samchain/econo-pairs-v1 huggingface dataset:
First of all, was it true? Secondly, if it was, why? And thirdly, if indeed there was an arbitrage opportunity then how could we unlock its value? I remember feelings of frustration. Somehow we couldn’t quite see how to reconcile some of the essential differences, including regulatory and accounting distinctions. To say nothing of the language or jargon used in the two sectors. Well, the rapid growth of the derivatives industry during the late 1980s changed all that! All sorts of new instruments for exploiting arbitrage opportunities like the one I described came into being. The different aspects of risk were unpicked and recombined. Those developments depended partly on new information technology. And, together with securitisation the functional divide was crossed. That evolution provided colossal commercial opportunities and enhanced general economic value. I recall this because it’s a good example of how technical advances, some rocket science and market forces have changed the fortunes and capabilities of two great industries. And today, even though we don’t have full integration we certainly have greatly increased interdependence and linkages. Just take the involvement of the insurance industry in credit risk transfer as an example. And just as with a lot of interdependencies you get network effects with undoubted economic benefits on the one hand, but potential vulnerabilities on the other. Maybe I can start by making a few observations on the vulnerabilities - increased risk to firms or the overall financial system - that were less significant until the interconnections appeared.

Andrew Large: Convergence in insurance and banking - some financial stability issues Speech by Sir Andrew Large, Deputy Governor of the Bank of England, at a conference in the Mandarin Oriental Hotel, London, 12 June 2003. *  *  *  Introduction In getting together my remarks, I found myself wondering why you asked me, a central banker and former investment banker, to address this illustrious gathering of the insurance industry. What is it that makes central banks so interested in insurance? Central banks typically have two major preoccupations. Monetary stability and financial stability. Clearly those of us with an eye on the macro economic drivers which impact monetary stability cannot fail to have taken an interest in the volatility of equity markets. And that volatility has real implications for the life assurance world. Secondly, the way catastrophe and other cover can be extended in a world where terrorism is a fact of life has its own significance for the workings of the real economy. But it’s from the point of view of financial stability that I’d particularly like to develop some thoughts this morning. After all financial stability is about identifying and countering risks and threats which could ultimately impact confidence in the banking or wider financial system.
Davíð Oddsson: Promoting price stability and an efficient and safe financial system Speech by Mr Davíð Oddsson, Chairman of the Board of Governors of the Central Bank of Iceland, at the annual meeting of the National Federation of Pension Funds, Reykjavik, 18 May 2006. *  *  *  I thank the management of the National Federation of Pension Funds for inviting me to speak at this distinguished gathering. Various tasks are assigned to the Central Bank in the Central Bank Act. Article 3 states that its main objective is to promote price stability, and that by agreement with the Prime Minister, the Central Bank can declare a numerical target for inflation. According to Article 4, the Central Bank shall undertake such tasks as are consistent with its role as a central bank, such as to maintain external reserves and promote an efficient and safe financial system. The Bank is thereby assigned a role connected with financial stability. In my speech today I shall discuss these important Central Bank tasks, i.e. promoting price stability and an efficient and safe financial system. My concluding remarks will address the pension funds in particular. Economic developments and the inflation target The past few months have been eventful for the Icelandic economy. GDP growth has been robust over the past few years and a combination of factors caused private consumption to surge in 2005.

In my opinion, the pension funds’ increased foreign investments, made strictly with their own interests in mind, are likely to affect currency developments favourably. When the króna remains strong for a prolonged period, pension funds are more likely to sell holdings denominated in it and invest those funds externally, with the effect of a stabiliser. And vice versa, they are likely to buy weak krónur after profit-taking, thereby contributing to a recovery of the domestic currency. In such a scenario, pension funds would serve a secondary role as a foreign exchange reserve, even if they were acting solely in the interest of their own clients. The Central Bank’s Monetary Bulletin, published in December 2005, included an in-depth article on Pension funds – Future prospects and uncertainties by Guðmundur Guðmundsson and Kristíana Baldursdóttir. The study found that pension fund assets could peak at more than double the value of GDP. However, the pension funds’ future profitability is fraught with uncertainties. The most important criterion is return on investment, which could change and drastically affect the level of contributions required to sustain the pensions that the funds are expected to pay. Changes in life expectancy and disability expectancy will have some effect, although these are not as crucial as the uncertainty over return in investment. This indicates that the most important task ahead for pension fund management will be to optimise their return on investment, within the prudential limits that pension funds must respect.
In a quarter of the cases, which were mainly countries with limited real exchange rate depreciation, annual GDP growth fell by 3½ percentage points on average. 11 There are dangers too for surplus countries. Large foreign exchange inflows are not easy to sterilise. They tend to contribute to asset price bubbles and higher inflation which itself can undermine economic and financial stability. The effect of such inflows into China and oilexporting countries have been compounded recently by their exchange rates being pegged or managed against the falling dollar. This has contributed not just to the build up of reserves and SWFs but also to the build up of inflationary pressures within these countries. No one would blame EMEs for the current turmoil in Western financial markets. It has been generated at home by the widespread mispricing of financial assets; this has been most obvious among the assets based on the US housing market but it is not confined to that sector. However the way that the boom developed did owe a great deal to global imbalances. The “savings glut”, to quote Ben Bernanke 12, that developed in the oil exporting countries and China contributed to the fall in real long-term interest rates. 13 In the UK, for example, real long-term interest rates, measured by the difference between the nominal 10-year government bond yield and the annual rate of inflation, fell from around 3.9% in 1997 to 1.6% in 2005. A similar pattern was also evident in the US (Chart 6).

