samchain/econo-pairs-v1 huggingface dataset:
Minouche brings immense international, managerial and economic experience from a career that has spanned academia, the public service and the IMF. She will help lead the Bank’s efforts to reshape core markets and the Bank’s relationship to them. Second, through its intellectual leadership and international relationships, the Bank can help complete the G20’s ambitious programme of financial reform including building resilient financial institutions, ending too big to fail, making derivative markets safer and transforming shadow banking to market based finance. Sir Jon Cunliffe, one of the original architects of the Financial Stability Board, is leading this effort. The job is too big for one person and requires a well-resourced and focused international strategy that draws on all areas of the Bank. That is why we are pooling our prudential policy teams in a single directorate and bringing together our international teams to increase insight and impact. By acting as One Bank we can increase our international impact and ensure that the UK’s financial sector can be both a global good and a national asset. Building on the success of the past 25 years On the face of it the recent enlargement in the Bank’s responsibilities represents a return to the broader role of the Bank of the past. If there are some similarities in roles, how we will discharge them will be fundamentally different.

After the event we will have a better idea of which way we got things wrong. It is a near certainty that four or five years from now the monetary policy that is set over the next year will, with the benefit of hindsight, look very likely to have been too loose or too tight. Many then will talk about the big mistake the MPC made in late 2010 and the first part of 2011. If we tighten too quickly it will be a story of “myopic MPC learnt nothing from events of 2008”; if growth and inflation look stronger than I now think is the most likely outcome it will be “MPC completely failed to see what was obvious to nearly everyone – that inflation was out of control”. But the only sensible thing to do is to look at all the evidence we have today, and balance the risks. References Admati, A, DeMarzo, P., Hellwig M, and Pfleiderer P. (2010) “Fallacies, Irrelevant Facts, and Myths in Capital Regulation: Why Bank Equity is Not Expensive”. Stanford University Working Paper No. 86. Akerlof, George A. (1970), “The Market for ‘Lemons’: Quality Uncertainty and the Market Mechanism”. Quarterly Journal of Economics, 84(3), pp. 488–500, 1970. Bank of England (2010), Financial Stability Review, June 2010, page 58–60. Bank for International Settlement (2010), “An Assessment of the Long-term Economic Impact of Stronger Capital and Liquidity Requirements”.
If a QT sale is pre-announced ahead of implementation, the initial fall in bond prices will result in a pre-implementation increase in the share of money in the overall portfolio: money is capital certain, whereas the value of bonds will be lower on announcement because of the expectation that bond prices will fall on implementation. To justify that relative increase in money holding ahead of the implementation of QT, the expected return on bonds must be lower in the post-announcement / pre-implementation period, requiring an expected capital loss in the period up to implementation. So the post-announcement fall in the bond price must be smaller than the implementation fall in the bond price, to create the expectation that bond prices will fall – there is some ‘undershooting’ in announcement effect relative to the implementation effect. Applying this logic over a longer time scale implies that an earlier announcement will lead to a smaller initial impact on asset prices followed by a larger number of periods where the asset price falls ahead of implementation. Furthermore, the greater the substitutability between money and bonds in the NBFI’s portfolio, the less the expected capital loss on bonds required to sustain the higher relative holdings of money in the post-announcement / pre-implementation phase. By implication, a greater part of required  Page 13  overall downward adjustment in bond prices can happen up-front on announcement.

