samchain/econo-pairs-v1 huggingface dataset:
In essence, the CDS protection is not really being used to insure against default but to reduce market price volatility. Let us now turn to a second example of a bank hedging its corporate lending. Banks lend to a broad range of companies. In many cases they would be expected to hold these loans on their books until maturity (as opposed to selling them off to other investors). In order to reduce its measured outstanding credit risk, a bank may choose to purchase off-setting CDS protection, probably on a portfolio of loans. By so doing, the bank can make greater use of its internal credit risk limits and may get regulatory capital relief. In most cases, another leveraged market participant (bank or hedge fund) would write the CDS. (In some cases the insurance provider may be an unlevered institution, for which most of the concerns below would be reduced.) In the first example, the pension fund was concerned about short-term price swings. In this second example, the bank should be concerned to protect itself against clusters of defaults. But if the risk management of the ensuing portfolio of loans and CDS is not done with serious attention paid to the joint risk profile of the corporate borrowers and the providers of the CDS protection, the true net risk position might be worse than it appears. That could fool regulators as well as the bank’s own risk management function.

We believe that it is better to have a collection of ex ante determined stress scenarios that illustrate banks’ potential weaknesses publicly, even if the actual regulatory capital is not sufficient in all those scenarios. In other words, stress tests should not always be a check list “pass” or “fail” (after all, to make a bank fail or pass a stress test is just a question of scaling the test). Comparable, tail event stress tests could be an important piece in the information set that investors and regulators analyse to determine the relative value and risk profile of the institution. The second set of examples above illustrated that contract design features which are exclusively relevant in the extreme tails are perhaps best avoided. The reason is simply that such features, which do not seem to matter in most states of the world, end up being treated  15  How many “once-in-a-lifetime” events happen to us every year? BIS central bankers’ speeches  9  as if they will never matter. In other words, market participants need to make sure that an exercise of an option is seen as just that, a normal exercise of an option. No more and no less. Sophisticated market participants should not be genuinely surprised (or feign surprise) by another market participant trying to optimise its behaviour consistent with a contract. The implications of a contract should be clear and the structures should be as transparent as possible.
In the recent period of expansion, inflation rose to 3 per cent in 2008, but was restrained without raising the key rate to a high level. 5 The advantages of economic agents anticipating low and stable inflation are now clearly evident. They can be quite sure that inflation over time will be close to 2.5 per cent. This enables interest rate setting to be more effective. When the nominal interest rate is reduced, the real interest rate falls accordingly, and it is this rate that influences decisions made by households and enterprises. Interest rate setting still provides some scope for stimulus. When inflation is anchored, economic agents do not expect inflation to accelerate over a period in Norway even if the krone depreciates. The krone can then decrease in value without monetary policy having to be tightened. This will curb the decline in our export industry. In bad times, a marked krone depreciation might even be necessary to hold up inflation close to 2.5 per cent. In the downturns in 1990 and 1998, the opposite action was taken: the interest rate had to be increased in order to stabilise the krone and keep inflation in check. Even though fiscal policy and monetary policy have had the intended effect, there have been fluctuations in output and employment. We have experienced a period of strong credit growth. During the upturn, the housing market was increasingly marked by the belief that house prices would always rise.

At the company level, the FICS accreditation status recognizes GE Life’s commitment to benchmark the competencies of its workforce to international best practices. At the staff level, the FICS certification status helps promote individual attainment of the standards of professional competency and fair dealing in the insurance marketplace. We hope that GE Life will continue to keep up the momentum to participate in industry-wide efforts to raise the  2  BIS Review 97/2008  professionalism in the industry. We hope that we will catalyse a whole-of-industry involvement in this FICS effort. Conclusion I am therefore delighted this afternoon to present the FICS Accredited Assessment Service Provider award to GE Life. It is both a celebration of your achievements over the last 100 years, and an affirmation of your commitment to continued excellence, building on the core values that have served you so well. May I also congratulate the 12 pioneer candidates who are awarded FICS Certification today. The industry looks to you to uphold the high standards of personal integrity, competency and professional conduct expected of all agents. On this note, I congratulate Mrs Fang Ai Lian and the staff of GE Life on this happy day, and wish you greater success for the next 100 years to come. BIS Review 97/2008  3
Gent Sejko: Oversight, analysis and vision of public governance in Albania Speech by Mr Gent Sejko, Governor of the Bank of Albania, at the presentation of the Supreme State Audit Annual Review 2015, Tirana, 1 February 2016. *  *  *  Your Excellency President of the Republic of Albania, Dear Chairman of the Supreme State Audit institution, Honourable Chairman of the Parliamentary Committee on Economy and Finance, Your excellency Ambassador Lu, Your excellency Minister, Dear representatives of public institutions, Honourable MPs, dear professors, dear participants, It is a special pleasure for me to be here today on the occasion of the annual review of the activity of the Supreme State Audit (ALSAI) for 2015. ALSAI is among the most important constitutional institutions in Albania, whose objective – ensuring good management of public finances – is highly significant. The effective use and certification of public funds in conformity with the laws regulating the economic and financial activity of the public sector, on-going public communication, in relation to irregularities and relevant responsibilities have been at the focus of ALSAI’s work in recent years. In this perspective, the role and mission of the ALSAI are highly important; therefore, the issues raised in ALSAI’s reports should be thoroughly analysed. They are both necessary and preventive instruments for the institutions subjected to ALSAI’s audit. Notably, the Bank of Albania and ALSAI have had a fruitful cooperation, in line with both current and prospective dynamics and developments.

