samchain/econo-pairs-v1 huggingface dataset:
Each supervisor must therefore take a view about the soundness of the entity in its jurisdiction, even where this hinges on controls located elsewhere. How have regulators responded to these trends? In summary, they have increasingly sought ways of increasing co-operation amongst themselves, including agreeing their respective responsibilities and setting up arrangements for information sharing. In the banking sector, at least, they have also supplemented solo supervision of individual entities with consolidated supervision of groups as a whole. When the Basle Committee on Banking Supervision was established by the central bank governors of the G10 countries at the end of 1974, its initial focus was to define the role and responsibilities of home and host supervisors of internationally active banks. These were set out in the 1975 Concordat which established how supervisory responsibility for banks’ foreign branches and subsidiaries should be shared between host and parent supervisors, and which has been updated on a number of occasions since. Securities supervisors too have a long tradition of international co-operation, including arrangements for information sharing and mutual assistance in enforcement, with IOSCO playing a key role in facilitating such co-operation internationally. There is also a long history of discussion between Basle and IOSCO. Individual supervisors in both the banking and securities industries have chosen to reinforce co-operation arrangements with formal bilateral agreements with their overseas counterparts. Partly as a consequence, there have been an increasing number of informal meetings between line supervisors with operational responsibility for different parts of financial groups.

We have to continue to defend the rules that have made the financial system less crisis-prone. How well prepared are we then? The next crisis might not necessarily start in the financial system. It might come from another quarter instead. At the ECB, we are currently looking closely at cybersecurity, for example. We don’t want the next crisis to be triggered by a hacker. Continued investment is needed to protect the financial system from cyberattacks. What is the ECB doing in this respect? For example, we have set up a Euro Cyber Resilience Board, which is a forum for regular discussion and cooperation between central bankers, supervisors and providers of critical financial infrastructures. We have designed a European framework for red-team testing in the financial sector, Tiber-EU. And cybersecurity is also becoming more important for ECB Banking Supervision. Credit institutions have to report any attacks on their systems. Those are just a few examples. The next few years will bring many more initiatives on this front, also at the G7 and G20 levels. After all, cyber threats don’t stop at borders. Bitcoin and the like are giving rise to new crypto currencies and new risks. Do we need regulation in this area? I prefer to speak of crypto assets rather than currencies – if anything, their volatility clearly disqualifies them as currencies. The priority is to prevent them from being used to launder money and finance terrorism.
Within our senior management cohort, female representation has gone from 21% to 27%, and our graduate intake has gone from 26% female to 34%. The direction of travel is encouraging, but we are far from satisfied. Diversity will remain a key pillar of the Bank’s strategy. Our goal is to attract and inspire the best people to public service. We want people with diverse ideas, willing to challenge and debate, and we want them to feel empowered at all levels, to take the initiative. To support these objectives, we have introduced diversity targets that for the first time are reviewed and challenged regularly by Court. We have two Bank-wide targets for gender. The first is for 35% of our senior management staff to be female by 2020; a two thirds increase from its 2013 level. The second is to have an equal split of men and women in the organisation at all levels below senior management by 2020 (from our current 44%). But achieving these goals isn’t just going to happen. It requires: •  Focussed recruiting  •  Active mentoring  •  Consistent and comprehensive performance management, and  •  A flexible work environment that values diversity of thought  Today, each division of the Bank knows where it stands and has plans in place to improve, where necessary. So in this sense, the Bank has implemented two of the Report’s recommendations. The Bank has also recognised the importance of executive accountability for diversity, another key recommendation of Jayne-Anne Gadhia’s report.