We are working with a ‘toy model’ to make a few illustrative high level points around which to frame the QT discussion. I leave the details of the model to the Annex and discuss the intuition here. The starting point is a money demand equation for an NBFI. This relates the NBFI’s money holdings to the overall size of its portfolio and the relative return on money and risky assets. The implementation of QT implies that the NBFI will hold less money and more risky assets (the mirror image of the thought experiment that I discussed to describe the portfolio balance channel of QE transmission in the previous section). In order to persuade the NBFI to accept this shift, the return on the risky asset must rise relative to that on money. If a QT sale is announced and implemented simultaneously, the price of bonds must fall immediately in order to generate expectations of a holding period return in the future that will justify holding onto a greater share of risky assets in the portfolio following QT. The subtlety in the model is to observe that the holding period return on this risky asset will reflect (at least in part) an expected capital gain as the price of the asset changes. This matters particularly for the asset price impact of pre-announced sales.
If an AI is able to demonstrate to us that it has a better way of allocating capital against these risks than our own SRP model, then we will be open to discuss with it a corresponding adjustment to its capital ratio. Thus one aim of this approach is to give banks an incentive to come up with a better mousetrap. There will be capital benefits from having a good internal capital allocation process. 3/5  Implementation challenges I'd like to say a few words next about the implementation challenges associated with Basel II. Although preparations for the implementation of the new capital framework are well advanced in a large number of jurisdictions, including in Hong Kong, the process has not been without its critics. It has recently been claimed that too much regulation is now itself the greatest source of risk in the global financial system, and the implication that is supposed to be drawn is that regulators are somehow engaged in a self-defeating exercise. At the root of this criticism is the compliance burden that arises from Basel II implementation taken in combination with other recent developments, such as the adoption of International Accounting Standards. The first point I should make is that the timing of these various initiatives is not completely under our control: the accounting profession, for example, has tended to plough its own furrow independently of any of the banking regulators. This has been the case in many leading international financial centres, not just in Hong Kong.

Thus Hong Kong will adopt Basel II at the same time as other major international financial centres, such as London, Frankfurt and Tokyo. From a regional perspective, the implementation timetable in Hong Kong is broadly similar to that being adopted by Australia and Singapore. For several years now the HKMA has been developing its supervisory approach along Basel II lines, and this is leading to some significant changes in how supervision is conducted. Central to this is the issue of "process versus rules". Process versus rules The original Basel Capital Accord was developed when risk management was still very much in its infancy. It reflects what might be called a "rules-based" approach to regulation in the sense that it sets prescriptive standards that banks are required to follow. It relies largely on the application of simple, mechanical formulas for assessing how much capital a bank should hold. The essence of the old Capital Accord was that it represented an attempt to monitor the prudential soundness of banks by using a standardised risk measurement framework, which was applied to all institutions and which employed data based on a snap-shot of their balance sheets at certain specified reporting dates. The approach was standardised since regulators specify the precise form in which the calculation of capital adequacy is to be performed - for example, the specific risk categories into which assets are to be assigned.
Tenth, and final point, the success of the bank depends not only on strategy and policy direction set by the Board, but also on the capability of senior management to take on those policies and implement them. Thus, the Board must give high priority to recruiting and retaining quality senior management, including work capability, experience and vision to carry out the task. But most importantly, he or she must be of high moral integrity. The greatest weight is given to the personal attribute of high integrity because senior bank management are continually surrounded by wealth and the temptation for huge financial gains through improper conduct. Ethic is the personal inner compass that prevents the individual from taking the wrong turn and fall into the trap of exploiting conflict of interest. It would also help the individual to stand up against such conduct by others in the bank, even those of higher ranks. Such personal ethic will also help the individual to stand up to pressures from those in position of power in the country as well as those who represent such powers who have infiltrated the operation of the bank. Such moral leadership will provide an example to bank employees to uphold the high working principle thereby helping to safeguard long-term growth of the bank. Ladies and gentlemen, I have no intention of “preaching to the Pope”. I wanted merely to share an understanding on the role and responsibility of bank directors, and convey to you the Bank of Thailand’s expectation from your directorship role.

