samchain/econo-pairs-v1 huggingface dataset:
By Q1 2009, the hedge fund sector had experienced trading losses of around $ amounting to one fifth of their total assets (He, Khang and Krishnamurthy, 2010), a scale that would have wiped out almost all banks given their leverage. Yet many hedge funds have survived. And none has been bailed out with taxpayers’ money. Because hedge funds have so much lower gearing, or leverage, than banks they have been able to absorb much bigger falls in asset values. Close to 3,000 hedge funds have closed, that is liquidated, since mid-2007 2 – but they have done so with a quiet whimper rather than with an alarming bang. Falls in the value of assets that hit the wealth of institutions – but not their existence – do much less damage than falls that wipe out firms and cause bankruptcy. So sharp asset price variability, per se, is not the most serious problem. It is the combination of (and the interrelation between) high debt – or leverage – and variability in asset prices that is problematic. 2  “Global Hedge Fund Industry Report”, Hedge Fund research Inc, Q2 2010. BIS Review 133/2010  3  I believe that an important way to help preserve financial stability is to have policy instruments directed at debt gearing (or leverage) and to be used in the light of what has happened to asset values.

But the economic outcomes have been dramatically worse. A key difference here is that property price rises – unlike big rises in equity prices – are invariably accompanied by big increases in debt. So when property prices fall they are more likely to create solvency problems – and funding problems associated with heightened solvency risks – than when equity prices fall. My colleague Adam Posen recently presented evidence that big falls in equity prices in themselves generally do much less damage than big falls in house prices. He found that the average output loss after real estate booms cumulates to over 5% of GDP over five years, and in 75% of cases at least 2% of output is lost. For equity price booms and busts, there is no output loss on average over five years, and following them only 25% of economies experience a loss of more than 4% (Posen 2009). What has happened to the hedge fund sector during this crisis is also illuminating. In Q4 2007, total assets held by hedge funds were around $ and aggregate equity capital (or what the industry refers to as assets under management, AUM) was around $ This implies that the hedge fund sector had an average leverage of around 2.8, compared to typical banking sector leverage ratios at that time of 30 or more.
They don’t, however, reduce the size of the participating bank’s balance sheet, as they substitute reserve balances with a less liquid instrument. Reverse repos are a type of open market operation in which eligible counterparties place cash at the Federal Reserve in return for securities from the Fed’s portfolio. Technically structured as a sale and repurchase agreement, a reverse repo is economically equivalent to a collateralized investment with the Fed (with the opposite flow of cash from a repo, the traditional liquidity-adding open market operation described earlier). These transactions are arranged as auctions between the New York Fed and the Desk’s traditional primary dealer counterparties, as well as with an expanded set of counterparty types, including money market funds and GSEs, that typically provide large amounts of short-term funding to the financial markets.13 Reverse repos were initially envisioned to be used as a term, fixedquantity tool. However, with the necessary operational infrastructure to support reverse repo  11  Permanent operations such as asset sales would also remain in the Desk’s toolkit and would result in a reduction in the size of the Fed’s securities portfolio and balance sheet. 12  Operational exercises for both mortgage-backed security purchase and sale operations using the Desk’s proprietary trading system, FedTrade, were started on November 21, 2013. 13  The expanded set of counterparties is intended to enhance the capacity of the Desk’s reverse repo operations beyond that provided solely by the primary dealers.

