samchain/econo-pairs-v1 huggingface dataset:
Discounting the flow of future pension liabilities by a corporate bond rate only makes sense if the fund is no longer required to meet those liabilities in the states of the world where the bond defaults. But this is not generally the case: broadly speaking, the fund needs to meet its liabilities whatever happens. In normal times, this does not matter very much as the spread of investment-grade bonds over gilt yields is pretty small and does not vary very much. But during the peak of the crisis, the spread – even for investment-grade bonds – rose significantly (Chart A). Consequently, when standard accounting conventions are followed an additional factor needs to be added to Charts 4 and 5, reflecting the impact of changes in the corporate bond spread. That is shown by the mauve bars in Charts B and C respectively; the profiles of the other components of the deficit are unchanged. The main consequence of this is that the value of liabilities falls markedly during the period up to early 2009, indeed so much so that it counteracts the loss in asset value due to the fall in equity prices and pushes the fund into surplus. But it would be unwise for the sponsors and trustees of a pension fund to take comfort from this, given that the fall in the value of liabilities was merely an artefact of an increased probability of default on corporate bonds!

For money to be truly one, it has to be truly fungible independent of its form and independent of its location. In particular, deposits, which are the most widespread form of money, have to inspire the same level of confidence wherever they are located. To ensure that deposits are truly as safe everywhere across the euro area, the likelihood that a bank fails has to be independent of the jurisdiction where it is established. Resolution has to follow the same process in the event that a bank fails. And, when push comes to shove, depositors must be afforded similar protection wherever they are located. Fundamentally, this was and remains the agenda of Banking Union. And it is why Banking Union was conceived with three pillars: a single supervisory mechanism, a single resolution mechanism, and a uniform deposit insurance scheme, which remains to be specified. For money to be truly one, we need all three. Supervision had to come first, not because it was the easiest to establish, but because it was the necessary condition to proceed with the other pillars of Banking Union. That the SSM was established at the ECB owes much to circumstances. There are benefits in the current set-up, but that was not of vital importance. What was of absolutely vital importance, however, is that the SSM was established. In a fiat money system with fractional reserves, sound and uniform supervision is essential to there being a sound and single money.
Traditional money market funds seek to maintain a constant NAV (CNAV funds) ie they invest with the explicit goal of maintaining a stable NAV of $ per share. Investors like this because it avoids any market price fluctuations in their investments. A CNAV money market fund is said to “break the buck” when its NAV falls below $ per share (or the equivalent in a fund’s respective currency). This is a rare event. Prior to the crisis, it had not happened to a US money market fund since the Community Bankers US Government Fund broke the buck in 199413. The conventional perception was that the principal should be “safe”. When money funds came under pressure during the crisis, more than 60 asset managers (among others, Wachovia and Legg Mason) unilaterally made up more than $ billion of losses14. On 16 September 2008, the Prime Reserve Fund, the oldest U.S. money market fund, wrote off 3 cents of losses on Lehman Brothers. Not being able to make up the losses, the fund was left with a NAV of $ triggering a “run” in the money markets. On 19 September 2008, the U.S. Treasury announced the establishment of a temporary one-year guarantee program to protect investors in money market funds. The funds that were eligible had to pay a fee to participate in the program, and any fund that had already “broke the buck” could not participate. This example raises several interesting issues.

Why was it so hard to anticipate what would happen if there were losses on large numbers of bonds insured by monoline insurers which had relatively small amounts of capital? One reason why such risks may not be appreciated ex ante is over-reliance on local risk measures such as VaR (Value at Risk) or other historical average correlations, and not enough on severe stress tests over different horizons. For example, in the United States it was widely believed that house prices would not fall significantly nationally (it had never happened after the Great depression in the 1930s). We assert that, if one had stressed bank capital in the US with the explicit assumption that national residential real estate prices could go down 30 to 40%, and in some local markets more, most of the losses for US banks could have been correctly predicted (at least if the complexities of structured credit products were properly assessed6). The collapse of functioning inter-bank money markets and other “runon-the-bank” phenomena obviously added further costs, but the first-order effect was caused by residential house prices falling. The key, however, was to correctly predict what that kind of price drop would do to other market participants, and market structures, as well as to the individual firm. Extreme stress tests have served a crucial purpose after the crisis to re-establish confidence in banks, and might usefully play a wider role in more aspects of on-going bank oversight.
That would be a change with profound economic consequences. Central Bank Digital Currencies  The rapid decline of cash, the rapidly changing nature of payments and, potentially, of the assets used to make payments, raise the question of whether central banks should leverage new technologies to provide new electronic forms of central bank money – the creation of Central Bank-issued Digital Currencies (CBDC) – as a complement to existing physical banknotes? A CBDC could ensure that the public has continued access to a risk-free form of money issued by the central bank. It could also potentially be designed in a way that contributes to a more resilient, innovative and competitive payments system for UK households and businesses. But, while CBDC poses a number of opportunities, it also raises challenges for the way in which we maintain monetary and financial stability. The potential benefits to financial stability could include more access to and utility of central bank money, including greater public access to a risk free asset enhancing a resilient payments infrastructure. There could also be positive benefits to monetary policy, such as more direct control of the monetary transmission mechanism. But for all the opportunities, there are also some significant potential implications.

