samchain/econo-pairs-v1 huggingface dataset:
Our second priority is to accept the challenge of the new responsibilities that you, Chancellor, have asked the Bank to take on in respect of micro prudential regulation and macro prudential control of the balance sheets of the financial system as a whole. I welcome those new responsibilities. Monetary stability and financial stability are two sides of the same coin. During the crisis the former was threatened by the failure to secure the latter. The experience of the financial crisis taught us two important lessons. The first is that, whatever its theoretical attractions – and there certainly are some – putting prudential regulation into the same organisation as the oversight of consumer protection and market conduct didn’t work in practice. The two types of regulation require different skills and a different approach. Separating them – the so-called “twin peaks” model of financial regulation – is the right direction of reform. That conclusion is not a reflection on the people who work at FSA. They are an able group and have worked hard to improve prudential regulation over the past three years. I look forward to working with them in the future. Nor does it follow from this first lesson that prudential regulation should necessarily go to the central bank. 2  BIS Review 84/2010  But a second lesson is that when banks hit trouble the central bank needs to be fully involved in resolving those problems.

Mervyn King: Monetary policy developments Speech by Mr Mervyn King, Governor of the Bank of England, at the Lord Mayor’s Banquet for Bankers and Merchants of the City of London, London, 16 June 2010. *  *  *  My Lord Mayor, Mr Chancellor, My Lords, Ladies and Gentlemen, May I join the Lord Mayor in welcoming you, Chancellor, to your first Mansion House Dinner? You have set a rapid pace in your first month in office, not least in your announcements this evening. In previous years I have sometimes set this gathering a quiz question. Tonight I want to reverse the process by providing the answer and asking you for the question. The answer is 23, and later I shall ask you – to what question is 23 the answer? Over the past year, there has been no slackening in the pace of economic and political upheaval. The financial crisis that began in 2007 is not yet over. Much of the recent market volatility reflects concerns about the ability of governments to service their own debt and provide assistance where necessary to weakened banking systems, especially in the euro area. Such risks have the potential to derail recovery and we cannot ignore them. At home we face the challenge of ensuring recovery while rebalancing the economy, reducing the fiscal deficit, and reshaping the structure and regulation of our banking system. In playing its part to meet this challenge, the Bank of England has two priorities.
In particular, they would be able to respond appropriately to changes in interest rates and other variables in the rest of the world. If countries nevertheless choose a peg to the dollar, with capital inflows, bubbles, and other negative effects, they are themselves responsible for those effects. Consider the following thought experiment.6 Let the world consist of two large economies, called the domestic and foreign economy, respectively. Let the domestic economy be an emerging-market economy with flexible inflation targeting, a flexible exchange rate, and free capital flows. Suppose that the domestic economy is initially in an equilibrium with the inflation forecast on the inflation target, the resource-utilisation forecast at a sustainable level, a constant exchange-rate forecast, zero capital flows, and a given policy-rate path consistent with this. Suppose the foreign interest rate falls, due to more expansionary monetary policy in the foreign economy in order to increase demand and activity in the  5  Eichengreen, Rajan, and Prasad are members of the Committee on International Economic Policy and Reform, a non-partisan independent group of experts (academics and former government and central bank officials). In its September 2011 report (Eichengreen et al. 2011), the committee suggests that “[m]echanisms should (…) be developed to encourage large-country central banks to internalize the spillover effects of their policies.

