samchain/econo-pairs-v1 huggingface dataset:
This is below the sector ROE (10.5%), even without taking into account extraordinary items (9%).22  Sixth, in terms of solvency, the common equity tier 1 ratio (CET1) held relatively stable in 2021, after increasing in 2020.23 The CET1 ratios of the main European countries’ banks also held relatively stable, meaning that in terms of its CET1 ratio the Spanish banking industry remains in last place. This difference owes largely to Spanish banks’ higher asset density, influenced by structural factors such as the more widespread use of the standardised approach to calculate asset risk weightings. Indeed, at December 2021, the leverage ratio of Spain’s significant banks (5.7%) was only slightly below the European average (6%). 20  The average cost of liabilities is the ratio of net interest expense to financial liabilities. 21  In 2021, the cost of capital increased over the first ten months of the year, from 6.4% at December 2020 to 10.8% at October 2021, and then fell back over the last two months, standing at 8.1% at year-end. Thus, the average cost of capital for the full year was 8.8%, in any case below the sector’s return on equity (ROE). 22  So far this year, the cost of capital has continued to fall, to 7.3% in March and 6.9% in April, below the ROE for 2022 Q1 (11.7%).

Regulation must not stifle markets but seek to make them work better. In the financial sector, this means a judicious mix of rules and incentives for stronger capitalisation, more effective risk management, better transparency, and sharper market discipline. This has been central to the approach taken by the Monetary Authority of Singapore – never hesitating to impose high standards of prudence and financial discipline but always careful to do so in a manner that does not undermine enterprise and innovation. 11. Financial innovation – especially in derivative products – has been blamed as a cause of the crisis. This is not quite correct. Innovation has been a feature of finance for decades. The crisis was caused fundamentally by failures in macroeconomic policies and financial supervision. Monetary policy was too easy for too long in too many countries. This led to low interest rates and lax lending standards that precipitated unsustainable housing booms, mainly in the United States but also in other countries. Financial supervision failed to detect and correct the build-up of leverage in the system, especially in the shadow banking sector. Complex financial products obscured the risks in sub-prime lending and transmitted these risks across the financial sector. As Edwin Truman from the Petersen Institute puts it, “Financial engineering contributed to the market dynamics once the crisis got underway, but it was not ‘the cause’ of the crisis.” 12. Regulation should therefore not restrict financial innovation but seek to create conditions in the market that promote effective risk management.
They need liquidity in times of stress but it is costly to hold in normal times. Their reactions, however, are opposite. Private institutions tend to underestimate their liquidity needs because, in case of shock, the Central Bank can step in as a lender of last resort. For countries, the bias goes in the other direction. Provision of international liquidity, whether private or official, is contingent, conditional and uncertain. With no international lender of last resort, financial stability motives could lead to unlimited accumulation of liquidity. Internationalisation of finance has created a fundamental indeterminacy in the demand for reserves. As a consequence, past benchmarks used to assess the adequacy of reserves are no longer valid. Current research (Obstfeld et al. 2009 ) shows that broad domestic money aggregates may be the best explanatory factors for the amount of reserves. Multilateral provision of international liquidity: the search for financial safety nets The rationale for a multilateral source of liquidity provision is straightforward: stabilizing the demand for international reserves would bring huge benefits in terms of world welfare. At the moment, reserve accumulation can only occur through a conjunction of balance of payment surplus and some degree of exchange rate intervention and creates externalities for other countries. Now, suppose there is “ex ante” an existing pool of reserve assets which countries could tap into under specific circumstances. If access to this pool is credible and predictable, there would be no need for getting those reserves from the market.

Our economies and our societies have suffered heavily – indeed, on all available forecasts, this year will see the biggest declines in GDP recorded in peacetime – and we will have to endure a period of painful reconstruction for which sound knowledge and also good judgment will be essential. 1/1  BIS central bankers' speeches
In practice, monetary policy has to some extent neglected the price stability objective and led to unnecessarily high unemployment. Against this background, it is remarkable that monetary policy in Sweden nevertheless seems to have been aimed at influencing household indebtedness. Any problems arising from household indebtedness could be better managed by other means than the policy rate, such as mortgage caps and tax regulations, which, unlike monetary policy, are effective in both the short run and long run (Svensson 2012c). The Riksbank’s mandate – price stability and the highest sustainable employment – demands a lower policy rate and policy-rate path I thus believe that monetary policy should be more expansionary than it is at present, that is, the policy rate and the policy-rate path should be lower. The Riksbank’s mandate should, in line with the Sveriges Riksbank Act and its preliminary works, be interpreted as price stability and the highest sustainable employment (Svensson 2012b).5 The highest sustainable employment is in practice the same as the lowest sustainable rate of unemployment. Every monetary-policy decision thus entails setting the repo rate and selecting the repo-rate path that best stabilises inflation around the inflation target and unemployment around a long-run sustainable rate.6  3  Andersson, Palmqvist and Österholm (2012) discuss the Riksbank’s target attainment during a different period, that is a period beginning in 1995 instead of in 1997, which gives an average of 1,5 per cent for CPIinflation in 1995–2011 instead of 1.4 per cent. During 1995–1996, CPI inflation was 1.8 per cent, which increases the average.

