samchain/econo-pairs-v1 huggingface dataset:
In one sense, this should not matter if the regulatory capital calculation provides a robust floor below which the “economic” capital should not fall. But it was unclear how we could know this was so, and the lack of line of sight into how the firm managed risk was disturbing. The second weakness is generic to simple systems which conflate different levels of inherent risk, namely that they tend to create incentives for banks to increase the average level of riskiness of their assets. And, one thing we now know, incentives are hugely important in the capital regime. As I noted earlier, Basel II was not in place properly when the crisis broke, but the Market Risk Amendment was, and this introduced the use of banks’ own so-called “internal” models. As an aside, my experience suggests that the contribution of Basel II to the crisis was far more that it diverted the attention and effort of regulators and the industry away from broader risk management and into the implementation of a new and more detailed approach to regulation. This was especially so for large banks seeking approval to use their internal models. Moreover, this process was not well done. The Market Risk Amendment and Basel II dramatically increased the complexity of the capital framework, and whilst it intended to increase the scope of risk capture in the regulatory capital measure it ended up creating new opportunities for “optimising” regulatory capital.

Mervyn King: No country is an island Speech by Mervyn King, Deputy Governor of the Bank of England, at the Institute of Petroleum Annual Dinner, London, 21 February 2001. *  *  *  No country is an island - in terms of economics, if not geography. Trade and capital flows link all the economies of the world. Since 1970 the volume of world trade has increased more than five-fold. Globalisation is not a slogan; it is a fact. The economic winds can rapidly alter direction bringing significant changes in the economic weather. What happens in the world economy is of great importance to your industry. But no business in a country, such as the United Kingdom, which exports and imports almost a third of its national output each year, can ignore global economic developments. Recent events have reminded us of just how volatile that economic weather can be. Only a few short months ago, the United States was experiencing rapid economic growth at a rate which surprised us all. The new frontier had become the new economy, and some had forgotten that economic downturns are a regular feature of a market economy. Share prices had reached levels four times that of a decade earlier, and the price earnings ratio of America's top 500 companies was over forty, an unprecedented level. Now, after a swift and sharp fall of business and consumer confidence, the business cycle appears to be alive and well, and living in the United States.
Jean-Claude Trichet: The changing role of communication Introductory remarks by Mr Jean-Claude Trichet, President of the European Central Bank, at a dinner with members of the “Internationaler Club Frankfurter Wirtschaftsjournalisten”, Frankfurt am Main, 15 December 2008. *  *  *  Ladies and gentlemen, A very warm welcome to all of you and thank you very much for your invitation to this club evening. I am happy to see many familiar faces in the audience tonight. Communication is a very important issue for all times. Being here in Frankfurt I am thinking of the very profound remark by Goethe: “Niemand würde in Gesellschaften viel sprechen, wenn er sich bewuβt wäre, wie oft er die anderen missversteht“. Nevertheless let me be bold enough to share with you some thoughts on communication and central banks. Communication is a key element for central banks to enhance the effectiveness, predictability and credibility of their monetary policy decisions. It becomes even more important in difficult times, when the economic outlook darkens and confidence weakens. It seems to me that central banks have improved their communication significantly in good times – and also in bad times – while some years ago communication was almost seen as a breach of their professional code. Why this change? Why did central banks decide to become transparent? Prior to the 1990s, central banks were very much working on the assumption that monetary policy effectiveness is greatest when the central bank systematically surprises the markets.

Ten years ago – on 1 January 1999 – it was introduced in the then 11 countries of the euro area. Ten years is a short time in history. But it represents a good opportunity to talk about successes and challenges – the subject of my address tonight. I wish to consider this theme by asking three questions: 1. How successful is the euro? 2. What is the euro’s role in the current financial market turbulence? 3. What challenges lie ahead for the single currency? I intend to refer to a series of current issues relating to the global financial market turbulence and economic developments in the euro area. The first question: How successful is the euro? The euro is a stable currency and is an important contribution to the completion of the Europe’s single market. That’s why it is a success. After all, it helps to secure prosperity in the participating states. Stability of the euro Let me first of all consider the theme of stability. Before the euro was set up there were reservations about the stability of the future single currency, including in Germany. The first ten years have shown that these fears were unfounded. The euro is just as stable as its most stable predecessors, which were merged into it. That applies of course also to the Deutsche Mark. “The euro will be as strong as the Mark”, it was said. That promise has been kept.
The US is one example of a country that despite weak domestic saving attracts capital from abroad, thus helping to hold up investment. In turn, investment in new technology forms the basis for productivity growth, thereby making it important for potential growth. The structure of the tax system is also of significance in this area. Swedish taxes on capital are not appreciably higher than the EU average. Their distribution is distorted, however, with high wealth tax and capital gains taxes for individuals, and low taxes for institutional and foreign investors. This distorted distribution of the tax burden may come to play a more important role for Sweden’s  4  BIS Review 45/2003  attractiveness, in terms of how both Swedish and international investors decide to allocate their investments between Sweden and abroad. As regards the functioning of the financial markets, the unfortunate truth is that this is also a neglected area in many countries on the Continent. In some respects Sweden has progressed further than the euro area countries in terms of improving the efficiency of the financial system. After the period of deregulation in the 1980s the progress of the Swedish financial market has been well in line with what has happened in the Anglo-Saxon economies in the US and UK. As a result, the equity market has become more important as a source of financing and firms have become less dependent on banks. Meanwhile, banks have focused to a greater degree on providing credit and financing opportunities to individuals.