Of relevance is that excessive risk-taking behaviours featured prominently as a key factor contributing to the Crisis. In addition, what makes the Global Financial Crisis different is the extent of the economic and financial inter-linkages within and across borders, which explains the far-reaching impact of the crisis. While the greater interconnectedness of economies and financial systems has brought about opportunities, it has also resulted in greater risks. The Global Financial Crisis has resulted in the re-assessment of how policymakers view the achievement of macroeconomic and financial stability. There is a growing recognition that emerging risks to macroeconomic and financial stability have to be identified and managed in a more holistic and effective manner. As the economy and financial system grow in complexity, policymakers have to strengthen the understanding of the macroeconomic and financial inter-linkages in order to be able to effectively assess the implications of any potential risk on the economy. Before the Global Financial Crisis, the predominant view was that unfettered markets, selfcorrections and minimal interventions would deliver the best economic outcomes. However, recent experiences have shown that policy interventions to correct market misalignments after a crisis may prove too late as the aftermath could be extremely costly. This, therefore, call for policies to be pre-emptive rather than reactive. For policymakers, the aim is to preserve macroeconomic and financial stability, and build the country’s resilience to shocks. Macroeconomics stability is a very important prerequisite for businesses and individuals to undertake economic activities.
Individual lenders fail to take into account that their behaviour has an impact on the ability of other market participants to bear debt. This applies, for example, when investors are increasingly exposed to the same risks and invest in the same markets. For instance, let us assume that a large number of companies or households simultaneously take out loans to purchase real estate. This situation creates systemic risk because a negative surprise on the real estate market can lead to many of these investors incurring losses at the same time, forcing them to sell off their assets so that they can continue meeting their loan 15  On ‘Black Monday’, 19 October 1987, the Dow Jones index plunged by more than 20%. As a result, equity markets around the world came under heavy pressure. Page 8/16  commitments. This can generate a self-reinforcing spiral of falling real estate prices, more borrowers who can no longer service their debts, and thus greater pressure to sell. Distorted expectations  Moreover, the behaviour of economic agents during a credit boom is not always entirely rational. This brings us to the third factor that can contribute to excesses on the credit market – distorted expectations (cf. slide 12). A glance at the history of financial crises shows: The longer an economic upturn persists, and the higher asset prices rise at the same time, the more over-optimistic economic agents are about future growth.

But, you might say, the behaviour of borrowers and lenders, whether rational or based on distorted expectations, ultimately depends on interest rates. Only if interest rates are low, can such a dynamic develop. Interest rates in turn are strongly influenced by central banks. In the last part of my speech I would like to address this argument, and discuss the question that has come back into focus since the financial crisis: What role do central banks play in the event of excesses and crises on the credit market? The fundamental task of central banks like the SNB is to ensure price stability, while taking due account of economic developments (cf. slide 17). The main instrument they use for this are key or reference interest rates. If, for example, the inflation rate threatens to fall too low, key rates are lowered. This has a positive impact on price development via various channels. 19 One of these is loans: An interest rate cut reduces borrowing costs and creates incentives for expanding the credit supply. This encourages investments and consumer expenditure and ultimately has a positive effect on price development, too. With their interest rate decisions, central banks therefore consciously influence lending practice. If, for price stability reasons, interest rates have to be kept low for a prolonged period, it is possible that over time there  18  SFBC (1998). 19  The literature distinguishes different channels through which monetary policy can impact on aggregate demand and thus inflation.
And now let me conclude with a fact of life that is all too true: dinner speeches are always too long. There is no way to spin this any other way. So thank you for all your good work, and thank you for your attention. 4/4  BIS central bankers' speeches

Indeed, young people were the first to regain their confidence in the European Union after the Global Financial Crisis. More recently, their greater trust in the EU can be tracked to their attitudes towards globalisation. Recent research shows Europeans are more positive about the Union if they grew up when their country was already a member and, in particular, if their feelings towards immigration and globalisation were also positive. In a globalised and polarised world, the European model embodies a certain vision of the future of relations between nations. It is one based on strong and supportive institutions that protect citizens’ economic and social well-being. Crucially, the European project was forged around its members’ consensus and a tradition of understanding; a cooperative vision that transcends the continent’s frontiers and fosters a multilateral approach to global challenges. This multilateral approach is now more important than ever since most of the structural challenges facing our economies are global and, therefore, require a global response. And Europeans can and should play a key role in promoting this multilateral approach. Trade, global barriers and the COVID crisis One crucial area where multilateralism should be promoted globally is trade. In the current context, global barriers can only be obstacles to the economic recovery that should follow the dramatic economic crisis caused by the pandemic. Take the production of the Pfizer and Moderna vaccines as examples.
The idea is that if the central bank uses an active policy to do so, then it’s to correct distortions that exist in financial markets and ensure that lending rates to businesses and households in the economy as a whole are at the right level to get to the level of activity that would be desirable. If there are rigidities and distortions in the private sector that do not engineer the smooth functioning of the economy, then public intervention is fully justified. It does not add up to manipulation because the reality is not perfect to start with. I’m just now thinking in very abstract terms; this was never discussed at the ECB’s Governing Council. This is my personal take on possibilities; it is not more than that. We didn’t start any discussion about the medium-term future of monetary policy, it’s too soon in Europe to start thinking about that. But I’ll just say it’s a possibility and it can work. We could buy more bonds to enforce it – the 33% 1/8  BIS central bankers' speeches  limit [that the ECB has on buying all of the outstanding stock of a country’s government bonds] is a self-binding decision by the Governing Council. That decision could be slightly changed, theoretically, of course. What about the use of the other non-standard measures? There is a view that some of the tools, such as the Outright Monetary Transactions (OMT) programme, are closely linked with the current ECB leadership and not as much with the ECB itself.