To develop a robust rebalancing strategy, we must understand why there are other, also highly competitive investors, who take the other side of these trades. We also need to understand our own edge, the comparative advantage – or disadvantage – of the size, time horizon, and governance structure of the fund. These issues are all intimately linked to questions on the research frontier of financial economics. So far, the rebalancing strategy has served the fund well. From 1998 to 2011, around 0.5 percentage point – a considerable portion – of the total annual return can be attributed to rebalancing. We believe rebalancing will also be important going forward, but we need to further deepen our understanding of time-varying expected returns and risks. The other main topic of today’s conference – well-functioning markets – is also of particular interest to us. Without well-functioning markets, the massive reallocation of wealth from oil in the ground to a claim on a small share of future global output would not have been feasible. Well-functioning financial markets are also, through the allocation of real resources, important for sustained growth at a global level. The financial crisis displayed great challenges related to how the markets function. We saw mispricing of risk, and the difficulties of managing financial imbalances. Other problems were related to liquidity. Trading of fixed income instruments take place at the desks of the large investment banks. The problems of these banks in September 2008 implied a literally closing of the main fixed income markets.
There has been a SARON swap market since 2017, and SARON is establishing itself as the reference rate for loan products. Over the course of the current year, several banks have begun offering mortgages and corporate loans that are based on SARON rather than Libor. The more frequently such loan products appear, the more liquid the SARON swap market should become. We expect the SARON swap curve to gradually take over the role of the Libor swap curve. However, we have a fair way to go here, as liquidity on the SARON swap market is still thin and banks still use the Libor swap curve to price most loans. The National Working Group on Swiss Franc Reference Rates (‘NWG’ for short) is charged with facilitating the transition from Libor to SARON. The SNB has been supporting the NWG’s work in a coordinating capacity for several years. The NWG judges that the transition to SARON has advanced well so far. At the end of September, the NWG noted that it expects Swiss franc Libor fixing to be discontinued at the end of 2021 – a mere 14 months from now. To be sure, much remains to be done for these efforts to translate into deep and liquid SARON-based markets. The remaining changeover work must be undertaken expeditiously, as time is running short. We will now move on to the core topic of this speech – how we steer money market rates in negative territory.

5  SECO, 2006, "Kunjunkturtendenzen Winter 2006/07", page 48. 6  See Ben Bernanke, 1981, “Bankruptcy, Liquidity, and Recession”, American Economic Review 71, 155-159, or Ben Bernanke, 1983, “Nonmonetary Effects of the Financial Crisis in the Propagation of the Great Depression”, American Economic Review 73, 257-276. 2  BIS Review 141/2007  make sure that banks take appropriate precautions to prevent the occurrence of disasters. It is well known that those protected by insurance policies can have lower incentives to prevent damages than those who remain unprotected. One of our goals, therefore, is to counter this so-called “moral hazard” risk. More generally speaking, central banks are concerned with a broad range of market failures, of which moral hazard is just one prominent example. Other market failures include coordination problems between market participants. The classic examples of such coordination problems are bank runs, where the mere belief that a bank faces insolvency problems will render the bank insolvent – even though it may be fundamentally sound. Another important source of market failures are externalities. For instance, in case of a banking crisis, a large part of the costs of the crisis are borne by households and firms. These costs are not fully taken into account by banks when they determine their risk profile. To banks, it is: “Tails I win, heads you lose.” As a result, banks’ profit-maximizing risk choices are typically not socially efficient. There can therefore be an inbuilt tendency for “excessive risk taking”.
In the recent period, the Swedish economy has mainly been driven by firm export demand. This has generated healthy profits for companies and higher incomes for employees, and we are now at a stage where domestic demand is expected to take over as the driving force in the economy and employment to rise. But there is a risk that an improvement in the labour market will be held back by structural factors, i.e. that production and the labour market will not adapt quickly enough to changed conditions abroad, which could impair the prospects for a pick-up in domestic demand. In addition, we have recently seen signs of somewhat weaker economic activity than we had previously expected. Should this tendency prove to be more persistent, there is a risk of an economic downturn, with a softer inflation outlook as a consequence. I have previously noted a risk that rising interest rates and falling house prices could lead to unnecessary strains in the real economy in the long run, with a drop in demand as a result. This remains a risk, but in a situation with clearly weakening economic activity it may prove necessary to conduct monetary policy in a more expansionary direction. However, we are currently in a position where the uncertainty regarding what course the developments will take is still considerable. Therefore, we will as usual be monitoring the situation very closely up to the next monetary policy meeting.

