samchain/econo-pairs-v1 huggingface dataset:
Market developments were shaped by the more pessimistic assessment of the economic outlook and expectations that monetary policy could remain expansionary for longer. At the end of May and beginning of June, deteriorating risk sentiment triggered a flight to safe havens and a corresponding decline in government bond yields. These developments on the equity and bond markets had only a limited effect on the foreign exchange markets. In the major currencies, trading ranges were generally narrow and risk premia low, despite heightened macroeconomic and political risks. Swiss franc volatility also remained moderate. The trade-weighted exchange value of the Swiss franc has barely changed Page 1/3  Berne, 13 June 2019 Andréa M. Maechler  News conference  overall since the last news conference, and the currency remains highly valued. The Swiss franc depreciated in April following the postponement of the UK’s exit from the EU, however in May, the escalation of the US-China trade dispute and concerns about Italy’s budget situation reversed this depreciating trajectory. The risk of renewed upward pressure on the Swiss franc is high, given the many hotspots around the world. This explains why it still costs more to hedge against Swiss franc appreciation than against Swiss franc depreciation on the options market. The franc thus continues to be in demand as a safe-haven currency and the situation on the foreign exchange market remains fragile. The negative interest rate and the SNB’s willingness to intervene in the foreign exchange market as necessary therefore remain essential.

For instance: What kind of financial risks do climate and environmental threats pose for the finance industry? And could these risks weaken the resilience of the financial system, or indeed affect macroeconomic variables and monetary policy? The SNB’s goal in joining the NGFS is to engage in dialogue and share knowledge in order to better understand – and anticipate – the potential impact of climate risks. Page 3/3
As a famous economist once said, monetary policy seems to operate with “long and variable” lags. More significantly, the MPC isn’t concerned solely with inflation. It is also asked to avoid “undesirable volatility in output”. And occasionally – in particular following shocks to costs or supply – there are trade-offs between the two. These can lengthen the optimal time over which to bring inflation back to target. I think this had real relevance at the time I joined the MPC, in mid-2011. At that time, the economy looked a bit like the starting point of these simulations. After a tepid recovery there was still plenty of spare capacity in the economy. Companies said they were operating well below capacity; unemployment was still high. But thanks to a series of cost shocks, including the big depreciation of sterling’s exchange rate 2-3 years earlier, inflation was nonetheless well above target. BIS central bankers’ speeches  3  In response, the MPC might have behaved like Committee A, ramming up interest rates to get inflation back to 2% as quickly as possible. But that would almost certainly have pushed the economy back into recession. Instead it took a more balanced approach. As I tried to explain in a speech I gave later that year, the MPC had arguably tolerated the (then) high rate of inflation for longer than it might have done because the real side of the economy was so weak. It signalled this choice more explicitly in early 2013.

It has served the UK well for two decades, and has led the way in many areas of innovation. But similar drivers to those behind the PSF mean it too now needs a thoroughgoing refresh to meet the next wave of challenge. Consultation on our vision recently concluded; and, although we are still processing the results of that exercise, it is already clear 3  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  3  that our proposals to boost access, resilience, interoperability and user functionality have received strong support from old and new market participants alike. So it seems likely that, in the next few years, the UK will have a new payments infrastructure for retail and wholesale payments alike. To have got this far so fast is a real achievement. But in truth the real work for the PSF has only just begun. The challenge now is to translate the high level aspirations in this document into something much more concrete. That means delivering a retail payments design that is technically feasible, secure, and aligned with the Bank of England’s settlement models. It also means identifying who will build, and pay for, the new system: no small challenge at a time when the industry faces many competing demands on its resources. Though the Bank of England has not been a formal member of the PSF, we have been an active observer of proceedings throughout the past year. And we will remain closely involved with the next stage of the Forum’s work too.
We recognize this, even as we encourage firms to put in place stronger and more sophisticated systems more commensurate with the complexity of the risks they are taking. 2  BIS Review 36/2004  •  Comprehensive aggregation of credit exposure: The most sophisticated among large diversified financial institutions have well-developed systems for aggregating credit exposure, with a common methodology and results available relatively quickly, across the full range of transactions and business lines they engage in with a single entity or groups of entities with correlated risks. •  Stress testing and scenario analysis: Firms at the leading edge have moved well beyond reliance on “value-at-risk” complemented by stress tests of discrete shocks. They employ stress tests built around more exacting, forward-looking scenarios integrating large moves in a number of variables, more tailored to the risk profile of the firm and current market conditions, and the reactions of other market participants and counterparties. •  Counterparty credit risk management: The most sophisticated firms use much more careful and sophisticated approaches for measuring potential future exposure, and they analyze how exposures may respond in conditions of significant market stress. With respect to hedge fund exposure in particular, the leading firms employ comprehensive evaluation of the risk profile of the hedge fund to set credit thresholds and terms and a more disciplined approach to setting sufficiently high levels of initial margin. •  Measuring and managing interest rate risk: Leading institutions assess their exposure to interest rate risk in a comprehensive manner across the firm’s business lines.