The joke in the American camp at the beginning of the 1980s was that macro is just bad micro, meaning that the models had become dominated by the idea that agents make optimal economic decisions over infinite horizons into the future and that markets therefore tend to be selfequilibrating towards a single steady state. Central banks’ standard models – DGSE [Dynamic General Stochastic Equilibrium] models – have been transformed in many ways, but the 1980s view has still not fully disappeared. This has to change. Economic agents clearly have finite horizons, which impact on their consumption decisions. People do not optimise and plan their lives up to their death. Nor does the financial sector play as important a part in models as it should. The possibility of multiple equilibria has also to be introduced; there are fallacies of composition, there are coordination failures. All these elements have to become part and parcel of macroeconomics; macroeconomics is not just the aggregation of individual decisions by optimising agents, we should not just assume everything moves towards a general equilibrium of competitive markets. The absolute minimum that has to happen is to rid macroeconomics of the imperialism of a certain type of microeconomic foundations; a new core model for macroeconomics has to emerge. If agents act in different ways, we also have to address the question of income distribution. And fortunately there are already models, so-called HANK models, Heterogeneous Agents New Keynesian models, that consider this.
By taking firm pre-emptive action, we have shown what the new judgement-led approach to supervision means in practice. It substitutes substance for process and judgement for box-ticking. We need not more but better regulation and, just as with monetary policy, we have changed the way regulatory decisions are made. The PRA announcement tomorrow is another step in dealing with the legacy of the past. It will make our banking system more resilient and better able to support recovery. But it is too soon to say that the job is done. Many of our major lenders will still be highly levered. The levels of capital required by the Vickers reforms, on the one hand, and the Basel standards for large international banks, on the other, mean that there is clearly some way to go before we can claim to have a really well-capitalised banking system. In future, the FPC and the PRA will work together to conduct regular stress tests of our banks, starting in 2014. Those stress tests will I am sure be made public, and banks will be expected to set out their plans for making up any identified shortfall in capital. Managing this process, and the transition to a higher level of capital, will be key tasks for the FPC and PRA in the coming years. Those who argue that requiring higher levels of capital will necessarily restrict lending are wrong. The reverse is true. It is insufficient capital that restricts lending.

But we must also ensure that our financial system is truly reformed in a way that reflects the lessons of the financial crisis. At this Dinner six years ago, before the crisis began, I said, “Excessive leverage is the common theme of many financial crises of the past. Are we really so much cleverer than the financiers of the past?” We are all much wiser now. And this country can claim to have been in the vanguard in learning lessons. Much has been done. But we cannot be complacent. As the memories of the crisis fade, and those who saw it at first hand retire, it is vital that the ‘audacity of pessimism’ is not lost. We must deal once and for all with the problem of financial institutions that are too big, or too important, to fail. Some progress has been made. When the crisis hit, we in the UK had neither an effective deposit insurance scheme nor a resolution framework to deal with failing banks. Now we have both. But there is unfinished business. Although the UK is leading the way in the development of agreements among regulators worldwide as to how the largest banks could be resolved, managing cross-border resolutions is still fraught with difficulty. We also need to implement the proposals of the Independent Commission on Banking as soon as possible, including the ‘ring-fence’ to separate commercial from investment banking, and the leverage ratio.
1973, P. 208  BIS Review 2/2001  1  against the yen. It took place in an environment where neither current nor expected inflation differentials have changed to any noticeable extent. Second, the volatility of floating exchange rates by far exceeds the volatility of the fundamentals. It is impossible to explain short- and medium-term exchange rate fluctuations with the aid of traditional fundamental factors such as inflation and productivity differentials. Against the background of such experiences, it is hardly surprising that two considerations characterise the ongoing discussion on currency regimes. First: Floating versus pegging is not a question of right or wrong. What seems appropriate for one country may be a bad choice for another economy. Structural differences in trade flows, productive capacities, features of the financial sector and the credibility of the political process may result in different choices. Second: Even among ardent protagonists of floating the dogmatic position that central banks should take an attitude of benign neglect towards exchange rate movements is out of favour. The exchange rate is generally regarded as a core determinant of monetary conditions to be carefully taken into account when money market interest rates are set. This aspect of policy making is of particular importance in small and medium-sized, open economies. Short- and medium-term adjustments – Muddling through in ignorance Taking the Forex environment into account, however, does not mean actively steering exchange rates by fine-tuning. Such an endeavour would not only jeopardise stability goals.

