samchain/econo-pairs-v1 huggingface dataset:
If interest rates rose faster and reached a level 100 basis points higher in 2020 than what the CBO has assumed, the net debt service burden would be about 3 ¼ percentage points higher by 2020, all else equal. Given the uncertainties around economic forecasts that far into the future, it would be highly desirable for the fiscal authorities to put in place a medium-term program of fiscal consolidation now, while market conditions are benign. At the same time, I think we must be careful and not focus exclusively on the imperative of fiscal consolidation. That is because fiscal policy adjustments have important implications for  1  2  The 2011 remittance figure is a preliminary unaudited estimate. BIS central bankers’ speeches  the level and composition of economic activity more broadly–both here and abroad. If we must undertake fiscal consolidation– and over time we must–then we need to be cognizant that this adjustment will need to be accompanied by other offsetting changes in the composition of economic activity in our and the global economy. 2 One way of illustrating these interrelationships is to use the following accounting identity, which imposes an adding up constraint on the overall economy: If you define private-sector net saving as the private balance and public sector net saving as the public balance, then: Private balance + public balance = current account balance.

As shown in (Figure 6), which shows these two components over time, the business balance is currently unusually high; that is, businesses have very high cash flows relative to their investment outlays. This suggests that some of the required adjustment could occur by fostering greater investment spending as a share of GDP. For this to occur, it will be important that economic policies promote long-term growth and financial stability, and ensure that the United States is a competitive place to base production, with a well-functioning infrastructure, a skilled workforce and a reasonable tax and regulatory system. In addition, it seems desireable that some of the adjustment should take place in the trade sector. Although a current account deficit of 3 percent of GDP by itself would be sustainable over time, for the household balance to remain close to current levels and the public balance to sharply narrow, then the current account may need to move further toward balance. For this to occur, there needs to be two offsetting adjustments. On one hand, the U.S. economy must be reoriented toward global demand and stronger net exports. On the other hand, there will have to be offsetting adjustments elsewhere in the world. After all, on a global basis, the current account balance–properly measured–must sum to zero. This means  2  See "Securing the Recovery and Building for the Future." Remarks by William Dudley at United States Military Academy at West Point, New York, November 17, 2011, for a more detailed discussion of this issue.
Are hedge funds a source of instability in the global financial system? While their role in the Asian crisis remains controversial, the LTCM incident shows clearly that on occasion hedge funds can be destabilising, through their sheer size and leverage. Banning hedge funds altogether is not the solution. Many other institutions make similar plays as the hedge funds. Indeed hedge funds can play a positive role in international financial markets. Their signature contrarian and arbitrage strategies can help to stabilise and even enhance the efficiency of financial markets. However, checks are necessary to prevent them from accumulating excessive positions, unknown to the market and to regulators. Directly regulating hedge funds will also not work. There is the practical problem of regulatory arbitrage – such players can easily relocate if regulation is forced on them. Besides, not all hedge funds are large and highly leveraged. There is no need to regulate all of them in the same way. One possible approach is indirect regulation, through their lenders and other counterparties. This means bringing the private sector into the surveillance picture. We should create incentives in the supervisory framework for the counterparties of hedge funds to become more vigilant and prudent. Lenders must strengthen their own credit assessment systems, while regulators should find ways to encourage risky borrowers to disclose more, voluntarily, to their creditors. For example, we could introduce a higher risk weighting for borrowers who are large and highly leveraged and who do not disclose enough to either their creditors or the credit rating agencies.