This should reduce downward pressure on money market rates. Meanwhile, the availability of risk-free assets to a broader pool of counterparties could help to satisfy demand when the appetite for safe assets by those counterparties increases, but only indirectly. The Fed’s counterparty may hold a risk-free asset on its balance sheet – a reverse repo with the Fed collateralized by risk-free securities. However, the securities sold to the counterparty are in the tri-party system, making them unavailable for the counterparty to satisfy margin requirements. That said, to the extent that the counterparty switches its investments from other high-quality  14  A separate, overnight reverse repo facility has long existed as an investment vehicle for foreign central banks and international accounts that hold dollars in their accounts at the New York Fed. Investments in this program are pooled and are arranged in mutually agreed-upon amounts. Reverse repos with foreign official and international accounts are reported as a separate line item in the Board of Governors’ weekly H.4.1 statistical release on factors affecting reserve balances. 15  In practice, the size of the operation would be limited by the lesser of the level of excess reserves or the amount of securities held in the SOMA portfolio. BIS central bankers’ speeches  7  assets to reverse repos with the Federal Reserve, the distribution of safe assets within the system could become more efficient. This type of facility represents an efficient tool from an operational and market-functioning standpoint as well.
A key challenge of the Covid-19 crisis for us has been isolating the signal – the increased risk to insurers and their policyholders – from the noise caused by markets finding their way with very sharp but temporary overreactions. 1  https://www.bankofengland.co.uk/-/media/boe/files/speech/2019/insurance-risk-management-in-a-changing-world-speech-by-charlottegerken 2 Category 1 & 2 life and non-life insurers regulated by the PRA 2  All speeches are available online at www.bankofengland.co.uk/news/speeches  2  Solvency II contains several measures that were intended to or have otherwise leant against the pitching and rolling of financial markets. These include the Matching Adjustment (MA) and the transitional measure on technical provisions (TMTP); also the Standard Formula Symmetric Adjustment of the Equity Capital Charge (the symmetric adjustment), the Volatility Adjustment (VA), and the Ladder of Intervention. In addition to benefiting financial stability, these measures have helped to filter out the noise in financial markets, supporting the PRA in assessing that insurers are adequately capitalised for fundamental risks in their business and protecting policyholders. The MA is, for UK life insurers, the most material Solvency II long-term guarantees measure, and has been the most significant in the current crisis. The MA is intended to enable insurers to hold assets to maturity and avoid changes in spread from impacting their solvency. When appropriately cash-flow matched, their locked-in funding means that annuity writers are unlikely to have to sell assets prior to maturity, even in a severe stress.

And the pace of policy reform – in the UK, but also in the EU and globally through the International Association of Insurance Supervisors (IAIS) – is likely to be on a longer timetable due to Covid-19 being a shared and pressing priority. We recognise that there are certain aspects of the design and implementation of the Solvency II regime that do not fit so well to UK specificities. Our views on these areas are well known, and I believe shared by industry. We understand that the first priority for the industry is the Risk Margin. The current design is too sensitive to long term interest rates and this has the unintended and perverse consequence of driving a high proportion of longevity risk on new business offshore. We are committed to reform of the risk margin. The timing and nature of reform depend, like many questions of regulatory reform, on the final relationship between the UK and the EU. There is a wide range of options that could be pursued and it is encouraging that EIOPA intends to look at the design of the risk margin in the final stages of the 2020 review. Second is the matching adjustment. The PRA supports the concept of the matching adjustment. It provides the right incentives for insurers to invest in assets that are suitable for their business models. This in turn also reinforces a macroeconomic role of insurers, who provide stable, long-term investment.
In a nutshell, a credible fiscal framework is more important than ever. The European Commission’s proposal for reform As a result, the European Commission is currently undertaking a review of the EU’s fiscal framework, with the aim of reducing its complexity, improving compliance, promoting a 3  See, for example, Badinger, H., and W. H. Reuter (2017). The Case for Fiscal Rules. Economic Modelling, 60, 334–343. 4  more countercyclical behaviour of fiscal policy and accommodating the new investment needs of the green and digital transitions. In this context, in its Communication of 9 November 2022, the Commission presented its orientations in order to promote and guide discussions among stakeholders about the reform. 4 Let me now spend a few minutes describing its main features so that I can then share with you my own views on the key aspects a functioning fiscal framework should have. While going through my “wish list”, I will reflect on the strengths and shortcomings of the Commission’s proposal, as a way to comment on the difficulties that any proposed reform will face. The main objective of the proposal is to ensure that public debt ratios are put on a downward path or stay at prudent levels, keeping the debt-to-GDP ratio of 60% as the reference value. And retaining the need for public deficits to stay below the 3% reference value over the medium term, which has proven effective in anchoring Member States' public accounts. 5.