The state, as the ultimate backstop, was then forced to step in to bail out a number of banks, not just to ensure the means of providing credit in the economy but also, crucially, to back up the claims that these banks had issued as money to a large part of the population. Banks responsible for close to half of the UK’s personal current accounts6, holding some £ were rescued by the state.7  There has as a result been a major programme to tighten the prudential controls on deposit taking banks and to increase the size of the deposit guarantee that is paid for by the industry, which has reinforced further the reliability of commercial bank money and shifted the burden of backstopping that reliability from the state towards the private sector. Looking to the future  The shift towards transacting in private commercial bank money has accelerated greatly in recent years, driven by technology and by changes in the way we live. It is not possible to transact in central bank money over the internet or by using one’s smartphone. As a result, cash use is declining fast in the UK. In 2008,  4  The 1844 Bank Charter Act gave the Bank of England a monopoly on the issuance of Bank notes in England and Wales. It followed a number of failures of ‘country banks’, who had issued their own notes.
When financial markets collapsed in autumn 2008, the authorities had to intervene. Bail-out packages for banks shifted debt from private to public hands. Governments increased spending to curb the fall in activity. But Keynesian policy – increased spending in order to stimulate demand during a downturn – requires a willingness to exercise fiscal restraint during an upturn. Many countries already had large budget deficits and high debt before the crisis, despite many years of prosperity. 2  BIS central bankers’ speeches  Limited growth capacity in the private sector also came into evidence when some countries could no longer stay afloat on borrowed funds. Good times turned into bad, with the need for crisis-related measures. The burden became heavy to bear. Many countries are now struggling to rein in large deficits and rising government debt. Structural reforms are being implemented in Europe. Pension rules are being tightened and tax systems are under review. The cost of such reforms would have been lower in good times. Chart 3  A lack of fiscal discipline is not the only factor behind the relatively high interest burdens facing Greece, Portugal, Spain and Italy. Public deficits rose in tandem with a fall in private saving. Countries lived beyond their means and accumulated current account deficits and substantial debt while their debt-servicing capacity weakened. The result is a deterioration in their creditworthiness.

Moreover, risks that operators seem to be managing well individually may prove to be a considerable strain on the financial system as a whole. As a response to this, a new macroprudential surveillance framework is now in the making. 4  BIS central bankers’ speeches  Norway, which is in a surplus and net asset position, faces some particular challenges. As investor and manager of the Government Pension Fund Global, we have seen that prices and yields can react strongly to uncertainty about the future. New steps in the management of financial wealth Norway invests a large proportion of its petroleum revenues in international equity, bond and real estate markets via the Government Pension Fund Global. The fund is fully integrated with the government budget, and the same priorities are imposed on spending from the Fund as on any other government spending. Today, the value of the Fund is around NOK 3.5 trillion, or about 170 percent of mainland GDP. Chart 5  The Fund should be invested with a view to maximising future purchasing power. At the same time, investments must be diversified in order to reduce the risk of losses also during periods when markets are shrouded in fear and uncertainty. BIS central bankers’ speeches  5  Chart 6  The world’s economic geography is changing. While growth in advanced economies has been weak and is slowing, growth is robust in Latin America and Asia. Several countries in Africa are now catching up. The Fund has considerable ownership interests in Europe.
In this endeavour, an appropriate balance will be maintained between our priority to substantially strengthen the capacity of the banking system to absorb future shocks arising from financial and economic stresses, and avoiding material competitive distortions that can arise from uncoordinated moves between countries on specific elements of the framework. Through the continued rigor of our stress testing requirements, the expectations are for banks and insurers to operate at levels that remain sound even under stressed conditions. This will be further reinforced with the implementation of Pillar 2 from 2011, which will accord greater focus on the individual banks’ own internal capital adequacy assessment processes to determine the adequacy of capital against their specific risk profiles and capital management strategies. With respect to liquidity, our existing Liquidity Framework will be enhanced in 2011 to bring it in line with the Basel III standard, while making appropriate customisations to take into account the specific structural characteristics of our market. We will also issue additional guidance to promote more stable funding structures that will increase the robustness of bank liquidity positions, particularly during periods of stress in funding markets. These quantitative liquidity standards will be further complemented by principles for sound and effective management of liquidity risk. While major agreement has been reached on most areas concerning capital and liquidity, proposals in other areas including the non-risk-based leverage ratio, countercyclical capital buffers and the supervision of systemically important financial institutions continue to be a work in progress at the Basel Committee.