This would spur hedge funds to disclose more or to obtain a credit rating. Global financial supervision The crisis has set off debate as to whether the global capital market needs a global regulator. I doubt this is workable, or even desirable. A global financial super-regulator requires countries to give up national sovereignty. This is politically unrealistic; witness how carefully the IMF had needed to 2  George Soros in The Crisis of Global Capitalism, Ch. 7 The Global Financial Crisis, p. 136. 5  BIS Review 93/1999  canvas its major shareholders to support its prescriptions and how closely the US Congress scrutinises the IMF’s actions. A more practical, albeit modest, solution is the establishment of the Financial Stability Forum. This brings together both the G7 countries as well as non-G7 financial centres and international organisations such as the IMF, World Bank and the BIS to discuss the vulnerabilities of the world system. The Forum should be able to get best practices and supervisory standards implemented more widely and effectively. The FSF has set up three working groups to study areas of vulnerability highlighted by the crisis: capital flows and exchange rate regimes, highly leveraged institutions and offshore financial centres (OFC). Singapore has been invited to participate in the FSF, together with Australia, Hong Kong and the Netherlands. We are also in the OFC working group. OFCs have attracted considerable attention because of the significant capital flows they generate.
40 On MAS’ end, we will continue our financial education efforts as an integral part of our regulatory and supervisory work. These will encompass heightened surveillance, investigation and enforcement actions with other authorities. 41 It leaves me to reiterate that investors should always seek to understand the issuer and product before investing in them. Remember to “Ask. Check. Confirm”. There will be a short halfminute video on this at the end of my remarks. Do also visit the pop-up exhibition booth outside the theatre to learn more about the resources available to help you. 42 Thank you for your attention. 5/5  BIS central bankers' speeches

Before the crisis, when talking about the policy mix anyone would think of the coordination between monetary and fiscal policies. Afterwards, when financial instability has undermined macroeconomic stability, despite low and stable inflation, it became obvious that additional tools are needed in complementing monetary policy in countercyclical management. As macro-prudential tools emerged as the most important candidates, it makes sense to assign the objective of financial stability to the central bank, if the central bank is given control of the supervisory and regulatory instrument. 2  BIS central bankers’ speeches  In the recent period some economists have asserted that central banks tend to fuel speculative bubbles by keeping monetary policy rates too low. This behaviour can create incentives for banks to overleverage or reduce efforts in screening borrowers, or can lead other economic agents to seek more risks in order to yield higher returns. The effects are likely to be worse if monetary policy is too accommodative for too long during expansions. This led to the conclusion that other instruments, which can directly affect leverage or risk taking, are required. Because the cost of cleaning up after an asset-price bubble burst can be very high, as proved by the recent financial crisis, early interventions by the central bank might be needed when a severe bubble is identified. In this context, macro-prudential instruments are the best option, without excluding de plano the recourse to monetary policy instruments.
It could be due to complacency and a false sense of security that misfortune would not befall the individual. Or it could also be a general lack of awareness of how much coverage would be considered adequate. But the more likely reason is the perception that getting the recommended amount of insurance protection is costly and beyond their means. Hence, it is given lower priority amidst other more pressing financial commitments like housing, children’s education and other day-to-day needs. 2  BIS Review 163/2010  13. What can we do to keep insurance protection affordable? I urge the insurance industry to make a more concerted effort to address this. Part of the problem lies in the conventional practice of insurers in bundling the savings and protection elements into what is known as Whole Life Plans. Since the savings element in such Whole Life Plans can be very significant, the insurance premiums could be 3–5 times that of pure protection Term Assurance plans, for the same level of protection. I faced the same problem when I first started work. I could not afford a Whole Life Plan but had the good sense to choose a Term Assurance policy. Protecting my young family then was more important than leaving them my Whole Life insurance payout after they are all grown up when they need the sum of money the least. 14. The insurance industry should not always push for a Whole Life Plan as it may result in under insurance.