A new regulatory framework was adopted for fiscal policy, including an expenditure ceiling and a surplus target, while the focus of monetary policy was aimed at keeping inflation in check. This increased stability and made policy more predictable, thus boosting the willingness to invest. The tax and social security systems were also reformed, not least by reorganising the pension system. Sweden’s entry into the EU’s common market together with deregulation in a number of important markets gave rise to increased competition and greater demands on businesses to use their resources more efficiently. It is likely that the faster growth experienced by the private sector compared to the public sector, as well as advances in IT during the latter stages of the 1990s, also contributed to higher potential growth. Reforms behind favourable growth in the labour market If we compare the situation in the Swedish labour market to that of the euro area, we can see a number of differences. Sweden was among the first in some areas to initiate reforms that helped improve the functioning of the economy. Deregulation carried out in the 1980s and at the beginning of the 1990s was partly the reason that Sweden performed relatively well after the crisis years. 2  BIS Review 45/2003  One such deregulation was an easing in working-hour legislation, which, for example, has made it possible to shop more or less round the clock in Stockholm today. It is only recently that this has started to catch on in the euro area.
Democratic control is now ensured through a clear mandate defined by the government for the central bank’s conduct of monetary policy. The political authorities can verify the central bank’s compliance with the mandate without deciding on the use of the instrument. 31  -  The third innovation sprang out of New Zealand. In connection with economic reforms, the authorities introduced fiscal performance targets. They then started searching for good and realistic performance targets for monetary policy. They found that what monetary policy should deliver was stable inflation in the medium term – New Zealand introduced a so-called inflation target for monetary policy. 32  What is the difference between what is referred to as inflation targeting and the former policy of parity? Let me explain the difference using a stylised example. Assume that the price index has been 100 over a longer period. The price level is thus stable. An increase in, say, energy prices then occurs and the index moves up to 105. Energy has become more expensive in relation to other goods. Under the parity system, other prices had to be reduced to move the index back to 100. This could require a substantial decline in output and employment, as was the case in the interwar years. Under an inflation targeting regime, it is in this example accepted that the index remains at 105.

Nonetheless, euro area GDP is expected, at end-2022, to still be somewhat less than 4 pp below the level that would have been observed according to last year’s December projections (the latest before the COVID-19 outbreak). 7  Given the exceptional uncertainty over future pandemic-related developments, this baseline scenario has been accompanied by a more favourably defined alternative scenario. In it, euro area GDP would, at the end of the time horizon considered, be slightly higher than was envisaged in December 2019. Another, more adverse scenario was also laid down, in which the negative gap relative to the 2019 reference would be around 9 pp. Inflation fell in August to - 0.2%, and its core component, which excludes energy and food, stood at a very low level of 0.4%. The ECB’s projections point to a gradual recovery in the coming years. At the end of the projection horizon, inflation would stand at only 1.3%, some distance off our related target. Moreover, several factors tilt the risks to economic growth to the downside: uncertainty over how the pandemic will evolve; the possibility of a no-deal Brexit; and a potentially more adverse reaction by unemployment and in the dynamics of corporate start-ups and company failures once the support measures have run their course. In parallel, there has been a progressive appreciation by the euro in recent months. This introduces disinflationary pressures at a time when the euro area inflation outlook is, as I said, for a record low.
Annual percentage change 5  Interest rate costs Food  4  5 4  Energy Good  3  3  Services 2  2  CPI  1  1  0  0  -1  -1  -2  -2  -3  -3  -4  -4 08  09  10  11  12  13  Source: Statistics Sweden  All in all, given the relatively weak development abroad, it is thus not difficult to understand the division in demand that has marked the Swedish economy in recent years. What can monetary policy do today? Swedish monetary policy cannot do anything about the causes of the weak demand from abroad, but it can mitigate the effects on the Swedish economy. How low the repo rate needs to be, and how quickly inflation should rise towards the target are ultimately questions of judgement. I believe that it is appropriate that the Riksbank has let the repo rate remain at one per cent since the end of last year in order to boost the Swedish economy and to get inflation to rise to 2 per cent. According to the forecast, the repo rate will remain at this level until the end of 2014. In the forecast, the real interest rate will remain negative until the beginning of 2015, which shows that monetary policy is expansionary.