It should also include the completion of the Banking Union and the Capital Markets Union. In this vein, some of the initiatives that have been adopted during the pandemic could be expanded, such as the SURE, which mitigated the risks of unemployment during the emergency period. This particular new tool allowed substantial interest savings for most Member States, protecting them from financial stress. 10 The timeframe for the NGEU could also be revised in order to avoid risking the interruption of some of the investments needed for digitalisation, combating climate change or the EU’s Open Strategic Autonomy. Conclusions To conclude, the EU’s fiscal governance framework is a key element of the euro area’s institutional architecture. And there is broad consensus that it needs to be reformed. Despite being well-intentioned in origin, the current institutional setup has many shortcomings and the attempts to correct them over the past decades have yielded a  9 A view shared by other institutions, like the IMF. See Gaspar, V., A. Kammer and C. Pazarbasoglu (2022). “European Fiscal Governance: A Proposal from the IMF”, IMF Blog, 5 September 2022. 10  See Burriel, P., I. Kataryniuk and J.J. Pérez (2022). Computing the EU'S SURE interest savings using an extended debt sustainability assessment tool. Banco de España Occasional Papers No 2210. 8  complex and pro-cyclical fiscal framework, which has not prevented the build-up of fiscal and macroeconomic imbalances or the lack of strong incentives for implementation.
Howard Lee: Benchmark regulation and migration Closing keynote by Mr Howard Lee, Deputy Chief Executive of the Hong Kong Monetary Authority, at the Bloomberg-ISDA Benchmark Conference "Benchmark Regulation and Migration", Hong Kong, 30 May 2019. * * * Taran [Khera], ladies and gentlemen, 1. First of all, I would like to thank Bloomberg and ISDA for organising this Benchmark Conference and for gathering so many speakers and participants to exchange views on the important subject of benchmark reform. The subject of benchmark reform is always very close to my heart, as I have been involved in the review of interest rate benchmarks both in Hong Kong and in the context of the Financial Stability Board’s Official Sector Steering Group (FSB OSSG) deliberations for many years. LIBOR discontinuation: A turning point 2. If we look back to 2013 when the OSSG started to operate, there was a general agreement that given the changes in the interbank market, the interbank offer rates, or IBORs in short must be reformed. But given the long history of IBORs and the huge value of financial contracts referencing them, moving to new IBORs with fundamentally different determination methodologies, or switching to alternative reference rates is a very complex task, as we heard from many speakers just now. Understandably market participants generally took a ‘wait-and-see’ approach when dealing with benchmark transition issues. But now – with a growing recognition that LIBOR may discontinue after end-2021 – the situation is changing.

In case of Estonia, our earlier policy choices have resulted in an environment characterized by the openness of the economy - export and import reaching 179-180% of the GDP, by a stable fixedexchange-rate, by a long tradition of balanced fiscal stance and rapid integration with the European markets - all of them features favourable to a relatively rapid real convergence. We could even say that the convergence that presently takes place in our real economy takes place in a de facto EMU environment. 2  BIS Review 42/2003  According to an analysis recently conducted by the ECB, the correlation of manufacturing industries' business cycles between Estonia and the five larger EMU member countries is even higher than that for some of the present member countries, the correlation of overall economic cycles is slightly lower but that is due to the more rapid economic growth in Estonia compared to the euro area. But there is one more important aspect I would like to stress in this context - and that is the crucial role of the financial system in real convergence under a currency board based fixed exchange rate regime. It is fair to say that Estonian banking system is presently strong, well capitalized and liquid. The banks' forced reliance on their own capital and liquidity has had a direct impact on the market structure. Strategic foreign ownership - mostly by Scandinavian financial groups - has provided Estonian banks with both strong capitalization and transfer of international best practices.
In this respect, I am pleased to note that Singapore capital markets has already facilitated the funding of projects such as Hyflux water treatment plants in China via a SGX listed business trust IPO completed last year. Underlying all the initiatives I have just mentioned is the potential demand for environmentally sustainable solutions. The promise of such solutions, besides in offering economic opportunities, lie in their potential to address the rising challenges of urbanization, increasing energy prices and shortage of clean water. Asian businesses should position themselves for the gradual shift towards greener living as such technologies are not only socially acceptable, but also socially demanded. Corporate governance Before I conclude, let me share one final thought. Asian SMEs, in their bid to become top Asian and global companies, should devote attention to corporate governance. A sound corporate governance structure will help to ensure proper management practices, robust internal processes, and prudent controls. In the long term, these practices will help foster a strong reputation and increase the franchise value of the company, paving the way for Asian SMEs to expand into global markets. Indeed, global competition will require companies to be held to such high standards, especially those demanded by institutional shareholders. Closing To sum up, Asia and Asian businesses are poised for exciting times in an era of rising prosperity and growth. There will be both challenges and opportunities. One need not be daunted by the challenges. However, there is a need to manage and mitigate the risks that come with the opportunities.