By the end of 2003 for example, the domestic banks’ assets amounted to over 277% of GDP, compared with a euro area average of 273%, while the ratio of domestic bank credit to GDP stood at 155%, as against 143% in the euro area. More significantly, spreads between short-term lending and deposit rates in Malta, at 2.41 percentage points in 2003, were even narrower than the euro area average of 3.48 points. This suggests that the local banks compare favourably in terms of efficiency with banks elsewhere in the European Union. Furthermore, despite the global economic slowdown and the recent weak performance of the Maltese economy, the profitability of banks in Malta, as evidenced by the return on assets, has been fairly stable at around 0.8%. This compares with an average return of 0.6% recorded by European banks in 2001. At the same time, bank liquidity remains very high, with the domestic banks’ holdings of liquid assets as a share of short-term liabilities, just under 50% at the end of 2003, consistently exceeding the 30% prudential requirement. Maltese banks are also strongly capitalized. Their aggregate capital adequacy ratio, defined as the ratio of own funds to risk-weighted assets, stood at 16.7%. On the other hand, the banks’ loan portfolio still tends to be concentrated on a few sectors, reflecting the structure and small size of the Maltese economy. Furthermore, they still rely too heavily on property as collateral.
These additional insights also lead to better quality of disclosures to relevant law enforcement agencies especially in relation to fraud, tax evasion and corruption crimes. The regulatory and law enforcement community is also in the midst of exploring introducing a Cash Transaction Limit (CTL) to complement the existing financial integrity measures. While new to Malaysia, many other countries such as France, Italy and India have already implemented it. This measure will further mitigate the abuse of cash by addressing the ease of conducting high-value cash transactions. Even with the rise of electronic payments, we cannot wash over the fact that criminals still prefer cash because it is widely accepted, anonymous in nature and untraceable. For this purpose, the National Coordination Committee to Counter Money Laundering (NCC) will be consulting the public on this proposal later this month. The NCC wants to make an informed decision. As such, we hope that all of you could get the word out and encourage the public to provide feedback on the proposed measure. Closing As a regulator, Bank Negara can only do so much to protect the financial system against money laundering and terrorism financing risk. Reporting institutions, as responsible corporate citizens, must also play their parts to safeguard the financial system and economy. Our hope is that over these two days, participants at this conference will draw new insights and perspectives, forge new networks, and strengthen their resolve in carrying out this important mission to uphold the integrity and the trust of the people in our financial system.