The fact that inflation has been lower than inflation expectations means that the longrun sustainable rate of unemployment may have been overestimated The Riksbank (2012a) presents a briefer estimate of long-run sustainable unemployment in the form of the interval 5–7.5 per cent, thus with a midpoint of 6.25 per cent. Long-run sustainable unemployment is calculated in two stages, as by the Ministry of Finance (2011). In the first stage, long-run sustainable unemployment in 2006 is estimated in the form of the interval 6.5–7.5 per cent, that is, with a midpoint of 7 per cent (to be compared with the Ministry of Finance’s corresponding estimate of 6.6 per cent). The second stage entails estimating the effect of government reforms and changes in the composition of the labour force on long–run sustainable unemployment since 2006, in the form of an interval of 0 to 1.5 percentage points, that is, with a midpoint of 0.75 percentage points (to be compared with the Ministry of Finance’s corresponding estimate of 1.6 percentage points). When this interval is deducted from the first one, we get an interval of 5–7.5 per cent, with a midpoint of 6.25 per cent (to be compared with the Ministry of Finance’s corresponding estimate of 5 per cent). The Riksbank uses as a base in the first stage the average rate of unemployment during the period 1999–2006, that is, about 7 per cent, which is then made into a midpoint in the estimated interval of 6–7.5 per cent.
This amount will also be 1.4 million rubles. We would like to continue the discussion of this topic with deputies. In our opinion, we are fully prepared to generally extend the insurance system to them in the medium term. I will now speak on another type of insurance — OSAGO. Last year, a key reform in OSAGO (compulsory third-party liability motor insurance) was accomplished. It involved the customisation of insurance premiums. This reform was complex and implemented in several stages. We discussed every stage of it with you, at parliament proceedings, and in the course of various panel discussions. Finally, last year, we switched to this scheme of significant 4/6  BIS central bankers' speeches  customisation of insurance premiums. In our opinion, this solution is really the fairest one for people — a good driver should not pay for those whose driving involves risks and causes accidents. This approach is in line with the concept of balanced development in this segment. We can see that the number of complaints regarding OSAGO decreased already by a quarter last year. Moreover, a similar reduction was recorded in complaints about the calculation of the bonus-malus coefficient. This was an acute issue, and we also discussed it here, in the Parliament. Furthermore, although prices for components and imported spare parts were up, insurance rates remained the same, and OSAGO was affordable.

Negative interest has led to a decline in interest rates on the money and capital markets, which has been quite substantial in some cases. Mortgage rates have only dropped slightly, however. Fritz Zurbrügg and Andréa Maechler will discuss interest rate developments in more detail later. After the discontinuation of the minimum exchange rate, the Swiss franc appreciated significantly in trade-weighted terms. This was partly due to the fact that the euro had reached a low point in early 2015 in the context of the Greek crisis. Our expansionary monetary policy has since helped to weaken the Swiss franc. Since January 2015, the franc has offset about half of the effective appreciation. It nevertheless remains significantly overvalued. Monetary policy outlook Ladies and gentlemen, let me summarise my main points. Our monetary policy is based on two key elements – the negative interest rate and our willingness to intervene in the foreign exchange market. Unlike during the period when the minimum exchange rate was in force, we now decide on a case-by-case basis when – and on what scale – we will intervene. Our monetary policy aims to have a stabilising effect on the price level and to support the economy. The negative interest rate and our willingness to intervene make the Swiss franc less attractive and thereby help to achieve these goals. The persistently low interest rate environment presents a challenge for savers and investors. However, it is important to emphasise that negative interest is an absolutely essential instrument at this point in time.
This concept covers a significant number of possibilities, some of which are the direct decision of the central banks while others rely on other authorities. For example, the potential risks that could be generated in the real estate sector have driven some regulators and supervisors elsewhere to use a series of prudential instruments to safeguard the financial system and reduce the sector’s volatility. Worth mentioning are the limits to the loan to value ratio, the limits to the ratio between debt and income, changes in the credit risk weighting, and capital requirements. The particulars of these measures vary from country to country, but normally more than one of them applies and entails coordination of several authorities. Because of its short history, a full evaluation of the results is yet to be done. The Financial Stability Board, created one year ago in Chile, is a proper instance of coordination to analyze these issues. In any case, the Board follows closely the evolution of the external and domestic macroeconomic scenarios and their implications on inflation, and reiterates its commitment to conduct monetary policy in such a way that projected inflation stands at 3% over the policy horizon, as well as to continue to closely monitor any risk factors that could affect the financial stability of the country. Let me finish with some reflections. Final reflections The Chilean economy is in a good standing.