Ladies and gentlemen, Non-bank financial institutions are a significant component of the financial sector as their assets constitute a significant proportion of the total financial sector assets in most countries in the region. Similarly, microfinance institutions play a critical role in poverty alleviation and economic empowerment of marginalized communities in our region. As such these institutions are systemically important as they can exacerbate the fragility of the financial system particularly where there is lack of effective regulation. Over the past few years, we have seen a trend where these institutions have increased in numbers in our region; some have been established as part of financial conglomerates while others are on a standalone basis. Sadly, our supervisory and regulatory structures for this sector in the MEFMI region have remained rather incoherent and somewhat underdeveloped to handle the challenges that have been identified with this sector. The trend makes it more important than ever for supervisors in the region to get together and talk about matters of common interest. I am pleased to note that over the past few years, the region has taken a proactive stance towards promoting harmonisation of regulatory and supervisory frameworks and the integration of financial systems. Through MEFMI, SADC, COMESA, the East African Community (EAC) and the West African bloc, member central banks are working together to promote effective supervisory standards geared towards achieving long term goals of financial inclusion and financial stability.
The percentage of financially constrained but viable SMEs – defined as those with positive turnover in the last six months seeking a bank loan – was estimated to have varied from around 1% in Germany and Austria to a quarter of the SME population in Spain and as much as a third in Portugal. The second part of our response has therefore been to improve the transmission of loose market financing conditions into the actual borrowing conditions of firms and households. In this context, between June and September last year we launched our credit easing package to strengthen banks’ incentives to improve the availability and lower the price of credit. In parallel, we gave our full technical and operational support to the Comprehensive  BIS central bankers’ speeches  1  Assessment of bank balance sheets – the supervisory exercise aimed at forcing banks to acknowledge non-performing exposures and to raise provisions and capital where needed. This exercise was powerful in the sense that it accelerated what had until that point been a slow process of balance sheet repair in the euro area; banks strengthened their capital by over € billion in advance of the outcome. In this way the new monetary policy impulse coming from our credit easing package coincided with a banking sector in a stronger position to transmit it. But as these measures were coming into effect the euro area was hit, like all advanced economies, with a further downward shock to inflation emanating from the steep fall in global oil prices.

In an environment of increased uncertainty about  BIS Review 27/2001  1  the global economy and its impact on the euro area, the Governing Council is carefully assessing whether and to what extent upward risks to price stability will continue to decline. As far as the first pillar of our monetary policy strategy is concerned, the decrease of money growth indicates that upward risks to price stability have receded. As for the second pillar, domestic upward price pressures may decrease as a result of somewhat lower than expected GDP growth in the euro area. However, due to the risk of secound-round effects from past oil price increases, wage developments will be monitored carefully, as these might result in upward price pressures. In the financial sphere, the advances in information and telecommunication technologies have started to have their effects. This was perhaps even more visible than in the non-financial sphere. In the banking sector, a development that has attracted considerable attention over recent years is the emergence of internet banking. The first financial products and services to be distributed over the Internet were rather standardised ones, in fields such as securities brokerage and payment services. More recently, a wider array of financial products and services have become available over the internet, which has thus become an important distribution channel for a number of banks. Many banks in the euro area have already developed the internet channel to various degrees.
Few have implemented integrated policies, key indicators and metrics, mitigation strategies, detailed monitoring, and risk appetite statements. We recognise that there are some areas where the science, data or tools are not yet sufficient to estimate risks accurately. But in these cases firms can and should explore the use of reasonable proxies and assumptions to work around these issues, rather than leaving risks unrecognised. Imperfection is not an excuse for inaction. Supervisory expectations and working with industry We set out our supervisory expectations of firms’ approach to managing the financial risks from climate change in April 2019, covering governance, risk management, scenario analysis, and disclosure.13  At the time we said we would follow up with further guidance to industry. And today we are publishing that guidance in the form of a Dear CEO letter.14 In which we are being clear that we expect firms to have fully implemented these supervisory expectations by the end of 2021. As I said earlier, addressing the risks and opportunities from climate change in the financial sector is a shared and unprecedented challenge, for which we do not yet have a comprehensive how-to-do-it manual. To help address that, in March 2019, the PRA and FCA established and co-chaired the Climate Financial Risk Forum (CFRF) to work with industry to build expertise and share best practice on managing climate-related financial risks.15  The Forum brings together banks, insurers, asset managers, and other key stakeholders to consider challenges around climate disclosure, scenario analysis, risk management, and innovation in the interest of consumers.