We believe that the industry is ready to build and expand its capacity in this area. While we are moving to being more risk-based, there is still a lot more to be done. This includes educating everyone in the industry that “risk-based” does not mean “total risk aversion”. While it is crucial to protect our financial system from being abused, it is also necessary for financial institutions to serve their roles and purposes in the economy and for the society. Accordingly, the new 1/3  BIS central bankers' speeches  regulatory framework demands reporting institutions to take greater ownership of their individual AML/CFT frameworks. Reporting institutions must strengthen their internal governance and controls to preserve financial integrity, not because Bank Negara tells them so, but because it is the right thing to do. This demands a high level of maturity by the industry. For individual institutions which have established a mature control environment, there will be greater latitude to design control frameworks in a way that is more operationally flexible. On the other hand, for individual institutions who are not quite there yet, the new framework raises the compliance bar, calling for them to strengthen awareness, governance and processes to ensure they have the capabilities to preserve integrity of the financial system. On this point, I wish to applaud the Financial Services Professional Board (FSPB) on its recent publication of standards on whistleblowing and on managing conflicts of interest.
But that is rarely possible in practice, other than perhaps a very short distance ahead. 8  See Woodford (2012). 9  See Carney (2012). 4  BIS central bankers’ speeches  The difficulty of utilising this particular policy channel is probably not a great issue in normal times. But it looms larger when policy is constrained by the zero lower bound on interest rates. In such circumstances – and assuming that alternative policies, such as quantitative easing, are unavailable or ineffective – an ability to exploit this policy-expectations channel becomes much more valuable, as the commitment to hold policy loose in the future feeds back onto aggregate demand today by reducing expected future real interest rates. This comes about both through a low future nominal interest rate and a higher future rate of inflation because policy is held “loose for long”. The intent of such a loose-for-long strategy is in some ways similar to quantitative easing, as both reduce interest rates further down the yield curve. But the former does so by changing the path of risk-free rates at the near end of the yield curve, while the latter operates mainly through variations in the term premium further out along the yield curve brought about by changes in relative asset supplies. Moreover, the loose-for-long approach partly works by raising future inflation, which is not an objective of quantitative easing.

Of course, the world is much more complex and risks materialize over long periods of time in response to many factors, and there are important differences between social and private outcomes, but I think it is helpful to think through these types of signals ex ante. By making predictions and assessing whether observed outcomes are consistent with those predictions, we can better understand the complex dynamics in financial institutions and develop better policy. Resource Efficiency Finally, I’ll emphasize that I have focused on one specific type of policy efficiency that looks at the ability to achieve multiple objectives. Alternatively, one could think about efficiency more directly in terms of resources and burden, both on the private sector and the official sector. For example, the Federal Reserve aims to minimize compliance burden while achieving its policy goals.15 That perspective is about allocative efficiency of scarce resources and the deadweight loss associated with the misallocation of those resources. As part of the official sector, we have an obligation to be good stewards of resources and should always try to achieve a given set of policy objectives in the least-cost manner. Conclusions To conclude, I have suggested a simple framework to help distinguish changes in policy to achieve a different level of intermediation and an acceptable level of risk from changes in policy to increase efficiency. The first reflects the preferences of policymakers, and the second should be a standing goal.
Malmendier, U, and Nagel, S (2011), “Depression Babies: Do Macroeconomic Experiences Affect Risk-Taking?”, Quarterly Journal of Economics, February 2011, vol. 126(1), pp. 373–416. Reinhart, C M, and Rogoff, K S (2010), “Growth in a Time of Debt”, American Economic Review, American Economic Association, vol. 100(2), pp. 573–78, May. Simonson, D G, and Hempel, G H (1993), “Banking Lessons from the Past: The 1938 Regulatory Agreement Interpreted”, Journal of Financial Services Research, pp. 249–267. Tuckett, D (2011), “Minding the Markets: An Emotional Finance View of Financial Instability”, Palgrave Maxmillan. Tversky, A, and Kahneman, D (1974), “Judgement under Uncertainty: Heuristics and Biases”, Science, New series, Vol.185, No 4157, pp. 1124–1131. BIS central bankers’ speeches  7  Chart 1:  Chart 2:  Changes to UK real GDP in crisis periods  Recessions and recoveries  1929 crash  cumulative % change since start of recession  1990 recession  Interquartile range financial recessions  16  2008 financial crisis  Financial recessions  Mean time to trough  Normal recessions  Mean time to trough Index: GDP peak = 100 106  12 8  104  4  102  0  100 98  -4  96 -8 0  1  2  3 4 years since crisis  5  6  Sources: Office for National Statistics, Thomson Reuters Datastream and Bank calculations. 8  0  1 2 Years from peak in output  3  Sources: International Monetary Fund and Bank calculations.