Let me share a few thoughts on some of the current issues which have a bearing on Asia’s growth and the global environment ahead. Rising global food prices The first, and perhaps most pressing issue that the world faces, is spiraling inflation. Global food prices have spiked in the recent months due to a confluence of factors. Demand has increased to feed a growing global population with a rapidly expanding middle class in the developing Asian countries. This demand is compounded by competing uses for food sources to generate biofuel and feed. Meanwhile, sources of supply have been hit by rising energy costs, increased competition for arable land, and the erratic weather. As a result, prices of many food commodities including wheat, corn, and rice, a staple for all Asians, have soared. The United Nations has declared the drastic increase in food prices “an unprecedented challenge of global proportions” and established a task force to tackle the food crisis. This is indeed a global issue and cannot be resolved overnight. Many of these factors are structural and will take time for the demand-supply equilibrium to be established. On the Asia Pacific front, the Asian Development Bank has recently announced $ million of immediate budgetary support to help countries that have been worst hit by rising food prices. With increasing food prices and high oil prices, mitigating the impact of strong inflationary pressures will remain a key priority for many Asian governments.
As Chart 2 shows, long-dated corporate borrowing rates have followed much of the downward move in government bond yields over recent years. Whether you believe this is reflective of the prospect of gloomy days to come or the result of some other factors will determine whether you – as corporate treasurers – view very long low yields as a warning or an opportunity. In the rest of my remarks I will cover four possible explanations for the current level of long yields: (i)  lower inflation expectations;  (ii)  the balance of savings and investment intentions;  (iii)  diminished potential output growth; and  1  Bernanke (2005). BIS central bankers’ speeches  1  (iv)  reduced term premia  I will argue that it would be overly pessimistic to believe that the headwinds currently affecting the nominal and real economy will persist for decades to come. But I will also argue that there are other influences on long yields affecting saving and investment decisions (including the persistent-but-not-permanent effects of a balance sheet recession, and greater weight being attached to downside risks) and on term premia (including the impact of central bank asset purchases). 2. Inflation expectations  Let me start with inflation expectations. Because some of the decline in nominal yields over recent years coincided with a marked and unexpected decline in headline inflation in the UK, a natural question to ask is whether or not this was caused by a shift lower in inflation expectations.

When public sector balance sheets reached their limits, it was the turn of deleveraging at a national level through fiscal consolidation, a process which is likely to continue for some time to come in the UK and euro area. It would be overly pessimistic to have as one’s central case that the headwinds currently affecting the economy will persist for decades to come. Although they will be persistent, they will not be permanent. Indeed there are now nascent signs that some of these headwinds have already begun to ease. For example, against a backdrop of improved confidence in the recovery (Chart 5), firms have slowly but surely been increasing the amount they invest relative to the amount they save (Chart 6). And household saving has also declined from its very elevated precautionary levels. But that is not to say that it is imprudent of financial markets to attach weight to the downside risks – they are real. Indeed, reducing the probability of those risks materialising has been a driving factor in the MPC’s decision to maintain Bank Rate at its historically low level of 0.5% for 6 years, and the committee’s guidance that when Bank Rate does begin to rise, it is expected to do so more gradually than in previous cycles, and is expected to remain below average historical levels for some time to come. 4. Diminished potential output growth  Let me turn next to potential output growth.
If you want to maintain confidence, you simply do not have the luxury of time. But even if you cannot hinder a crisis, addressing it as early as possible and with determination can at least limit its effects. So my second principle of effective crisis management can be summed up as acting swiftly. While this principle is easy to support, crisis management in practice is often characterised by the opposite: taking too little action, too late. Essentially, there are two main reasons for supervisory and other authorities to neglect taking sufficient action in time – they lack either the willingness to act or the ability to act – sometimes both. There are many reasons for supervisory and other authorities to not want to act. Pressure from the industry and politicians is one of the first that springs to mind. Sometimes – consciously or unconsciously – supervisory and other authorities also want to let banks gamble on turning themselves around. And banks and their shareholders are often more than willing to play along – they face a one way bet as they approach the brink of failure. But in the end, the longer you wait, the harder you fall. For that reason, I don’t have a high opinion of regulatory forbearance or other excuses for supervisory inaction. Ability to act may also be constrained. First and foremost, the ability to act is, of course, dependent upon the tools available.

During my years at the IMF, I have seen this pattern repeat itself – and it is not a pretty sight. In Europe, we face a particular and somewhat peculiar cooperation problem. This is sometimes described as the trilemma of banking supervision. A trilemma is similar to a tradeoff, and means that you want to pursue three objectives but you can only achieve two of them. One needs to be given up. The three objectives in this context include, first of all, effective banking supervision and crisis management, secondly, national sovereignty of supervision and crisis management; and, finally, an integrated European market and all the benefits coming from more competition. In the EU, we have chosen the latter two – economic integration and national sovereignty of supervision and crisis management. This national sovereignty is manifested in what is known as the home country principle, meaning that the supervisory authority in the country where a bank is domiciled takes complete responsibility for the supervision of its branches abroad. This home country principle is combined with economic integration and allowing banks to establish operations across Europe. In choosing these two objectives, the third objective – effective supervision and crisis management – has been forsaken. This is clearly manifested in Europe’s current approach towards supervising banks and managing crises. Economic integration and the EU’s pursuit of a single market for financial services have meant that some banks have expanded beyond the means of their home countries.