This is something on which individual banks will have to take a view, but I would like to offer some general advice. First, banks should accept that profits for 2003 may not reach budgetted targets as a result of the outbreak; and they should not strain too much to make up the difference. When profitability comes under pressure, it is important to avoid the mistakes that might arise from over-aggressive business tactics. Keep the bank healthy from a capital and liquidity point of view in order to benefit from the business recovery when it comes, as it surely will. Banks should also monitor closely the financial position of their customers and adopt a supportive attitude to those experiencing financial difficulties as a result of the SARS outbreak. This means being prepared to offer temporary relief arrangements to borrowers who find that they cannot service their debts in the current environment. This should not be seen as soft option for customers since the banks will certainly not benefit if those customers go bankrupt. Nor do I suggest that relief should be offered indiscriminately. The long-term viability of the customer or his business, his track record and his willingness to cooperate with the bank are all factors to be taken into account in deciding whether to restructure debts. Each case thus needs to be looked at on its merits.
Yet, in the case of these countries, there is a real risk posed by speculative capital inflows. As long as negative real interest rates prevail in Europe, straying too far away from our regional peers in terms of policy rate would invite considerable appreciation pressures. While helpful in terms of taming inflation, these would not be welcome, given Romania’s increasingly significant external imbalance that is singular in the region in terms of size and trend. It owes to the faster growth of domestic absorption than that of domestic output, as well as to non-price competitiveness issues manifest in certain production sectors. Therefore, striking the right balance in terms of the interest rate differential is of the essence. After the tightening undertaken so far in Romania (including three policy rate hikes in the first half of 2018), it is probably wise to proceed cautiously in the future. 2/3  BIS central bankers' speeches  Which brings me to the last issue I would like to address: what is advisable in terms of economic policies in order to cope with any future adverse developments. For the sake of simplicity, allow me to try to formulate three general rules that are instrumental in dealing with such developments. First of all, irrespective of the possible scenarios, it is wise to put your house in order before the storm comes. One example is fiscal consolidation, which is paramount for the economy.

Mugur Isărescu: How CEE economies can face future policy challenges amid changing trade and monetary landscapes Opening remarks by Mr Mugur Isărescu, Governor of the National Bank of Romania, at the ECB conference ”Resilience to global headwinds? CESEE responses to a changing trade and financial landscape”, Session "Responses to monetary policy and financial shocks", Frankfurt am Main, 12 June 2019. * * * Ladies and gentlemen, The two keynote speakers shared with us insightful thoughts about the consequences of monetary policy and financial shocks and about the responses of CEE countries. My intervention will be structured around three issues. First, I will refer to the impact on emerging economies in the EU expected to be exerted by monetary policy normalisation in the euro area. Second, I will tackle the subject of how inflation targeting has adapted to the post-crisis global economic and financial landscape. Finally, the topic of what the CEE economies need to do in order to cope with any strong volatility headwinds will be touched upon. There is no doubt that the recovery of the EU economy in the past years was largely due to major central banks’ non-standard operations, as well as to very low interest rates. We all know that the reversal of this process also has substantial implications for the economic development, mainly through the influence of monetary policy normalisation on financing conditions or capital inflows.
In 1956, Jay Wright Forrester, an electrical engineer, switched from devising systems for detecting incoming Soviet nuclear bombs to designing systems for understanding production problems in companies. He developed the first computer models of how companies operated. In so doing, he founded the discipline that would become “system dynamics”.32 In line with Forrester’s initial insight, one of the most interesting developments recently when understanding the dynamics of companies is the creation of so-called “digital twins”.33 These are a DNA-level digital clone of a company, tracing the interactions among its moving parts. A digital twin is a high-resolution, dynamic model of a firm-level micro-economy that can be used both to understand and to simulate a company’s operations, however complex. Their use among frontier companies is increasingly commonplace. The data necessary to calibrate these digital twins is considerable, but also increasingly commonplace.34 Twenty years ago, the large American retailer Walmart created a system allowing them, and their suppliers, to monitor their complex supply-chain in close to real time.35 This transformed inventory management at Walmart and its suppliers. Twenty years on, these real-time data systems are rapidly becoming the norm. At the next level of resolution, could a digital twin be created at a town or city level? Having started with the firm, Jay Wright Forrester’s next project was to simulate a city, in an attempt to understand and help solve the US’s “urban crisis” of the 1960s. Forrester developed DYNAMO, a computer-simulated model of a city comprising 150 equations and 200 parameters.