They needed temporarily to look beyond their traditional markets for funding, and unquestionably these conditions put their resources and management under strain. It can definitely be said that those involved passed this difficult test. The funding problem that loomed around this time a year ago is a thing of the past, terms in the secondary market have been normalised and market confidence has been restored. This  BIS Review 34/2007  1  is to be welcomed. What remains, however, is of course that people are now more aware of the widespread risks that the future may hold in store. Global market conditions can change suddenly. Credit access, which in recent times has been exceptionally favourable for Icelandic and other banks, may change suddenly if unexpected conditions arise. It is important to be prepared for such a contingency. At the height of this furore, I would venture to say that the Central Bank made a strong contribution with its Financial Stability report, which was deemed to be professional, candid and in line with international best practice. The Bank’s next Financial Stability report will be published towards the end of April. Although these were not enviable times for financial companies, they definitely learned a lesson from this ordeal and are both more cautious and more aware of external influences than before. Rapid and sweeping changes in the financial sector put a great strain on regulatory agencies, which may face an uphill struggle to keep up with the swift pace of developments.
Key in managing the risks is to identify the sources and assess the extent of its impact to the business. Recognising this importance, The Financial Action Task Force or better known as FATF, has provided a clear statement on this under the very first recommendation in its Revised International Standards on Combating Money Laundering and the Financing of Terrorism and Proliferation. Countries, financial institutions and designated non-financial businesses and professions are required to clearly identify, assess,  BIS central bankers’ speeches  1  and understand risks. Understanding of those risks will then set the context for taking actions and allow better allocation of resources to effectively manage and mitigate those risks. To respond to this development, Bank Negara Malaysia has issued revised policies on Anti Money Laundering and Counter Financing of Terrorism (AML/CFT) in September 2013. The integral component of the revised AML/CFT policies is the introduction of an obligation for reporting institutions to adopt a risk-based approach in identifying, assessing, and understanding the money laundering and terrorism financing risks of respective reporting institutions. The risk-based approach is an over-arching requirement that runs through all the other elements in the AML/CFT policies. Proper assessment and understanding of the risks will allow reporting institutions to tailor an appropriate risk controls and establish proper policies and procedures to mitigate the risks. The revised policies also focused on refining Customer Due Diligence (CDD) requirements to reflect the varied risk levels.

The assessment methodology this time around will be different from the previous two assessments. It will not only depend on how good we are in achieving technical compliance to the international standards by having the necessary laws, regulations and policies in place, but importantly, the focus of the assessment will be placed on the effectiveness of AML/CFT measures being implemented taking into consideration the risk and context of money laundering and terrorism financing risks in Malaysia. It is important for me to stress that an overall positive rating in the assessment will strengthen the confidence in our financial system and therefore the country’s economic development. Our success in meeting the shared goal of protecting the integrity of our financial system against criminal abuse will continue to depend on the cooperation among the regulators, the financial industry and the law enforcement authorities. I am sure that this conference will provide a meaningful platform for all of you to engage, and importantly, to strengthen our risk management capabilities and in promoting higher level of integrity in our business conducts and operations. On that note, I wish all of you a fruitful conference. 4  BIS central bankers’ speeches
impose a negative interest rate on banks’ sight deposits held at the SNB if the deposits exceeded a certain exemption threshold. On 15 January 2015, the SNB discontinued the minimum exchange rate relative to the euro and simultaneously lowered the negative interest rate due to take effect on 22 January to −0.75%. Page 6/13  The role of the interest rate on banks’ sight deposits at the SNB In the years leading up to the Global Financial Crisis a so-called structural liquidity deficit prevailed in the banking systems of many countries, including Switzerland. Since the SNB did not pay interest on banks’ sight deposits at the SNB, banks held as little excess liquidity as possible in the form of sight deposits in an environment of positive interest rates. During this period, the SNB steered money market interest rates via the price and quantity of its daily money market operations, which were conducted in the secured segment of the money market in the form of repo transactions. For instance, if the SNB wished to induce a decline in money market rates, it provided more liquidity and reduced its repo rate. This setup changed with the Global Financial Crisis. Many central banks initially responded to the unfolding crisis by lowering policy rates. Subsequently, they launched asset purchase programmes (‘quantitative easing’) or – as was the case with the SNB – conducted foreign exchange market interventions.