1  The circumstances in which financial markets can affect the real economy were covered in my speech: ‘Market finance and financial stability: will the stretch cause a strain?’ (February 2018). 3  All speeches are available online at www.bankofengland.co.uk/speeches  3  So as we consider the bear of stretched valuations in credit markets and the bergs of leverage and liquidity that could affect the resilience of those markets, I’ll look at whether each is an issue just for market risks or also of relevance to the wider economy too. Let’s begin with the moonwalking bear in debt markets. Consider this:  The yield on a basket of dollar-denominated corporate bonds is now closer to the expected average short-term risk-free rate over the life of those bonds than at any time in the past twenty years (see slide 3). The premium investors earn for taking interest rate and credit risk is squeezed. On the face of it that suggests an unusual degree of investor confidence about the interest rate outlook and corporate prospects generally.2 This compression of the premium has meant that – unusually – dollar corporate bond yields haven’t risen, even as the US risk-free rate has. (slide 4)  Perhaps companies, globally, have become less risky? That seems to be the view in the market for credit default swaps at least. Two years ago, the average annual premium of insuring against investment-grade corporate default was 85bp of the amount insured. Today, it is 50bp.
How do we see our objectives in the current conditions? Our priority task remains unchanged– it is the price stability. Despite a leap in inflation last year and earlier this year, our medium-term inflation target is still 4%. We estimate it to be achievable. Another important task is to maintain financial stability amid current turbulence. And third, we ultimately aspire to creating balanced macroeconomic conditions to put the economy on the track of sustainable economic growth. We will have to tackle these issues in challenging external conditions. The pace of the global economic growth will not be high; other countries’ monetary policy will keep influencing the Russian economy; the oil market is likely to remain unstable. Therefore, the economy will have to adjust to the new realities when both oil prices and exchange rates fluctuate both upwards and downwards. A few words on the banking industry. Economic developments of the last year could not help but impact banks. Generally, all the economic indicators showed quite good dynamics last 2  BIS central bankers’ speeches  year – assets and lending were on the rise. Profits, though 40% lower than in 2013, were non-negligible at the level of 600 billion rubles. However, the situation certainly began to change. We can see slower lending rates. In some months of the year we have registered losses in the banking system as a whole. Profits in January-May this year amounted to nine billion rubles.

Financial market conditions are expected to be increasingly complex with rapid changes in technological advancements. The ever-changing geopolitical positioning also continuously shifts investment priorities and risk appetite. Closer to home, while domestic growth is expected to remain sustainable, many uncertainties and challenges persist, and thus it is critical to ask ourselves, how do we respond? With the current 10-year Financial Sector Blueprint approaching the end of its horizon in 2020, the time has come to chart our path for further development. At the Bank, we are in the midst of 2/4  BIS central bankers' speeches  much research, analysis and formulating possible paths for our future. Based on this, we will be looking to engage financial markets stakeholders to set the framework for market development over the next five years. We have set a shorter horizon, acknowledging that in this era, changes occur rapidly and the longer horizon is rife with greater uncertainty than before. While these discussions are ongoing, I wish to share three main focus areas for the next plan as follows: Firstly, given the active adoption of advanced technology in all aspects of our lives, the digitisation of the financial markets is not only an obvious step forward but an inevitable one. With evolving business practices and economic activities, there is urgency for us to adapt and elevate our infrastructure to ensure that our markets remain competitive and dynamic, while preserving an environment of financial and market stability.
On one side of this line is the self-improving cycle of increased saving, investment and growth – the patience path. On the other is the self-destructive path of increased volatility and consumption – the impatient path. China today is an intriguing mix of the two paths. Patience is the dominant gene in the high savings rates of households and corporations. Yet the impatience gene is dominant in the behaviour of frothy equity and property markets. Finance in China is being buffeted by opposing winds – the mild east and the wild west. Dynastically, it is part Ming, part Yuan. China today is proof that financial innovation can be a double-edged sword. It is important to keep on the right side of that sword. That calls for careful sequencing of financial reform, in China and elsewhere. (b)  If excess volatility in market prices is a distortionary tax on long-duration investments, policy measures may be needed to offset this distortion. Pigou’s defective telescope may need to be repaired, perhaps reversed. One way of doing so is to provide incentives for longer-duration asset holdings. Another would be to introduce disincentive devices for short-termist behaviour: holding period-related levies on financial investments is one such example. 42 A third potential instrument is governance – for example, some have proposed that voting rights and the appointment of board members could be made conditional on the duration of equity holdings. 43  (c)  Impatient preferences can be constrained by pre-commitment devices – diets, exercise regimes, tattoos of your partner’s name.