Christian Noyer: A new regulatory framework for a new financial system Speech by Mr Christian Noyer, Governor of the Bank of France, at a round table discussion at the University of Paris-Dauphine, Paris, 11 December 2008. *  *  *  Ladies and Gentlemen, It is a great pleasure for me to take part in this round table discussion. Today, the prevailing view is – and justly so – that it is necessary to rethink financial regulation. There are two reasons for this: a)  Financial markets and banks are, more or less strongly, confronted with problems of asymmetric information;  b)  Operational inefficiencies may arise, leading, in some extreme cases, to the seizing up of certain market segments. Needless to say that these imperfections are interconnected. In many respects, the financial crisis is the expression of these imperfections. Three examples can be used as an illustration. The underestimation of risk and the mispricing of assets during the upswing of the financial cycle show that markets may generate excess investment in certain sectors of the economy (e.g. the US real estate sector). Furthermore, it appears that financial innovation and the change in banks’ economic models have resulted in a significant increase in information asymmetries and, more importantly, in lower incentives for economic agents to pay attention to these asymmetries. Lastly, the fact that some market segments seized up during the crisis suggests that some infrastructures necessary for their functioning are lacking.
Bank of England (2008), The Development of the Bank of England’s Market Operations: a Consultative Paper by the Bank of England, available at http://www.bankofengland.co.uk/markets/money/publications/condococt08.pdf. Barro, R. J. (1979), “On the Determination of the Public Debt”, Journal of Political Economy Vol 87(5), University of Chicago Press. Beale, N., Rand, D., Arinaminpathy, N. and May, R. M (2009), Conflicts between Individual and Systemic Risk in Banking and other Systems, forthcoming. 23  Kashyap and Stein (2008), NYU Stern School of Business (2008). 24  Tucker (2009). BIS Review 139/2009  11  Berger, A., Herring, R., and Szegö, G. (1995), The Role of Capital in Financial Institutions, Journal of Banking and Finance 19. Capie, F., and Billings, M. (2004), Evidence on competition in English commercial banking, 1920-1970, Financial History Review, Vol.11. Caprio, G. Jr. and Honohan, P. (2008), “Banking Crises”, CDE Working Paper Series. Committee on the Global Financial System (2008), “Central Bank Operations in Response to the Financial Turmoil”, CGFS Papers No. 31. Demirguc-Kunt, A., Kane, E., and Laeven, L (2008), Deposit Insurance around the World: Issues of Design and Implementation, MIT Press. Dudley, W. C (2009), “Some Lessons from the Crisis”, Remarks at the Institute of International Bankers Membership Luncheon, New York City. FSA (2009), “Strengthening Liquidity Standards – Including Feedback on CP08/22, CP09/13, CP09/14”, Policy Statement 09/16, available at http://www.fsa.gov.uk/pubs/policy/ps09_16.pdf Grossman R. S (2001), “Double Liability and Bank Risk Taking”, Journal of Money, Credit and Banking Vol. 33 No. 2.

2  BIS Review 14/2003  I particularly welcome the efforts of Sir David Tweedie and his colleagues at IASB in addressing so openly the hugely difficult task of getting the right balance and right principles into place. Many of us can see I think that the financial instruments standards IAS 32 and 39 have provoked significant and strong views. Wisdom, foresight and a certain forbearance will be needed if we are to achieve a good solution. So we should all welcome the present initiative of the IASB in holding a series of roundtables with respondents to their exposure drafts on revisions to IAS 32 and 39. Debate and efforts in relation to these particular standards seem to me to be vital. They get to the heart of the dilemmas and challenges presented by new financial techniques and often complex instruments. It has after all been shown, in the Enron case if no others, that detailed and prescriptive accounting standards, in the wrong hands, can engender a moral hazard in the search for ways round them which investment bankers and lawyers may well be expected to find. A similar logic applies in the prolonged debate between historic and mark-to-market accounting principles. Once again, whichever approach is used, neither of them will tell the whole story in terms of the underlying economic realities of a bank's risk and return, nor how the risks are managed. But forms of disclosure may help.