While it is recognized that the global reforms have been designed to address problems not faced in our financial system and are guided by different value and incentive systems, it is still important that we embrace initiatives that will enable us to avoid the same such mistakes. As more of our banks and insurers venture abroad into the regional markets, financial institutions will also be assessed by investors, analysts and market participants against these global standards. Moving forward, after a consultative process with the industry, the following enhancements will be incorporated to the Risk Weighted Capital Adequacy Framework for banking institutions:  4  BIS Review 146/2010    higher capital requirements to support risks in trading activities, securitizations and counterparty credit exposures;    strengthened definitions and criteria for the recognition of Tier 1 and Tier 2 capital; and    higher levels of common equity, Tier 1 and total minimum capital requirements which also provide for capital conservations buffers. The appropriate timing of transition to the new requirements, will be determined in 2011. While the Basel Committee has set a generous timeframe for implementation of the new requirements, we anticipate that given the current position of strength of our banking system and together with other jurisdictions, including those in this region, we are in a position to be on a faster track to adopt the new requirements.
Prior to the crisis, the lack of an institutional mechanism to translate the financial stability analysis made by central banks and the ECB into policy actions was a major lacuna. In response, the European Systemic Risk Board (ESRB) has been set up to monitor and assess macro-prudential risks. Given that the new framework began operating in January this year, it is difficult to assess its effectiveness comprehensively. However, it could be instructive to review ex ante the robustness of the analytical toolbox assigned to the ESRB, and consider ex post whether such a toolbox would have enhanced policymakers understanding of systemic risk prior to the crisis. Before doing so, I should make clear that the purpose of the ESRB is not to predict crises. The academic literature on early warning signal models, developed over the years, suggests that, for a number of reasons, the scope for error in predicting crises is substantial. Either the eruption of a crisis is missed or a period is wrongly identified by the start of a crisis. For this reason, the ESRB’s analytical toolbox is based on early warning models and indicators designed to identify emerging vulnerabilities or imbalances that could lead to financial instability. These models aim to perform three functions in particular. First, to identify the variables which are associated with financial instability.

In spite of the objective of a fixed exchange rate, several adjustments of the international value of kroner were made in the 1970s and 1980s to compensate for the loss of cost competitiveness due to price and wage inflation. From the mid-1980s the focus of monetary policy was increasingly shifted to the role of a stable exchange rate as a nominal anchor – against the backdrop of very high price and wage inflation and relatively high domestic interest rates following the devaluation in 1986. The EU countries’ lowinflation track record was used as an argument for pegging the krone rate to the ECU in 1990. The currency turmoil in Europe in 1992-93 prompted Norway to abandon the fixed rate against the ECU in favour of a sort of “managed float”, now aiming at keeping the exchange rate “stable” against European currencies, but with no fluctuation margins. This regime is still in force. In this context it is important to note that the small and very open Norwegian economy is highly vulnerable to fluctuations in the international economy. Furthermore, the petroleum sector is of substantial importance to our economy, and mainland industries are largely commodity-based. Whatever the choice of exchange rate or monetary policy regime may be, there will be considerable challenges associated with stabilising an economy which is that heavily exposed to cyclical fluctuations. This has been amply illustrated by recent events.
It is a bold assertion, but not necessarily an unreasonable one, reflecting the dollar value of transactions processed across the Fedwire Funds, Fedwire Securities, and National Settlement Services; the interconnectedness and dependencies between these services and other systemically important infrastructures; our role as central securities depository and as fiscal agent for the issuance, maintenance, and redemption of all Fedwire-eligible securities; and as the platform across which the Federal Reserve ultimately settles its monetary policy operations. Any one of these elements would likely qualify the wholesale services as “systemic”; in the aggregate they represent a staggering portfolio on which the execution of both our nation’s fiscal and monetary policies ultimately depends. In recognition that a wholesale service outage risks a significant shock to the United States, and in light of the escalating threat landscape in which collectively we operate, last year before this audience I shared a series of reflections endeavoring to advance a new paradigm for resiliency and security for financial market infrastructures. This year I’d like to provide an update on our progress on this front, and then to elaborate on the portfolio of wholesale service initiatives that we are endeavoring to advance to add value for customers and end users. As always, my remarks reflect my own views and do not necessarily represent those of the Federal Reserve Bank of New York or the Federal Reserve System.

