samchain/econo-pairs-v1 huggingface dataset:
Updating these models to take account of the volatility in asset prices seen over the past 18 months suggests measured risk increases by a half and in some cases doubles (Chart 7). Many of the models depended on relatively short runs of data – one year for many, ten years at most. So the long period of stability reduced the projected losses from a future downturn (Chart 8). But the problem goes deeper than just choosing the right sample period to estimate these VaR models. Using a longer back-run of data to re-classify August 2007 as an extremely improbable 5 standard deviation event rather than an effectively impossible 25 standard deviation event rather misses the point. The longer the build up of imbalances went on, and the larger they became, the smaller the chance that the bubble could burst without a correction. The events of August 2007 were not a bolt from the blue, an unpredictable random disaster, but the culmination of several years of developments in financial markets But inadequate models are not the only reason for being wary of putting too much weight on risk management by individual firms. There is also the vital question of incentives. Chuck Prince, the ex-chief of Citi, has been widely condemned for saying: “as long as the music is playing, you've got to get up and dance.” But in a provocative way he was doing little more than state the obvious. Firms are expected to maximise profits and if they won’t seize the opportunities someone else will.

BIS Review 21/2009  15  Chart 6 : All hands to the pump  Bank of England  Stabilisation  Equity & Efficiency  Regulation  FSA  HM Treasury  Chart 7 : Stylised Value at Risk Chart 8: The Great calculations, pre and post crisis historical context 20  VaR Pre Crisis  18  VaR Post Crisis  Stability  Density 0.60  150 years of data 10 years of data  16  in  0.50  14  0.40  12 10  0.30  8 6  0.20  4  0.10  2 0 1  16  2  3  4  5 6 Banks  7  8  9  0.00 -15  -10 -5 0 5 Annual GDP Growth (%)  10  15  BIS Review 21/2009
Furthermore, the public finances of Bulgaria remain sound and the successful fiscal consolidation is illustrated by the budget surplus last year and the third lowest government debt to GDP ratio in the EU. As for the structural reform agenda, much more remains to be done in order to resolve remaining issues and help attract increased capital flows from the EU. 1/2  BIS central bankers' speeches  We at the central bank have already planned the next steps, which will build on recent progress. Among other things, we plan to further strengthen our banking supervision, develop the crisis management framework for the banking sector, and reduce the level of nonperforming loans. To conclude, decisive actions are required at both the EU and national levels to address the current saving-investment mismatches within the EU. While expending the available toolkit is important, priority should be given to resolving the remaining underlying issues with regard to banking and financial integration, real convergence, and quality of project management. 2/2  BIS central bankers' speeches

Global exchanges – like the New York Stock Exchange (NYSE), NASDAQ, ICE and Chicago Mercantile Exchange (CME) in the US, and London Stock Exchange (LSE) in the UK, and Hong Kong Exchange (HKEx), Australian Securities Exchange (ASX) Group and the Japan Exchange (JPX) Group in Asia – are also SROs. This brings me to my next point. 16. There is no single “correct” model for the SRO. Neither is a particular model cast in stone and unchangeable. The division of regulatory responsibilities between the statutory regulator and the exchange’s SRO function – or some other regulatory model – has to reflect and adapt to each jurisdiction’s circumstances, market environment and other idiosyncrasies. To illustrate this diversity: •  In the US, the SEC has primary responsibility for reviewing IPO filings made by companies. Member supervision is undertaken by the Financial Industry Regulatory Authority (FINRA), a separate industry SRO which supervises all securities broker dealers. US exchanges are responsible for market surveillance, although some have outsourced the duties to FINRA. •  In UK, the LSE performs market surveillance and member supervision, while listings are approved by its statutory regulator i.e. the Financial Conduct Authority. •  In Asia, HKEx, JPX Group and ASX Group perform all SRO functions in the areas of listings, member supervision and market surveillance, much like in Singapore. There may also be additional structures and processes in place to supplement the SRO functions. For example HKEx has an independent Listing Committee that makes all formal decisions on listing applications. 17.
Second, the economy is already highly integrated with that of the EU. This is borne out by trade flows, as well as by a comparison of Malta’s economic structure in terms of the sectoral distribution of value added and employment with that of the Union. In addition, differences in productivity levels between Malta and the EU in the traded goods sector have been found to be small, which suggests that the Balassa-Samuelson effect is unlikely to be strong. Moreover, economic integration will deepen as barriers to the movement of goods, services and factors of production are removed as part of the accession process. These factors, which attest to a significant degree of real convergence, support an exchange rate regime based on a peg to the euro. Empirical evidence indeed shows that the exchange rate peg has been a valuable nominal anchor, restraining price and wage increases. In fact, inflation has averaged just 2.6% in the past five years, indicating a considerable measure of nominal convergence with our major trading partners, and with the euro area in particular. By reducing the costs associated with international trade and investment, the peg has also contributed to Malta’s orientation as an open economy. Price stability and openness have been key factors contributing to the country’s economic growth record, which averaged 3.3% in real terms during the same period. Between now and the adoption of the euro, therefore, Malta intends to maintain a fixed exchange rate regime based on a currency basket centred on the euro.