Third, the disruptive possibilities of the fintech revolution are beginning to touch the core of the financial sector. Now it is time for a similar transformation of the diversity of one of the most important sectors of the UK economy. In many respects, Jayne-Anne Gadhia’s report is long overdue. For too long the representation of women in middle and senior tiers of management has lagged that in other leading sectors. For too long, results have fallen short of good intentions. And for too long the financial sector has suffered the economic consequences of this inequality while society has borne the broader costs. Greater diversity – in all its forms, cognitive, gender, background, ethnicity, religion – can help transform the financial sector. Research has shown that companies with a significant proportion of women in senior management positions perform better in part because of some leadership behaviours that women exhibit more consistently than their male colleagues. 1 In particular, women are found to excel at people development, participative decision making, presenting a compelling vision and acting as role models – all drivers of financial performance. 2  1  http://www.mckinsey.com/business-functions/organization/our-insights/why-diversity-matters. 2  https://hbr.org/2012/03/a-study-in-leadership-women-do. BIS central bankers’ speeches  1  Research on board membership has also shown that female directors enhance board independence, partly because women bring different perspectives and networks to the table, and partly because they are more likely to ask difficult questions.
But by and large, governments put in place the necessary measures to save both lives and livelihoods; scientists and industry came together to produce vaccines in record time; 8/9  BIS central bankers' speeches  businesses adapted and changed to continue providing goods and services; and people around the world took the necessary precautions, adjusted to new ways of living and working, made sacrifices, and helped one another out. With that same spirit, difficult as it may be, the world will get to net zero and avert climate disaster. It will be a better world, and a better Singapore. 9/9  BIS central bankers' speeches

This is a major challenge: climate risk is very different from traditional financial risks, and we cannot rely on historical data to size it. Another factor that makes this difficult is the need for banks and insurers to understand the carbon impacts of the real economy firms they finance. It can be hard to judge where real economy firms are, never mind where they are going – and it is the latter that is most important when thinking about future risks. The Climate Biennial Exploratory Scenario (CBES) The Bank’s exploratory climate scenario exercise – which we call the ‘CBES’ – was launched last year and is intended to help address these capability gaps. For the largest UK banks and insurers, we asked for granular analysis of the risks they might face, and their strategic responses, in three stylised 30-year scenarios: An ‘early action’ (EA) scenario where climate policy is ambitious from the beginning, with a gradual intensification of carbon taxes and other policies over time. As a result, global warming (relative to pre-industrial levels) is successfully limited to 1.8°C by the end of the scenario, falling to around 1.5°C by the end of century. You could view this as a reasonable best-case scenario for climate risk. A ‘late action’ (LA) scenario where policy measures are delayed by a decade, and then are implemented in a sudden and disorderly way, leading to material economic and market disruption.
It would be an exaggeration, however, to say this is the only reason profits are under pressure: monetary policy also has favourable effects for banks, including a reduction in the cost of risk and an increase in lending volumes; and certain banking systems, notably those in Nordic countries, are generating higher profits with interest rates that are at least as low as ours. On a more structural level, financial institutions – banks and insurers alike – are facing an existential challenge, that of their digital transformation which is revolutionising modes of use and opening up a world of possibilities for customers. However, adapting to this new ecosystem requires huge investment as well as placing downward pressure on revenues. Faced with this challenge, financial institutions will need to find new productivity gains and new tailored services, by tapping even deeper into the possibilities of automation and artificial intelligence (AI). The ACPR is working actively on these issues. Following the publication of a discussion paper on the challenges posed by AI in the financial sector, in February the ACPR launched a call for candidates to participate in joint workshops with financial industry participants. Three key processes are concerned: AML/CTF, internal models and customer protection. The third factor warranting attention relates to investment banks.

That said, private sector actors do not need to wait for public authorities to do everything before starting to think about consolidation strategies. Lastly, we also need to ensure that institutions are treated equally under international regulations. If we are to reach an agreement, two conditions must be met. The transposition of Basel III must be reasonable and take into account the application of the “output floor” at  Page 4 of 5  the highest level of consolidation. Above all, the transposition must be fair and applied to the letter in all jurisdictions, including in the United States. Let me be clear about one thing, however: the solution to our banking challenges is not deregulation but rather innovation; not a step backwards – towards the financial crisis – but a leap forwards. III. We need to remain fully mobilised with regard to two deadly risks: ALM/CTF and cyber-security  The fight against money laundering and terrorist financing (ALM/CTF) calls for unwavering commitment. The 23 inspections carried out by the ACPR revealed major failings in supervised entities’ compliance with their AML/CTF and asset-freezing obligations. In 2018, the Sanctions Committee imposed nine sanctions, one of which amounted to EUR 50 million. In parallel with the Financial Action Task Force’s assessment of France in 2020, the ACPR will be closely involved in the implementation of a robust and renewed AML/CTF system at the European level.
The rich literature that followed affirms the benefits of central bank announcements in guiding market outcomes, with a number of papers showing that market interest rates have tracked policy rates more closely since the 1990’s.3 Separately, communication was also shown to reduce the size of central bank interventions required to achieve desired policy rates.4 Further, effective communication from central banks on the future path of monetary policy, or forward guidance, can potentially be a powerful tool in a global environment of low nominal rates and reduced policy space. The seminal paper by Eggertsson and Woodford (2003) demonstrated that changes in the expected future conduct of monetary policy can have a substantial effect on the macroeconomy, even when the economy is at the zero lower bound and conventional monetary policy has lost potency. Subsequent empirical research also show that forward guidance can help macroeconomic stabilisation efforts.5 Nevertheless, despite the clear trends and benefits of greater information dissemination, central bank transparency has evolved cautiously including in the region, reflecting in part the irreversibility of communication initiatives. From the perspective of preserving policy integrity and effectiveness in a second best world, more is not necessarily always better. At each step along the way, central banks therefore need to take account of the potential costs against the perceived benefits of greater transparency. Several considerations could be pertinent. First, too much information may crowd out the formation of private sector beliefs.