Reflecting the Federal Reserve’s historical interest in the mitigation of settlement risk, and in anticipation of the emergence of real time retail payments in the United States, we are currently exploring an expansion in operating hours of the National Settlement Service to support the final and irrevocable settlement of interbank positions in central bank money. We are pursuing this interest in three phases. In 2015, we expanded the NSS operating window modestly, opening an hour earlier at 7:30am and closing a half hour later at 5:30p.m. Subsequently, we announced our readiness to open NSS as early as 9:00 p.m. on the prior calendar date, consistent with the operating window of the Fedwire Funds Service, if requested. Finally, we are currently evaluating prospects for weekend settlement hours, perhaps encompassing a 24x7 operating window for NSS, for which we are validating demand prior to finalizing our direction. It is critical to consider these matters in advance of the advent of real time retail payments to anticipate the needs of customers and to respond to the interests of policy makers. The Federal Reserve’s Strategies for Improving the Payment System also aspire to achieve greater end-to-end efficiency in cross-border payments, an historical pain point for end users. In support of this interest, and following an exhaustive season of consultation with industry leaders, we are currently in the midst of a multi-year effort to adopt the ISO 20022 payment message formats for the Fedwire Funds Service.
The fiscal surplus has reflected the simultaneous decline of public income and expenditure, respectively 5.3% and 5.5%, year on year. As regards expenditures, capital expenditures decreased whereas current expenditures increased during this period. Foreign trade data point to about 8.7% annual contraction of Albanian exports, in January, while imports annual growth rates slowed down to 4.5%. These developments in the foreign trade were materialised in wider trade deficit, which expanded by about 13.8% from a year  BIS central bankers’ speeches  1  earlier. The performance of this indicator during the first two months of the year may be subject to temporary factors. Its dynamic and developments in the future will be monitored. Foreign demand has been the main driver of our aggregate demand over the last two years and, in Bank of Albania’s view, will continue to provide small positive impact in 2012. Monetary developments were in line with the performance of the real economy. Their analysis confirms the existence of low monetary inflationary pressures on the economy. Broad money, monetary aggregate M3, decelerated its annual growth to 8.1% in January. On the demand side, this performance has been affected by low demand for funds by the public and private sectors in January. Annual private sector credit pursued the downtrend that had started in the last quarter of 2011, settling at 9.9% in January. Its performance has reflected lower demand for credit by both businesses and households.

The past few weeks have seen some calming of global financial markets, but we are still a long way away from normalisation. With the worldwide deterioration in the economy, credit risks at banks will rise considerably. Attention was drawn to this in June 2008, in our last report on financial stability. Bank provisions for credit risks are currently at a historically low level, and they will need to be substantially increased. This will have a negative impact on their profitability. In the case of the big banks, the situation also involves considerable risks for trading portfolios. The worldwide economic downturn comes at a time when the international financial system is already in bad shape. In particular the big banks that have been hit especially hard by the crisis could be forced to curtail, or further curtail, their lending. This, in turn, could have additional negative effects on the real economy. In order to put a halt to this negative spiral, we consider it important that the economy be supported with monetary and fiscal measures. The interest rate reductions carried out by the Swiss National Bank (SNB) should be seen as part of these measures. ... but the resilience of the big banks has been increased Given this situation, the fact that it has been possible to increase the resilience of the Swiss big banks is crucial. Credit Suisse boosted its capital through private investors by a total of CHF 10 billion. It thereby strengthened its equity position substantially and increased its capacity for absorbing additional shocks.