Nowhere are these trends more striking than in the market for CEOs in a particular high profile, high finance industry – the football industry. As high frequency traders are to the financial sector, football clubs are to the corporate sector. In the English Football League, the average tenure of departing football club managers has close to halved since 1993. 41 Today, it stands at less than 1 ½ years, a managerial half-life of less than a full football season. Put differently, there are 92 English football league clubs. Among that 92, only two managers – Sir Alex Ferguson at Manchester United and Arsene Wenger at Arsenal – have been in post significantly longer than the average departing CEO in non-football companies. Since 1993, these two clubs have between them won the Premier league on three-quarters of occasions. Patience has brought its own reward. 38  For example, Campbell and Shiller (1988). 39  For example, Black and Fraser (2002), Cuthbertson et al (1997). 40  Karlsson et al (2008) and Favaro et al (2010). 41  League Managers Association (2010). 12  BIS Review 114/2010  Patience and public policy This evidence is no more than illustrative. But it does point to the potentially adverse sideeffects of improved information and liquidity in markets. The public good of information and liquidity may unleash the public bad of myopia and volatility. So what are the potential public policy implications? These include: (a)  Countries, like China, embarking on financial liberalisation need to walk a fine line.
BIS central bankers’ speeches  5  liquidity to meet their obligations: the CCP would simply perform a write-down of its outgoing payment obligations to clearing members with “in the money” positions. To the extent that this tool would hit members which are not liquidity- constrained, it is more reliable and the systemic impact could be less. So although it could lead to unequal loss allocation among clearing members and create ex ante uncertainty on the burden sharing of the cost of default,15 it could also mitigate pro-cyclicality concerns to a certain extent. Another series of measures to be considered by authorities are the voluntary or forced allocation of open positions among clearing members. These measures would help CCPs reestablish a matched book following a participant default. In my view, if authorities choose to promote these tools, we should take care to encourage voluntary measures to the extent possible. Indeed, forced allocations could lead to effects which are difficult to control, for example by requiring participants to take on positions which are not closely related to their clearing activities, and for which they cannot adequately measure risks, particularly in volatile market conditions. A last-resort option could be a partial or complete tear-up of open positions, but this could cause significant disruption to the products and markets where contracts are terminated, and therefore should be avoided to the extent practicable. A solution which seems to be supported by parts of the industry would be to dedicate an additional tranche of the CCP’s capital for recovery needs.

While increases could be discussed, I believe it may not be advisable – for the reasons already outlined above – to place the entire burden of extra loss-absorption on CCPs. For the sake of completeness, I would also like to mention alternative recovery tools such as the proposal by a consortium of insurers to provide coverage for extreme tail losses, or the idea that CCPs should issue bail-in-able debt instruments. Such solutions deserve consideration as they can enhance market discipline, but they require further analysis before being truly considered as viable options by authorities. For example, it is unclear whether there would be a deep enough market for CCP bail-in-able debt, given the tail nature of the risk being priced, and the risk that demand will be exhausted once the total loss-absorbing capacity proposal for banks is calibrated and implemented. You will note that I have not made any mention of emergency liquidity provision to CCPs by central banks. A fundamental principle is that it is up to the CCP to maintain adequate and robust liquidity arrangements, both in normal and crisis times. If a clearing house believed that it could easily and readily access central bank liquidity, this would weaken its incentives to make the necessary arrangements. Of course, there can be cases where all the necessary arrangements have been made but the CCP is facing losses beyond what was predicted and needs temporary liquidity support while remaining solvent.