12  BIS central bankers’ speeches  Chart 13:  Chart 14:  Corporate financial surplus(a)  Percentage of firms with interest payments greater than profits(a)(b)  Per cent 10  United Kingdom United States Euro area  Per cent 60  Firms with turnover > £ million  8  Firms with turnover < £ million  6  Real estate firms with turnover > £ million  50  4 2 + 0 2  40  4  20  30  6 10  8 10 00  02  04  06  08  10  Source: Thomson Reuters Datastream, ECB and Bank calculations. (a) Per cent of GDP except Euro area which is as a per cent of GVA. 0 90  92  94  96  98  00  02  04  06  08  Sources: Bureau Van Dijk and Bank calculations. (a) Percentage of companies in each category with interest payments greater than their profits before interest. (b) Data include firms reporting turnover, profit and interest paid. These firms may not be representative of the population. Total sample size varies over time, ranging from around 14,000 in 1990 to over 90,000 in 2000. Changes in the composition of the data set may reduce comparability over time. Subsidiaries, as identified from company structures, are excluded. Company accounts are assigned to calendar years according to the statement date.
This reporting has been voluntary, but we believe it now needs to be made a requirement. Another cause we are supporting is a comprehensive standard for sustainability reporting in line with the new International Sustainability Standards Board (ISSB). We will also work towards good standards for reporting on indirect emissions in companies’ value chains, known as Scope 3 emissions. In many sectors, this is crucial for understanding a company’s climate risk. We will also work on other climate-related issues where we believe international standards may be useful. One example is the use of emission allowances. Our work with companies begins with setting clear expectations. We have formulated our expectations in a set of expectation documents. When it comes to climate change, we already expect companies to have a climate strategy, set emission targets, report on progress, and stress-test their business models against various climate scenarios. In future, it will be natural for us to emphasise towards a net zero emission horizon. This will give clearer direction to our ownership activities. Exercising ownership Active ownership will play a key part in work on addressing the fund’s climate risk. A dialogue with companies will be particularly important. Chart: Climate increasingly a dialogue topic Our dialogue with companies reflects our expectations. Last year, we held around 3,000 meetings with companies. As you can see from the chart, sustainability is increasingly on the agenda. 3/6  BIS central bankers' speeches  We plan to increase both the breadth and the depth of our climate-related ownership activities.

How do banks in Hong Kong measure up in terms of environmental issues? As an international financial centre, Hong Kong provides a base for a number of multinational banks that have developed detailed environmental policies and procedures. In the case of local and regional banks, I would say that environmental issues are less highly articulated. This is why I welcome this conference and the involvement in it of the Hong Kong Association of Banks. It is not my purpose in this speech to anticipate the more detailed advice that subsequent speakers are going to offer. But I would like to offer a few general recommendations that banks should take into account in dealing with environmental issues. First, banks should keep themselves informed about international and regional initiatives on the environment, particularly those that directly concern financial institutions. In this connection, I would draw the attention of those institutions that are not already aware of it to the work of the United Nations Environment Programme (“UNEP”). This is the main UN institution that deals with environmental questions. As part of its work, it has established a Financial Institutions Initiative on the Environment which is a partnership between UNEP and leading banking and insurance companies to promote sustainable development and environmentally sound business practices. The basic role of the Initiative is to promote the integration of environmental considerations into all aspects of the financial sector’s operations and services.
In March this year, the new framework for investment banking was unveiled, paving the way for the further rationalisation of domestic capital market intermediaries. As you may recall, the objectives of the framework are twofold: to facilitate internal rationalisation of the merchant bank, stockbroking company and discount house within the same financial group; and to promote the rationalisation of the discount house and universal broker industries. This integration is expected to promote a more competitive and dynamic financial system, enhance efficiency and strengthen the potential to capitalise on expanded business opportunities, both locally and abroad, thereby strengthening the competitive position of the new entity. Foreign equity participation in investment banks has also been liberalised, from 30% to 49%, as part of the overall efforts to strengthen their linkages globally and to enhance the transfer of specialised skills and expertise in the investment banking industry. Moving forward, the competitive pressures are expected to intensify in the investment banking industry. With the extension of the investment bank framework to universal brokers, 17 investment banks may emerge from the rationalisation exercise. Amid this more competitive and challenging environment, the ability of the investment banks to thrive will no longer depend on factors such as asset and capitalization levels, but on their capacity and capability to manage and utilise their resources in the most efficient and effective manner.

Work is also already underway to establish an international centre for education in Islamic finance to produce the professionals and expertise that is vital for the global development of Islamic finance. Conclusion The year has therefore been marked by significant developments on several fronts. Going forward, we need to build on the successes to fully maximise the potential benefits. In this dynamic environment, it is the cumulative efforts of the industry that will allow this hard-earned progress to yield sustainable results. We now stand at the threshold of the development of the financial sector. The merchant banking industry will need to confront the emerging challenges squarely and seize the new opportunities that will emerge with its new intermediation structure. There will also be an important need to stay alert on the emerging domestic and global trends and to be aligned to be well positioned to respond to the new emerging environment and thus sustain the effectiveness of the performance and contribution of the sector to the economy. On that note, let me take this opportunity to wish you all a very happy new year, and a productive and successful year ahead. 4  BIS Review 83/2005