A recent Economist article even asked, “Can central banks talk too much?”15 It essentially argued that forward guidance on interest rates could complicate price dynamics in the bond market as the central bank simultaneously signals its intentions to the markets, while taking its cue from them. As policy decisions are ultimately a judgement call made against an inherently uncertain backdrop, there is naturally a limit to how much transparency can do to make central bank action predictable. Communication is also context-specific, where a standard rules-based approach will not work. Discussions at forums like this are extremely valuable because they provide the opportunity to share experiences from real-life settings, including what has worked and what has not, as well as the pitfalls and the nuances. Hopefully, some general guiding principles can emerge, that will prove useful for practitioners gathered here today. In conclusion, the guidelines for monetary policy communications are probably due for a refresh given the increased complexity facing the formulation and implementation of monetary policy. For 3/5  BIS central bankers' speeches  sure, central banks must continue to talk, engage, and be accessible and accountable. How we do it could evolve, and this high-level seminar serves to help us do just that and hone our communication skills. I wish you a most productive session. Thank you. References Bernanke, B S (2007), “Federal Reserve Communications”, Speech at the Cato Institute 25th Annual Monetary Conference, Washington, D.C., 14 November.
3  According to the Food Outlook from the Food and Agricultural Organization of the United Nations (FAO), 22 May 2008. BIS Review 68/2008  3  When we decide on the future direction of monetary policy, it is important to know whether the rising oil and food prices will have lasting or temporary effects on inflation. 4 It is difficult to know this in advance. We must follow developments closely. But we can receive some guidance by looking at the factors that lie behind the price increases. Increased demand, supply effects and portfolio investment behind rising commodity prices One reason for the high commodity prices is the increased demand in the world market from emerging economies. Higher incomes per capita in China, India and other rapidly growing economies have led to increased demand for food and also to changes in the patterns of food consumption. Demand for meat has increased in particular, which has in turn pushed up the demand for and prices of feed grain. This also spreads to other food crops. It is reasonable to believe that the demand for food in the world will remain high. Another important driving force behind the world demand for commodities is the investment in ethanol and biodiesel in recent years. The increased use of some food commodities in the production of biofuels limits the supply of food and increases the price of food crops.

When the oil price reaches record high levels it creates a further incentive to increase the production of biofuels at the cost of food. The IMF observes in its most recent report that biofuels account for only 1.5 per cent of the supply of liquid energy. But the use of these fuels led to demand for crops used in their production doubling between 2006 and 2007. 5 In the slightly longer term the high food prices lead to the supply of food increasing and this dampens prices. But there are also factors that could hold back supply and mean that it does not increase as much as would be necessary to meet the increased world demand. Some supply shocks are of a temporary nature, such as the drought in Australia last year and poor harvests in some regions. One cannot rule out the possibility that climate effects have played a role, and in this case such shocks may be a recurring problem. 6 Another factor that has had a restraining effect on supply and has thereby contributed to boosting the increase in world food prices is the export restrictions introduced by some countries that are major producers of food, in an attempt to protect their domestic consumption from the price increases. The effect on the price of wheat when export restrictions were reduced in the Ukraine is, as I mentioned earlier, a good example of how this can have tangible effect on prices. Another factor that has certainly been significant is the depreciation of the dollar.
4  BIS Review 15/2003  While there is much work still to be done at many institutions, those banks that have obtained senior management buy-in to embark on this approach have been able to move ahead fairly rapidly. In addition, these institutions have found significant value in the process of rolling out such a framework. The benefits include greater risk transparency within the firm, greater cost efficiency, and ultimately, less exposure to large losses, both in terms of dollars and additional reputational knock-on effects. Challenges for supervisors I've focused on the challenges banks will confront in implementing the new Accord. Let me now spend a few moments discussing how our supervisory approach is also likely to evolve over time. Naturally, allowing banks to rely on internal models in determining their capital requirements has led, and will continue to lead, to changes in our supervisory process. Fortunately, we do have some experience on which to draw. In 1996, under the "market risk amendment" to the original Basel Accord, qualifying banks with large market risk positions were first permitted to incorporate internal estimates of the associated risk in their regulatory capital requirements. When determining whether a bank may rely on its market risk model for capital purposes, our examiners have had to evaluate the technical underpinnings of the model, as well as the risk management and control processes surrounding its implementation and use.