A Scotsman founded the Bank of England, and it took another to reform it. Next year we celebrate the tercentenary of the Act of Union, an Act strongly supported by Adam Smith. And we now have a successful and prosperous union between our two countries with a common monetary institution which embodies the ideas not only of Adam Smith and his great friend David Hume, but also of the key principles that should govern institutional design. From the division of labour in the pin factory to the need for our mutual “sympathy” to be embodied in carefully designed institutions, Smith’s writing is remarkable by its comprehensive and eclectic examination of ideas and facts. So it is appropriate that tonight here in Kirkcaldy, where Adam Smith found contentment in study and reflection, I can announce that tomorrow the Bank of England will  19  There is some evidence that committees make, on average, better decisions than individuals. See King (2002), Blinder and Morgan (2000) and Lombardelli, Proudman and Talbot (2005). 6  BIS Review 102/2006  reveal its new £ note. And the figure celebrated on the new note will, of course, be Adam Smith the first economist and the first Scotsman to appear on a Bank of England note. From next spring, when visitors to our country look carefully at their new £ notes, they will be able to see an engraving showing the division of labour in pin manufacturing with the words “and the great increase in the quantity of work that results”.
Likewise important from the standpoint of the industry’s resilience has been the deleveraging undergone by the Spanish non-financial private sector during this period. From 2010 to 2019 there was a decline of almost 30 pp of GDP in the household debt ratio; and in the case of the non-financial corporations sector, its net debt fell by more than 45 pp of GDP from 2010. 1  In any event, the most appropriate means of illustrating the banking sector’s resilience is through the stress tests we regularly perform as supervisors. In July, the ECB conducted a vulnerability analysis of the banks under its supervision. The aim was to test, prospectively, banks’ resilience to the shock caused by the pandemic. The results of this exercise for Spanish banks are very similar to those obtained at the Banco de España in the Forward Looking Exercise on Spanish Banks (FLESB) stress test exercise, whose final results were published in our autumn Financial Stability Report. In the baseline scenario considered by the Banco de España’s vulnerability exercise, which includes cumulative declines in euro area GDP in 2020, 2021 and 2022 of around 1.6%, the reduction in the solvency of Spanish banks as a whole was estimated at 2 pp for significant institutions with an international presence, at 1 pp for other significant institutions and at 0.8 pp for institutions under the direct supervision of the Banco de España, leaving them at 9.9%, 12% and 18.7% on average, respectively, above the prudential requirements established.

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Here we are fortunate to have among the presenters Dimitri Vayanos, Gautti Eggerston, and Eric Swanson, all accomplished scholars who have dedicated an important part of their research in recent years to delve deeper into the quantitative effects of such policies. The second session deals with the financial stability considerations of these measures. After all, to date several unconventional policy efforts have begun in Japan, the US, Europe and elsewhere, but none has so far ended –in short, we are not out of the woods yet, and claiming success might still be a bit preliminary. The concern is that while an ambitious program of asset purchases might be welcome by different investor classes as asset prices are pushed upwards, it might prove much more difficult to orchestrate an orderly retreat which inevitably relies on increasing discount rates at which future income streams are priced. This is particular true if some projects were only funded to begin with due to the exceptionally low interest rate environment, and/or if such investments were intermediated by fund managers who care not only about income streams, but also (and mostly) about short-term price fluctuations. Here we will have an interesting discussion including papers by Stephen Morris, Michael Woodford, and Gustavo Suarez, which will enlighten us about the theoretical aspects to keep in mind when evaluating the broader consequences of asset purchase programs, as well as the empirical evidence regarding the effects of the risk-taking channel on the quality of loans originated.

First, in response to the Global Financial Crisis of 2008 the Bank increased the supply of liquidity in pesos and dollars – through repos and swaps –, augmented the extensions of the swap program, and broadened the range of eligible collaterals. They were all measures designed to align market rates with the Monetary Policy Rate and to mitigate foreign currency liquidity tensions. Forward guidance was also an important tool. With the Monetary Policy Rate close to zero – we cut the interest rate from 8.25% to 0.5% in less than a year – , communicating that we planned to keep a very low short-term interest rate for an extended period of time. This was essential in keeping medium and long term interest rates low. These measures – as well as some other more exogenous developments such as the rapid recovery of commodity prices – allowed the economy to rebound quite fast from a mild recession in 2009. Actually, in the post-crisis years GDP growth was above 5% in a context of low inflation. Over time, these measures were eliminated, but certainly the lessons we learned from the crisis have been incorporated into our policy analysis and toolkit. Among the most significant I would mention two: First, the fact that the central bank must be rapid to respond and use all the available tools if necessary.