•  We are working to encourage firms to proceed with their investments in greater resilience and geographic range called for in the Interagency Paper on Sound Practices to Strengthen the Resilience of the U.S. Financial System. •  We continue to encourage efforts to strengthen all aspects of our national payments and settlement systems. •  And we are engaged across a number of fronts internationally to provide a more integrated framework of supervision that better matches the integration of national financial systems and the increased global reach of the largest financial institutions. As part of our supervisory process we monitor closely the evolution in risk management practice across a broad array of financial institutions. Through horizontal reviews that focus on specific dimensions of risk management, we have a reasonably good sense of where the frontier in risk management practices is across the industry, and understand where the gap between this frontier and average practice is the greatest. The size of this gap in practice can increase in market conditions where competitive pressures and a search for return works to erode discipline. I thought it might be useful to highlight some of the areas where leading practice is farthest ahead of typical practice. Leading practice does not imply that there is a definitely superior model that we expect all firms to converge to over time. In most of these areas, there is some diversity in what defines the frontier of excellence.
That is: yt = y̅t − δk − γ(k)Δ(k) This captures the view that higher bank capital could reduce credit supply, and hence economic activity, in the near term. But by making the financial system more resilient to future shocks, it may also reduce the tail risk of bad macroeconomic outcomes. Both probability and severity of crises are influenced negatively by the level of bank capital, with the relationship likely to be convex (γ′ (k) < 0, γ′′ (k) > 0, ∆′ (k) < 0, ∆′′ (k) > 0) – that is to say, one would expect a one percentage point increase in the capital ratio to have a larger dampening impact on the probability and severity of crisis when banks are close to their regulatory minima than when capital buffers are plentiful. In this stylised set-up, the marginal condition that defines optimal bank capital is:  δ = −Δ  ∂γ ∂Δ −γ ∂k ∂k  Optimal capital is higher the lower is δ, the economic cost of a marginal increase in capital requirements; the greater are γ and Δ, the likelihood and severity of crises; and the greater are  ∂γ ∂k  and  ∂Δ ∂k  , the marginal effects  of capital on the likelihood and severity of crises. So what have we learned over the past decade about the likely magnitude of these parameters?

Phantastic objects and the financial market’s sense of reality: A psychoanalytic contribution to the understanding of stock market instability. The International Journal of Psychoanalysis, 89(2), 389-412. Tuckett, D. (2011). Minding the Markets: An Emotional Finance View of Financial Instability. Palgrave Macmillan. Turner, A. (2017). Does the model remain fit for purpose? Financial stability considerations US Department of the Treasury (2017). A Financial System That Creates Economic Opportunities. Banks and Credit Unions. June 2017. Vayanos, D., & Woolley, P. (2013). An institutional theory of momentum and reversal. The Review of Financial Studies, 26(5), 10871145. Vazquez, F., & Federico, P. (2015). Bank funding structures and risk: Evidence from the global financial crisis. Journal of Banking & Finance, 61, 1-14. Wagner, W. (2010). Diversification at financial institutions and systemic crises. Journal of Financial Intermediation, 19(3), 373-386. Woods, S. (2017). Looking both ways. Remarks prepared for the May 2017 Building Society Association (BSA) Annual Conference. Published 10 July. Yellen, J. L. (2017). Financial Stability a Decade after the Onset of the Crisis. Speech at Fostering a Dynamic Global Recovery, a symposium sponsored by the Federal Reserve Bank of Kansas City, Jackson Hole, Wyoming, 25 August. 61  All speeches are available online at www.bankofengland.co.uk/speeches  61
And, partly, it is because some investors may choose to switch to cash if the level of interest rates becomes too low. 11 See, for example, De Rezende and Ristiniemi (2018). 14 [25]  If quantitative easing is to be a part of the permanent monetary policy toolbox, it would be an advantage if the instrument could be used more systematically than has been the case during the crisis. Much of the development of the monetary policy analysis has focused on the importance of a systematic approach and communication – and this should also apply to new instruments, again to influence expectations in the outside world as much as possible. In addition, the central banks need to find clear strategies for how they can reduce their holdings of financial assets when economic activity improves and inflation rises, to avoid their balance sheets increasing with each recession. Forward guidance to influence expectations of future interest rates Ever since 2007, the Riksbank has engaged in a form of forward guidance, by publishing, in each Monetary Policy Report, its best assessment of the future development of the repo rate, inflation and the real economy. This is a matter of convincing the market of where we believe the economy and repo rate are heading. Even if it is difficult to make forecasts and we have often believed that interest rates would rise faster than was actually the case, communication about the future has still been useful, particularly over the shorter horizon.

