policy Committee and Member of the Prudential Regulation Committee  University of Warwick Monday 26 February 2018  1  All speeches are available online at www.bankofengland.co.uk/speeches  I want to talk tonight about money. It is not something we talk about very much. We spend a lot of time talking about what we could, or should, do with money – who has it, who hasn’t, how it is distributed and so on. But money, the thing itself, rather than what it buys or does, is not really something we think about much. That is not surprising. Like other basic things we depend on in society – electricity, water supply, nowadays the internet – it only has to be reliable and safe. You don’t have to understand how it works. And yet, I suspect, we generally understand even less of what money, the ‘thing’ itself, actually is than we understand of the other basic essential technologies we use. While we use it every day, unless it goes wrong, we don’t actually notice it much. This is not new. J S Mill described money itself, for most of the time, as an ‘insignificant’ thing, simply a ‘machine for sparing time and labour… for doing quickly and commodiously’, only ‘exerting an influence of its own when it gets out of order’.
This has been clearly illustrated by the financial crisis. There is concern that these measures, which also lead to an expansion in the central banks' balance sheets, entail an increased risk that inflation in future will be too high. The question is thus whether the economy will have a surplus of liquidity when the situation begins to normalise, and whether this could lead to increased inflationary pressures. The answer to that question is no. The measures taken by the central banks now can be regarded as a response to the tightening on the market. One can simplify and say that the central banks are trying to counteract or neutralise the markets' tightening so that the transmission channel can begin functioning more normally. These measures will only continue as long as the markets cannot function on their own. Once the financial crisis has waned, the Riksbank will not renew the special measures required during the crisis. Our loans are relatively short-term, with maturities of between 3 and 12 months. The loans will therefore mature gradually when the special lending facilities are phased out. When the economy then recovers, monetary policy will be adjusted according to the circumstances prevailing at the time. The policy rate can be raised in large steps if this were to prove necessary. In the most recent Monetary Policy Report you can see that we are expecting a relatively rapid increase in the repo rate towards the end of the forecast period. Concluding comments We have a historically low repo rate at the moment.

But as it normally takes a while before an upturn in economic activity has an impact on employment, it is very possible that the Riksbank will need to raise the repo rate in a situation where unemployment is still high. This is also something we are assuming in our most recent forecast. There is then a risk that unreasonable requirements will be made of monetary policy. It will then be important to bear in mind that the primary objective of monetary policy is to create good long-term conditions for all participants in the economy. It is important that we have an active discussion of the Riksbank’s policy. But for the discussion to be fruitful it must be based on realistic expectations of what monetary policy can and cannot achieve. Sweden is a small, export-dependent economy and when economic activity abroad suddenly falls, monetary policy cannot prevent negative effects from this on our economy. But we can alleviate these effects. As the financial markets are integrated, we cannot prevent an international financial crisis having effects here, too. Then we must use other tools, parallel to our interest rate policy, to make the financial system function in the best possible way given the circumstances. This is what we have done throughout the autumn and we will continue to do this as long as is necessary. BIS Review 38/2009  7
This analysis draws out an interesting interaction between the quality of climate disclosures, the structure of the asset management industry and the scope for rapid growth in the role of capital markets in climate investment. Poor disclosures force investors either to form crude portfolios – which cannot send particular finely graduated price signals – or to seek active management – which, being costly, is not available to all. Neither is ideal. It is only when disclosures have reached true maturity that the full panoply of modern asset allocation techniques can be brought to bear. That underscores just how vital it is to make progress on disclosures. There are as yet few comprehensive studies of the relative performance of current strategies. Indeed, there is a genuine question about how such performance should be measured, given that one motivation for investing in climate-based funds is the desire to generate a measurable beneficial environmental impact alongside a financial return – so-called ‘impact investing’. There has been a long and lively debate about whether achieving this requires a willingness to sacrifice financial gain. Some funds explicitly recognise this possibility in their construction, for example granting explicit concessionary rates to climate-positive projects. But others dispute the existence of such a tradeoff, noting the range of non-financial tools such as investor engagement that can act as ways to achieve impact.

The acquiescence of the UK labour force in accepting lower real wages is quite remarkable for those of us who grew up during the wage-price spirals of the 1970s and 80s. It explains in part why unemployment has stayed much lower than we would have expected, given the weakness of output growth. Much of the labour force has priced itself into work. The public sector has also been addressing its finances. There was clearly a greater structural deficit in the fiscal position than anyone thought pre-crisis and the Government are trying to reduce public expenditure and raise income to get back onto a sustainable footing. I should note that no consolidation at all would have been unsustainable and was never an option. Nevertheless, as the May Inflation Report noted, it is likely that the consolidation has weighed on output over the past three years and will continue to do so. The financial sector also has its balance sheet problems. The major banks in particular have been re-structuring, reducing wholesale market borrowing, improving their liquidity positions and building up capital. I believe every large UK lender has at least one non-core portfolio they are running down, and commercial property lending is typically a common factor. Finally, the corporate sector. In aggregate, UK businesses continue to save rather than invest, running up a significant and on-going corporate surplus. But like the household sector, there are different sub-groups. Some, especially large companies, are cash rich and profitable but not investing as much as they perhaps could.