This means that a credit expansion process is likely to lead to some credit quality problems in roughly that time horizon. The average duration of the economic cycle (from boom to bust) is similar. This implies that if banks only look at contemporary bad loans to determine their credit risk policies, they will restrain credit and increase risk premia in the downturn. The higher cost of funding for bank-dependent borrowers will feed back to activity, reinforcing recessionary forces. I turn now to provisions. In Spain, until year 2000, loan loss provisions were strongly pro-cyclical (as in many other countries), because they were largely linked to the volume of contemporaneous problem assets. This static provisions are backward-looking, they are based on past events. Only are accounted for loan by loan when borrowers fail to repay or in some cases when the situation of the borrower deteriorates significantly. As a consequence, the ratio of provisions to total loans fell therefore during periods of economic growth and tended to rise considerably during downturns (see lower part of Graph 3). As a result of this, the latent risk of loan portfolios was not properly recognised in the profit and loss account under the old system. In periods of economic expansion the fall in doubtful loans went hand in hand with the decrease in provisions, which in turn allowed bank managers to improve bottom-line profits.
For example, the fact that the credit rating agencies bestowed their highest ratings on certain securities prior to the crisis meant that many investors assumed that the securities were “informationally insensitive.” What was subsequently learned, however, was that instead of being robust to economic developments, structure of the securities had merely served to concentrate the systemic “tail risk” in the securities.   New financial products are often associated with the extension of primary credit to previously underserved sectors of the economy. This extension of credit to the previously underserved often produces abuses or outright fraud, much of which can be masked by the newness and complexity of the products. In many respects these are old lessons that we should have learned already from what occurred in the run-up to previous episodes of financial crisis. However, the remarkable stability of the U.S. economy from the mid-1980s to 2007 unfortunately served to produce what amounted to a collective amnesia with regard to these earlier learned lessons. For example, most macroeconomists had become convinced that the widening and deepening of the financial system over the previous twenty years driven by deregulation, and given additional impetus by the return to low and stable inflation, was an important source for this economic stability. This is not to say that there was no one pointing out the risks of the low risk premiums and the rapid growth of structured investment products, but many economists, analysts and commentators had reached the blissful state of mind that it was different this time.

Suppose that price and cost inflation in Norway were allowed to be higher than in the euro countries. The nominal exchange rate would then have to depreciate in order to keep the real exchange rate constant over time. Thus, stabilising inflation at around the level aimed at by the ECB is a means of achieving exchange rate stability against the euro. In a situation with the prospect of increased inflationary pressure and a depreciating exchange rate, an increase in the interest rate may at the same time bring the exchange rate back towards its initial range and reduce inflationary pressure through lower demand and lower imported goods inflation. This in turn will contribute to long-run stability in the exchange rate. Similarly, with an appreciating exchange rate and a low inflation and activity level in the economy, a lower interest rate will contribute to stabilising the exchange rate in both the short run and the long run through a stable inflation level. On the other hand, we can think of situations where we would need to set a high interest rate in order to keep the exchange rate close to the initial range in the short run, creating a deflationary recession in the economy. Normally, a deflationary recession will lead to a weakened krone exchange rate, which means that the high interest rate set to keep the level of the exchange rate unchanged in the short run in itself will induce exchange rate instability in the long run.