17  All speeches are available online at www.bankofengland.co.uk/speeches  17  Chart 13: Heat maps of health in Belfast, Cardiff, Edinburgh and Inner London  Sources: 2011 Census. Notes: Data show percentage of respondents declaring themselves to be in bad or very bad health at electoral ward level. I draw two conclusions from these micro-level visualisations. First, however striking the regional differences in economic and societal health across the UK relative to historical and international standards, these conceal even more striking differences in levels of health, wealth and happiness within regions. To the extent there is an inequality issue in the UK, it is as much or more a local rather than regional one. 18  All speeches are available online at www.bankofengland.co.uk/speeches  18  A second, nerdier, point is what this means for our understanding the economy. Many systems – social, natural and physical – exhibit a pattern in which the distribution of outcomes does not converge at higher resolutions; it remains constant or even expands. These systems have a fractal property with patterns that are self-similar at different levels of resolution. Snowflakes and shorelines are the best-known examples. The violins charts suggest economic systems may also exhibit some of these properties, with distributions which do not converge at higher resolutions and may even expand. Outcomes in these systems are not distributed like a bell-shaped, Normal distribution.
Perhaps the most important program was the purchase of deteriorated portfolios by the Central Bank under a variety of schemes, including repurchase agreements, and in exchange of debt instruments, liquid resources, and a new liability called “Subordinated Obligation”. The impact of these programs on the assets side of the Central Bank balance sheet was huge, and so were the costs of the complete rescue plan. Altogether, it is estimated that only the direct fiscal cost of the Chilean Financial Crisis of 1982 reached 41% of GDP. The aftermath of the crisis The lessons learned from this crisis highlighted the fact that banking regulation and supervision needed to be substantially upgraded. In 1986, the General Banking Law introduced limitations on currency mismatch, constraints on related party lending, and restrictions for banks to receive  Page 2 of 5  Central Bank of Chile March 2019  goods instead of liquid resources; all of them, elements which were common practice before the 1982 crisis. Paradoxically, what could be considered harsher regulation did not hamper financial deepening. Instead, it fostered solvency and credibility of the banking system and allowed its healthy development in the ensuing decades. Regulation and Financial Development Credit has a valuable role in the economy. Financial intermediaries channel resources from agents that save, to agents that need to borrow to smooth consumption or finance profitable projects.

Still, there are a few challenges ahead that we need to address to have an even more robust financial system. In particular, two tasks seem more urgent than others. Namely, Resolution of Financial Institutions and Deposit Insurance. While the new Banking Law includes some provisions in this respect, by introducing stronger early-intervention measures, these need to be further  1  Based on Agosín et al. (1999) and Espinosa and Fernandez (2015). Page 4 of 5  Central Bank of Chile March 2019  developed to provide a comprehensive framework to deal with banks in trouble or on the brink of insolvency. Once the preparatory phase of the General Banking Law, including a unified supervisor, is fully completed, we hope that the Central Bank and the Government can advance in drafting a legal proposal on these issues. Certainly, these areas will be important points in the IMF’s Financial Sector Assessment Program (FSAP) update of 2020, and it is important that we get there with the job well advanced. Acknowledgements Finally, allow me to thank the presenters for sharing their interesting research insights here with us in Santiago. I also thank the organizers from the Central Bank of Chile and the IADB in putting together this rich agenda from which we will certainly distill conclusions to guide our work forward.