Therefore, it seems rather intuitive that a “Swiss-made” monetary policy would potentially fit Switzerland’s needs better than a “one-size-fits-all” European policy. The latest recession is a case in point. The investment spree of the late nineties created a massive worldwide capital overhang. The collapse in asset prices, in 2001, and the ensuing worldwide recession had a particularly strong impact on Switzerland, whose exporters are specialized in the production of capital goods and where the production of financial services represents about 13% of GDP. Because ensuring price stability means avoiding deflation as well as inflation, the SNB had to cut interest rates much more aggressively than the ECB from March 2001 to April 2003. The case of Switzerland is not unique in this respect. Canada, Australia, New Zealand, Norway, Sweden and the UK, for instance, also let their currencies float and pursue successful national monetary policies. They all follow a clear strategy of preserving long-term price stability, and they all have an independent central bank pursuing an independent policy. So we can definitely say that monetary independence and monetary stability are two sides of the same coin. 4  BIS Review 70/2004
I have tried to give you a flavour of the synergies that I believe exist in debt workouts affecting, first, companies, then financial institutions and finally sovereign countries. But I hope I have also not underestimated the difficulties in realising those synergies, especially as the number and type of players involved in workouts has increased. Significant progress towards a global approach to corporate workouts has been made, however, thanks to the efforts of many of you. I am convinced that this has laid the foundations for further moves towards more effective frameworks governing bank and, especially, sovereign debt workouts. Thank you. BIS Review 67/2001  7

The challenge of managing risks in the financial sector is made greater by the tremendous spirit of innovation that fuels growth and healthy competition among banks and other firms. Bankers have long competed on their abilities to tailor products and services to each client’s unique needs. New opportunities for profit often change the nature of the known risks a bank may face - they may also expose an institution to unknown pitfalls. As a former commercial banker, I know that responsibility for understanding and managing risks and potential pitfalls rests with senior management and its board of directors. As a supervisor, I believe that we should create incentives to help motivate responsible behavior within firms. Further, as Chairman of the Basel Committee, I see the work of the Committee as helping to foster safe and sound banking systems by creating incentives for banks to improve their understanding and management of risk, and, in turn, to contribute to greater stability within the financial sector. Encouraging the improvement of risk management in banks, is, indeed, the overarching goal of the Committee's efforts to revise the Basel Capital Accord. In my remarks today, I’d like to focus on the challenges associated with implementation of the new framework now that the revision process is coming to an end. First, I'll spend a few moments discussing the evolution and structure of the New Accord.
In summary, over the course of the past decade or so, the asset management industry has fundamentally changed shape. It is now large and is set to get larger still. The assets it manages are increasingly being allocated into illiquid assets or indexed strategies. And the risks on these asset allocations are increasingly being borne by (perhaps trigger-happy) endinvestors. Too-big-to-fail Given this evolving structure, what risks to financial stability might the asset management industry pose? The financial crisis alerted us to the perils of banks that are “too-big-to-fail”. During the crisis, the collateral damage from big bank failure necessitated state bail-outs. These nourished the beast that had already eaten the farm. A variety of regulatory reforms are being put in place in an attempt to house-train this beast (Haldane (2012a)). 4  Some of this is a mirror-image of trends in the pensions industry, but the pattern is also evident for nonpension savings products. BIS central bankers’ speeches  3  One natural question, then, is whether the asset management industry has spawned similar such behemoths. Two relevant factors here are, first, the relative degree of concentration in the industry and, second, the scale of its largest players. Table 1 shows the world’s top 10 largest asset managers and banks by asset size. The degree of concentration across the two industries is broadly similar. The top 10 asset managers account for just less than 30% of the sector, the top 10 banks a little more than 20%. Their balance sheets are also similarly-sized.