BIS central bankers’ speeches  1
For bonds and equities, a little bit more of the probability mass implied by options11 is currently in the lower tail (beyond one standard deviation) than is the case over fairly long-runs of historical outturns12 (Table 2). But for equities, bonds, and dollar exchange rates, the lower probability mass is pretty well in line with the average ‘tail’ implied by options markets in the past (Charts 4 - 5). That does not suggest much sensitivity to the various risks preoccupying the official sector. 9  This is a different point from that, advocated for example by Chairman Bernanke, explaining a fall in long-maturity risk-free rates in terms of an ex ante imbalance of global savings and investment. The two explanations are not mutually exclusive, as the observed fall in yields on indexed government bonds could reflect a combination of a fall in the risk-free rate and falls in term premia. 10  For example see Bank of England Financial Stability Report, Overview, July 2006, pp 5-13 and Bank of England Inflation Report, November 2006, Chapter 5. 11  Using three-month expiry options. 12  Since the 1930s for equities; 1960s for bonds; and 1970s for exchange rates. 4  BIS Review 2/2007  Market contacts offer various explanations for this – some of them, I should make clear, sceptically. One – and here bear in mind my earlier remarks – is that not much really nasty will happen given the collective wisdom of the world’s monetary authorities.

BIS central bankers’ speeches  13  Figure 1 Repo-rate paths at the monetary policy meeting in July 2011 Per cent 5  Repo rate  5  Majority Alternative path  4  4  3  3  2  2  1  1  0  0 06  07  08  09  10  11  12  13  14  Source: The Riksbank  Figure 2 The Riksbank’s and the National Institute of Economic Research’s repo-rate paths in summer 2011 Per cent 5  5  Repo rate The Riksbank, PPR July 2011 NIER, June 2011  4  4  3  3  2  2  1  1  0  0 04  05  06  07  08  09  10  11  12  13  14  Note. The repo rate and the Riksbank’s forecasts refer to quarterly averages. The National Institute of Economic Research’s forecast refers to the repo rate at the end of the year.
While long-term interests in state-owned companies require ownership discipline and distance from decisionmaking, the challenge to the Pension Fund is to assert its minority interests and contribute to transparent corporate governance. Here we can apply internationally recognised principles drawn up by the OECD and the UN. Restructuring in state-owned enterprises and the wider business sector has enhanced the efficient use of labour, capital and other resources. International comparisons indicate that production in Norway is fairly efficient – also in sectors other than oil and gas. 8 A comparison shows that both Norway and Europe were catching up with the US for a while. In Norway, productivity showed a particularly strong increase at the beginning of the 1970s. Growth was weaker from the mid-1970s and up to the beginning of the 1990s, but has since picked up somewhat again. Productivity growth has been weaker in many European countries over the past decade. Restructuring in retail trade and the financial industry in particular has progressed at a slower pace in Europe than in the US. In this respect, developments in Norway are more similar to developments in the US. When productivity growth picked up in Norway, it was primarily in retail trade and the postal, telecom and banking industries. Two factors seem to be important for growth: First: In areas and enterprises in decline, adversity can trigger creativity when companies are split up and new owners make their entry.