The Central Bank is aware that it will have to maintain the peg and manage a smooth transition to membership of the ERM and the single currency area in a rapidly changing economic environment. This will not be easy, but we should be able to rely on the well-established institutional and policy framework of the acquis and anchor our strategy to a clear end-point, the adoption of the euro. We, therefore, believe this to be a credible approach to euro area membership. In conducting monetary policy during this period, we recognize that international capital movements may present a growing challenge. For a long time, Malta’s exchange rate peg was backed by controls on inward and outward capital flows but these are now being gradually phased out. In theory, full capital account liberalisation may lead to large and volatile capital flows which, in turn, may put pressure on the peg. In practice, econometric evidence suggests that, because of its openness, the Maltese economy has already been exposed to significant capital flows. This, together with recent experience with a partially liberalised capital account, suggests that the impact of full liberalisation may turn out to be less than might have otherwise been the case. It is clear, nevertheless, that the Central Bank will have to adjust short-term interest rates – its key policy tool – to neutralise any pressures on the exchange rate. In other words, interest rates will not be able to respond to domestic economic developments, but will have to move in line with those abroad.
This is the case when a Monetary Policy Report is going to be published; otherwise the process is slightly shorter. In total, around 30  4  BIS Review 77/2008  economists are involved in some phase of the forecasting work, together with the Executive Board members. The material for the monetary policy meetings is mainly produced in the Monetary Policy Department in close cooperation with the Executive Board. The process begins with a risk meeting. The participants at this meeting are the Executive Board, employees of the Monetary Policy Department, some employees from other departments and some advisers to the Executive Board. The purpose of the meeting is to capture at an early stage various types of risk and alternative sequences of events for the economy that we envisage in the future. The discussions at this meeting are relatively unbiased and take a broad perspective. It is at this meeting that the alternative scenarios begin to take shape, those that are later described in Chapter 2 of the Monetary Policy Report and that show how the economy might develop if particular events occur. The scenarios can be used as a kind of counter-example to explain why the Executive Board considers that the main scenario is the one that at present gives the most well-balanced monetary policy. It can also illustrate different risks that an individual member wishes to illustrate or perhaps even a scenario that one person prefers instead of the main scenario.

So far, 24 European central securities depositories, accounting for practically all euro area markets, have committed themselves to taking part. 2  BIS central bankers’ speeches  The second European initiative I would like to mention is SEPA, the Single Euro Payments Area. The goal of the SEPA Project is to make electronic payments as easy, convenient and straightforward for the residents of any euro area member country to carry out as are their cash payments in other countries in the union. The initial aim is to eliminate the differences between making a national payment and a cross-border one, although the benefits extend also to payments made in the national arena. What is involved is a further step in the ongoing integration of financial services in Europe. To achieve this, we must adapt to a new set of rules and uniform standards in Europe. But we have very little time remaining: Community legislation envisages SEPA being in place as from 1 February next year. It is a far-reaching project, necessitating changes in the relationship between paymentservices users and providers. That involves efforts and investment on the part of financial institutions, but also affects users, irrespective of their size. It is important that banks should strive to make the transition by their customers easier. In this connection, communications and advice to customers must be stepped up, informing them of the new circumstances ahead and offering them the necessary support in their migration to the new payments scenario.
Among other things, the increased focus in the New Accord on internal ratings and risk-adjusted pricing might encourage a more sensible approach to the setting of margins on syndicated loans. I know that many banks in Hong Kong think that margins are now too low to fully compensate for expected loss, the cost of capital and operational costs. However, more rational pricing policies are currently hindered by the lack of consistency among banks on how they price risk and allocate capital. The New Accord should go some way to correct this. Under the internal ratings based (IRB) approach, banks will be required to use internal ratings as a factor in the pricing of credit risk. Progress on the New Accord As part of the process of creating incentives for better risk management, the Basel Committee is now engaged in a more general effort to recalibrate the New Accord to adjust the amount of capital charge under each of the main approaches. The aim of the revised set of proposals is that, on average, the total amount of capital required under the standardised approach to cover both credit and operational risk should be the same as that required under the current Accord to cover credit risk only. Modest capital relief would be available to those banks that move to the foundation IRB approach, with still more relief for those which opt for the advanced IRB approach. These, and other revised proposals of the Basel Committee, seem to have got the New Accord back on track.