Without further reforms, and depending on the nature of the next crisis, we may well be forced to test the limits of our mandate – a concern that has been voiced by Germany in particular. I offered three “lines of defence” that any well-functioning monetary union depends on: flexible markets, adequate national fiscal buffers and a common fiscal instrument to cope with large shocks. The logic is simple and compelling. Flexible markets for goods, services, labour and capital reduce the need for costly macroeconomic stabilisation and curb contentious debates about 1/3  BIS central bankers' speeches  crisis management. They reduce both the likelihood and impact of shocks and allow economies to bounce back more quickly. And they save much of the precious political capital governments had to spend on acrimonious crisis discussions. But flexible markets come at a price. In a downturn, they often impose economic hardship on workers through job losses or wage cuts. Governments can mitigate these effects. Unlike the United States, however, the European Union is not a federation. This means that – as a rule – stabilisation needs first to take place at Member State level. Building and maintaining adequate room for action at national level is therefore essential. This is what our fiscal rules are about.
Nothing will replace an appropriate carbon price. Second, we are acting in the very name of our mandate: our consideration for climate change is neither an abuse of our mission, nor a mere militant conviction, and we will act with the same technical credibility and professionalism as we do in our traditional domains. I. Not “too much”: what it is our duty to do In a somewhat “proliferating” environment, let me suggest some clarification, with a two-dimensional quadrant. The vertical axis – the most obvious one – relates to our missions as supervisors and includes both climate-related risks for financial institutions and opportunities – linked to green finance. The horizontal axis relates to our missions as central bankers and includes responsible investment of our nonmonetary portfolio and monetary policy. For many central banks, implementing responsible investment strategies has numerous benefits: central banks can then practice what they preach as supervisors, protect their own balance sheets and contribute to financing the green economy. Since 2019, the Banque de France has been the first Eurosystem central bank to publish a yearly dedicated reportii on our responsible investment policy. And we turn our words into action: the Banque de France is completely exiting coal by 2024. As regards green finance, climate change creates opportunities for investors: the expected transition to a lower-carbon economy is estimated to require around $ trillion of investments a year. I will now focus on the top right of the quadrant: climate-related risks of financial institutions and the greening of monetary policy.

This dimension of economic research is often overlooked: it is nevertheless crucial to grasp complex interdependencies between physical and economic phenomena, across sectors and countries, and across time horizons (2) disclose: impose transparency requirements including on counterparties; (3) incorporate climate risk, into our operations on corporates (on both asset purchases and collateral policies). II. Not “too many”: how to transform global discussion into global action In less than 4 years, the NGFS has grown from 8 to almost 100 members, but we will never be too many. This increasing number nevertheless raises the challenge of our efficient work together at the international level. We must definitely transform global discussion into global decision and – at the end of the day – global action. We have functioned with voluntary and expanding coalitions like NGFS, or TCFD for business. And while Europe was key at the core of this coalition, from the very beginning, our colleagues from China, Mexico and Singapore, were around the table. Now, with the new administration in the United States, “mandatory” bodies enter the stage. Standard-setting bodies, international  organisations and international fora have now put sustainable finance as their top priority. In this context, the NGFS is actively requested and involved in the new international climate roadmap of the G20 and the FSB.
Yet the press and the markets focus on them as though they were the writ of all-knowing, all-seeing monetary sages. On Monday night, for example, there was much ado made about Janet Yellen noting in Chicago that the central tendency of our best guesses was that full employment would be somewhere between a 5.2 and 5.6 percent unemployment rate. It is nonetheless helpful to contemplate what may be useful guideposts for deciding when to raise the base rate and how we may convey this to the markets. And so the FOMC is grappling with just what, in fact, we can provide the marketplace in the form of forward guidance about our future modus operandi. 4  Monty Python is the British comedy troupe known for its satirical skits. A parody about the FOMC’s “dots” could rank up there with the spoof about the argument clinic “intended to create grievous mental confusion among the general public.” A link is provided here for your enjoyment: www.youtube.com/watch?v=kQFKtI6gn9Y. BIS central bankers’ speeches  3  Odysseus or Apollo? Research papers have addressed this subject. For example, some academic economists draw on Greek mythology to distinguish different techniques for crafting forward guidance, making a distinction between Odyssean and Delphic forms of guidance. The Odyssean model involves committing to a policy rule or to a criterion for choosing between different policy alternatives.

We are also noticing the inevitable trends, on the one hand, of greater use of the Hong Kong dollar on the Mainland and, on the other hand, of continuing financial liberalisation on the Mainland: this will, in the fullness of time, culminate in the RMB becoming freely convertible. The subject of dollarisation, whether the predominant currency is the Hong Kong dollar or the RMB, is a fascinating one. On a different dimension, in our attempt to enhance our status as an international financial centre, we have adopted the strategy of providing a financial infrastructure to facilitate the conduct of international financial intermediation activities in Hong Kong. This financial infrastructure is characterised by a platform on which financial activities can be transacted and settled real time in this time zone in the major currencies without, for example, Herstatt risk. We now have Real Time Gross Settlement systems for the US dollar and the euro, and of course the Hong Kong dollar. And the lead-time for the inclusion of another currency, such as the RMB, in our settlement platform, if that is considered appropriate, could be as little as six months. If this strategy is successful, it is not difficult to envisage an increasing proportion of the balance sheet of the banking system denominated in foreign currencies, and the greater use of, say, the US dollar in both the equity and debt markets.