With prices remaining stable, interest rates low and a good level of competitiveness, our economy is well equipped to resume a brisker growth trajectory in line with the global economy. 4  BIS Review 30/2005  As in the past, however, the international environment remains fraught with uncertainty at both the economic and monetary level. The independent course steered by the National Bank has made it possible to create a monetary framework conducive to the development of our economy. This success hinges not only on the correct interest rate decisions, but also on the credibility conferred upon us by our autonomy of action and by sufficient resources for intervening in the markets. It is in the nation's interest to preserve this achievement. Thank you for your attention, and for your interest in the Swiss National Bank and its activities. BIS Review 30/2005  5
We will then know what the capital shortfalls are and whether they can be covered. Moreover, the state of the banking sector is a serious problem for the country, but not the only one. Slovenia has inefficient state enterprises, attempts to introduce pension reform have failed twice and it is running a larger budget deficit than EU regulations allow. Many people are also concerned about the heavyweights France and Italy. Some observers fear that both countries are completely incapable of introducing reforms. How frustrated are you and your ECB colleagues that the large countries are not making better use of the time that the ECB, too, is “buying” for them to introduce reforms. Let me say one thing first: we all have a strong interest in an economically strong France. The entire construction of the euro area can only function with a strong France. The latest pension reforms are a step in the right direction but do not go far enough. I also see problems regarding the intended funding through higher taxes and contributions, rather than through specific spending cuts. Besides, the plans also contradict the EU Commission’s country-specific recommendations. The bottom line is that France will need to do more to enhance its competitiveness. The government will need to speed up the pace of reforms. And Italy? Much was achieved through fiscal policy efforts under the former prime minister Mario Monti. It is now important to ensure that these successful achievements are not eroded.

Similarly, the level of unit labour costs is lower in Malta than in both the weaker and stronger groups, as will be discussed later. It is important that the public debate and the formulation of policy focus more closely on what is needed for Malta to remain aligned with the better performers. In the first two quarters of 2013, Malta’s GDP growth rate stood at 2.7%. Net exports have been the main source of expansion. The outlook is for stronger growth in 2014 as Malta continues to benefit from its competitiveness. The economy continues to diversify, creating high value added job opportunities. While some sectors have had to downsize, there has been a compensating expansion in other sectors, such as financial and other services. This is shown in Chart 4. An aspect that may go unnoticed is the role of the financial sector in the resilience of the Maltese economy and its alignment with the stronger group of countries. Financial soundness indicators confirm that Malta has a sound and robust banking sector. A three-way split of the banking sector distinguishes between the core domestic banks that are closely integrated with the domestic economy at one end and the international banks that conduct all  2  BIS central bankers’ speeches  their business abroad at the other end, along with a relatively small sector, the non-core domestic banks, in between, as shown in Chart 5.
However, the use of such funds is more widespread in the United States and the total volume amounted to over USD 3 trillion in 2008 – quite a lot of money, in other words. One trillion is equal to one thousand billion or one million millions. In the United States, as in Sweden, money market funds avoid almost all investments that may involve credit risk. Taking credit risks is quite simply not their business concept. Like all funds, they administer their clients’ money for a fee, and clients who are investing their liquid funds over the short term do not wish to be exposed to any credit risk. Put simply, it could be said that these funds are intended to function like a normal savings account in a bank, albeit with slightly better interest. So, by providing this “bank account” style of saving, the funds essentially function like normal banks, even though they are not banks. When we say that, before the crisis, there existed an extensive shadow banking system that was not as strictly regulated as the “real” banks were, it is partly these funds to which we are referring. Accordingly, money market funds do not like credit risk. So when the funds (and their customers) started to suspect that some European banks had large holes in their balance sheets, they pulled out of the market. This was not a matter of pricing, it was a matter of credibility.

In difficult times, banks will be allowed to fall significantly below the target levels defined for good times. Allowing banks to draw down capital without violating any minimum requirements helps to mitigate the harmful effects of deleveraging. Overall, regulators must no longer allow banks, especially systemically important ones, to operate at such worryingly low capital levels as have been observed in the buildup of the current crisis. At the beginning of this month, the finance ministers and central bank governors of the G20 were very explicit on this. More robust liquidity requirements The crisis has also provided a number of important lessons regarding liquidity. In short, banks’ liquidity holdings were insufficient. This holds true for the quantity but also for the quality of liquidity. One of the explanations for these insufficient holdings of liquidity was that the stress scenarios considered by banks were far too optimistic. While secured funding remained the most stable source of refinancing, it was much less stable than what banks and  BIS Review 115/2009  3  regulators had assumed. Moreover, it quickly became apparent that liquidity problems at single banks imposed considerable stress on the entire international system. As in the area of capital, the FSB and the Basel Committee are working at full throttle towards an internationally coordinated liquidity standard for banks.