exchange rate fluctuations between $ and major currencies. •  When $ appreciates against major currencies, there is translation loss when assets are reported in $  •  Likewise, when $ depreciates, there is translation gain  •  But these gains and losses mean little for international purchasing power of our OFR which is denominated in foreign currencies. 32. Focusing on overall profit figure therefore misses larger point about MAS’ underlying investment performance. 33. Investment gains on MAS’ foreign assets have in fact remained relatively stable for last five financial years. •  Holding $ exchange rate constant to strip out translation effects, foreign investment gains amounted to $ billion in FY2014/15, comparable to foreign investment gains of $ billion in FY 2013/14. Helping Singaporeans manage their finances 34. A key area of focus for MAS in last two years has been to help Singaporeans better manage their finances. A multi-pronged effort: •  Encourage prudent borrowing  •  Facilitate retail access to simple, low-cost investment products  •  Spur competitive pricing for life insurance products  •  Educate consumers on financial matters  Let me elaborate on each. First, MAS has put in place various measures to encourage prudent borrowing 35. Many safeguards already exist. BIS central bankers’ speeches  5  •  Amount of unsecured credit that FI can extend is limited to four times monthly income of borrower. •  Limits on both loan-to-value and loan tenure for both housing and motor vehicle loans extended by FIs.
Stefan Ingves: Introduction on monetary policy Speech by Mr Stefan Ingves, Governor of the Sveriges Riksbank, to the Riksdag Commitee on Finance, Stockholm, 15 November 2007. *  *  *  What is the objective of the Riksbank’s monetary policy? To maintain price stability – an inflation rate around two per cent a year? Yes, this is of course correct. But behind this wording there lies a deeper meaning – the actual core of the task delegated by the Riksdag (the Swedish parliament) and ultimately the Swedish people to the Riksbank. Because what it is essentially all about is to create the best possible conditions for good and sustainable economic development. And monetary policy contributes to this by keeping inflation low and stable. The inflation target is not merely a target, but also a means. The fact that I as Governor of the Riksbank have the opportunity to discuss monetary policy with you who represent the Riksdag is also important for the prospects of reaching this goal in the best possible way. The Riksbank must have support and legitimacy from the people to be able to succeed in its policy. It must therefore be easy to examine how monetary policy is conducted and how well we live up to our principles. The fact that the Riksbank Governor regularly takes part in these hearings is an important part of this process. Our task also means that we must constantly strive to become better at what we do and develop our working methods.

The baseline scenario reflects the slowdown in output that has been occurring during the year. It also assumes that investment will moderate further as the investment cycle is completed, consistently with adjustments seen in business surveys and investment plans. Consumption is expected to slow gradually because of the still strong labor market and the relative stability of household saving during the expansionary phase of the cycle. Consumer expectations are less optimistic these past few months and are approaching neutrality, which will help moderate this component of expenditure. So will the slower pace of marginal job creation, particularly salaried work, and the slowdown of real wages. Coupled with this is the depreciation of the real exchange rate which will affect durable consumption. Also, moderating investment will help to take pressure off the labor market. Finally, there is the foreseen reduction in the impulse from abroad (table 2). Inflation is expected to continue to grow steadily to reach 3% during the first half of 2014 and and be stable until the end of the projection horizon, this time the third quarter of 2015. The CPIEFE will take somewhat longer to hit 3%. The underlying assumption is that nominal wages will rise in line with productivity and the inflation target. There is also the methodological assumption that the RER will remain near its recent values. Finally, the baseline scenario uses as a working assumption that the MPR will follow a path similar to the one implicit in expectations surveys available at the closing of this Report (figure 5).
Against this background, the Stability Programme Update considers a continuation of the fiscal adjustment which, in any event, would still entail in 2021, eight years after the start of the economic expansion, a structural deficit of over 1 pp of GDP and public debt of almost 90% of output. Maintaining levels of public debt around those currently prevailing in the Spanish economy involves significant costs that need to be taken into account. It entails the deviation of major resources for interest payments and, above all, vulnerability in the face of episodes of tightening financing conditions on international markets, restricting the possibilities of pursuing a countercyclical fiscal policy at times of economic recession. In sum, it is most important to harness the current favourable circumstances of the Spanish economy to redress, as soon as possible, our structural deficit and public debt levels, bringing them in line with the standards set by our legislation and European regulations. I would underscore, too, the challenge posed by the ageing of our population, in particular for our pension system. This is essentially a medium and long-term challenge; but for that very reason, tackling it appropriately is more difficult than other, shorter-term challenges. The latest Social Security reform, in 2013, introduced two automatic adjustment mechanisms (the Sustainability Factor and the Revaluation Index) which sought to ensure a balance between the system’s revenue and expenditure.