Ravi Menon: Singapore’s financial centre in the new landscape Keynote address by Mr Ravi Menon, Managing Director of the Monetary Authority of Singapore, at the Investment Management Association of Singapore’s (IMAS) 14th Annual Conference, Singapore, 13 March 2013. *  *  *  Mr Lester Gray, Chairman of IMAS, Distinguished speakers, ladies and gentlemen, good morning. A new financial landscape Four years since Lehman Brothers collapsed, a new financial landscape is emerging. While the contours of this new landscape are still forming, three driving forces are discernible: financial deleveraging, regulatory reforms, and the rise of Asia Driving forces First, the global financial industry is deleveraging. Banks around the world are consolidating their balance sheets and tightening underwriting standards, even forgoing certain types of lending altogether. Many have resorted to shedding assets, especially assets in those countries where the banks do not enjoy a large market share. •  According to BIS data, globally, banks’ foreign claims fell by about 15% from early 2008 to 2012. •  For European banks, the decline was twice as steep, at about 30%. Second, the global financial crisis has spurred financial regulatory reforms on a scale that we have never seen before. •  Basel III will raise the quantity and quality of capital that banks must hold, increase the liquidity buffers they must keep, and limit the amount of leverage they can take on.
This formulation mirrors that for the Monetary Policy Committee and should ensure that the FPC approaches its primary objective of ensuring resilience of the financial system in a way that does not unduly impede economic growth. Seven of the members of the Committee, including myself, are drawn from within the financial authorities: the Bank of England and the Financial Services Authority (FSA). 1 The remaining four are external members who bring special expertise and experience and can  1  At present they are: the Governor; the two Deputy Governors; the executive directors for Financial Stability and for Markets; and the Chairman and Chief Executive of the FSA. When the FSA is dissolved into the Prudential Regulation Authority (PRA), which will be part of the Bank, and the Financial Conduct Authority (FCA), these last two will be replaced by the heads of the PRA (who will be a third Deputy Governor of the Bank) and FCA. 2  BIS central bankers’ speeches  reduce the risk of the “group think” that might arise in a committee comprised solely of insiders. There is also a non-voting representative from the Treasury. The powers of the Committee are two-fold. First, the FPC can issue recommendations. These could be general recommendations, for instance to financial institutions or the Treasury. Or they could be specific requests to the prudential or conduct regulators who would then be expected to comply with the recommendation or else explain why not.

Possibly, the number of authorities involved could be reduced somewhat if the mandate is based on an agreement between only the directly involved countries. At this point, it is however not very clear how such a contract could be made legally binding. Although solutions that are adapted to a specific situation are better than no solution at all, I am sceptical as to their practicability in a dynamic world. They have the same basic flaws as the model of home country lead supervision. In a constantly transforming banking landscape, relevant jurisdictions will change when principal ownership is transferred from one nationality to another. That’s why I also don’t believe in so called regional solutions. A third way, and in my opinion the most logical step in the long run, would be to focus some authority on a European level to deal with the relatively limited number of most important cross-border banks. Supervision of these banks would in my opinion benefit from the establishment of a European financial supervisor. Some opponents of this idea have claimed that proximity might then be lost, and a European supervisor wouldn’t receive enough knowledge about the markets where the institution operates. To my mind, this is not a very convincing argument. First, this problem is no less in the home-host model. Second, it is an organisational problem that can be solved. An EU supervisor would certainly employ staff from all EU countries and have local offices in the national financial centres.
Comparing the current assessment with that presented in the December 2006 FSR, the main scenario for euro area financial stability remains broadly favourable:  BIS Review 69/2007  5  •  The current macroeconomic environment is benign and global and euro area economic activity it is expected to remain robust;  •  In February and March 2007, the resilience of the financial system was tested by the third significant burst of market volatility in two years, which it comfortably weathered;  •  Euro area credit quality, overall, remains high and should be underpinned by a favourable economic outlook;  •  Pockets of vulnerability in the euro area household and corporate sectors have most likely increased, but, on average, financial positions remain sound;  •  The profitability of euro area financial institutions further improved and solvency is comfortable relative to regulatory requirements.

For some LCBGs with sizeable capital market operations, the share of trading income accounted for nearly half of net operating income in 2006 and corresponded to more than 45% of their Tier 1 capital, as shown in the chart on the right of slide 10. Special Feature article A looks at the relationship between bank income diversity and systemic risk. It finds that a measure of systemic risk is positively correlated with bank size and the share of trading income, while it is negatively correlated with revenues from (traditional) interest income sources. 4  BIS Review 69/2007  Euro area insurance sector In the euro area insurance sector, there was a broad-based improvement in profitability in 2006 (see the chart on the left of slide 11). The positive assessment is further supported by the fact that the profitability of the weaker performers in 2005 also improved in 2006. Underlying this improvement was a strengthening of investment income, mainly owing to buoyant stock markets and higher interest rates. Moreover, favourable developments in the financial conditions of primary insurers and reinsurers in 2006, together with a greater focus on risk management and risk-adjusted prices, support a positive outlook for the euro area insurance sector as a whole. These positive developments continued to be priced into expected default frequencies (as shown in the chart on the right of slide 11). However, risks and challenges for the sector remain, as greater financial market risks could pose a challenge to the life insurance and non-life insurance sectors. 5.