It is estimated that the growth of our economy will continue to be underpinned, above all, by national demand, but with a positive – though diminishing – contribution from the external sector. In particular, household consumer spending and residential investment will continue to be assisted by rising employment, the sector’s improved financial position, the fiscal impulse and favourable financial conditions. Also, the growth of demand and of corporate earnings, higher capacity utilisation and the aforementioned propitious financial conditions will continue to provide for significant increases in investment in capital goods. Nonetheless, the tailing off of some of the temporary factors that have supported the increase in activity in Spain in the most recent period would explain the moderation in growth expected in the coming years. This would be the case were there to be a reversal in the trend of oil prices, in the expansionary effect of monetary policy and in the momentum of external markets, following their significant dynamism last year. As regards prices, the latest data continue to show, as in the euro area as a whole, very moderate behaviour, with the year-on-year growth of the CPI standing at 1.1% in April. The Banco de España projections published in March augured an increase of 1.2% for the year as a whole; however, it might ultimately be higher owing to the impact of the recent rises in oil prices. In this respect, the current volatility on the oil markets adds further uncertainty to the evolution of prices in the short term.
Some suggest that central banks will have to issue their own digital currency – i.e. to supply central bank money more widely, via some generalised distributed ledger – to meet a “competitive threat” from private-sector rivals. I suspect a more important issue for central banks considering such a move will be what it might mean for the funding of banks and the supply of credit. Private-sector digital currencies: the distributed ledger After that rather lengthy introduction, let’s begin with a brief over-view of what a “digital currency” is. As I say, I won’t take long over this. It’s a rich topic, goodness knows there are people who know more about computers than I do, and you can find a very good and more detailed description in the autumn 2014 edition of the Bank’s Quarterly Bulletin. One thing those articles make clear is that the key innovation introduced by something like “bitcoin” is not so much that it’s “digital”, if by that we mean that balances are stored electronically. At least in developed economies the overwhelming majority of money has long been held in bank accounts, rather than as physical cash (Chart 1 plots the history of both in the UK); almost since their invention, computers have been used by banks to record transactions between, and balances on, such accounts. If a “digital” currency is one whose accounts are little more than a series of zeros and ones on some distant electronic machine, well that’s long been the case.

Famously, during the Great Depression, a group of economists at the University of Chicago recommended the end of fractional reserve banking (the so-called “Chicago Plan”). There have been similar calls since the 2008–09 financial crisis10. Proponents of narrow banking have generally argued it should be imposed by regulatory fiat, rather than via some sort of nationalisation of deposit-taking by the central bank. An exception is a 1987 essay by the economist James Tobin11. To avoid relying too heavily on deposit insurance to protect the payments system, Tobin argued, the government should create what he called “deposited currency accounts” (DCAs) at the central bank. “I think the government should make available to the public a medium with the convenience of deposits and the safety of currency, essentially currency on deposit, transferable in any amount by check or other order.” There are two interesting points about Tobin’s proposal. One is that he made it long before anything like the “distributed ledger” was conceived (he suggested that DCA branches could be housed in post offices). Another is that he fell short of suggesting the wholesale nationalisation of deposit-taking: he thought there should still be room for commercial banks to raise deposits of their own and that they should continue to be insured12. One reason is that draining deposits from commercial banks is unlikely to be costless. In particular – and this is the potential catch with too widespread a CBDC – it might threaten their lending activity.