samchain/econo-pairs-v1 huggingface dataset:
The Chancellor decided last May that he would no longer exercise his powers to set short-term interest rates. Anticipating the Bank of England Bill, he set an inflation target and delegated the technical implementation of monetary policy to achieve that target to a new Monetary Policy Committee established within the Bank. BIS Review 18/1998  -3-  The Monetary Policy Committee has been operating independently in setting interest rates ever since. This position is formalised under the Bill. With respect to monetary policy the Bill defines the Bank’s objective as the maintenance of price stability, and, subject to that, as supporting the Government’s economic policy, including its objectives for growth and employment. The Chancellor will tell the Bank each year what precisely we are to understand by “price stability” - he will, in other words - set a specific inflation target. He has in fact initially set a target of 2½% for underlying inflation, and although the Bill provides for him to set the target each year, the expectation is that the target is for the medium to longer term. That is the political decision. The task of achieving that target - the technical implementation of monetary policy - is then delegated to the Bank of England. The Government will no longer have the power to issue directions to the Bank in the field of monetary policy (except, in the terms of the Bill, in “extreme economic circumstances”). Instead, the Bill will formally establish the Monetary Policy Committee.

Court as a whole will set the Bank’s strategy, determine its budget and in the hallowed language of the 1946 Bank of England Act - “manage the affairs of the Bank”. In this sense we remain a unitary board. But, under the present Bill, the sixteen non-executive members, as a group, will be given the specific duty of reviewing the performance of the Bank, including the conduct of its financial affairs, and including the procedures of the Monetary Policy Committee, satisfying itself inter alia, that the Monetary Policy Committee takes proper account of economic conditions in the various regions of the country. The prospective non-executive appointments to Court announced last week in fact include increased representation from the regions, with members from Scotland, Wales and Northern Ireland. The non-executives will have their own chairman, appointed by the Chancellor. The first chairman will in fact be Dame Sheila Masters of KPMG, currently Vice-President of the Institute of Chartered Accountants of England and Wales. They will be required to report on the Bank’s BIS Review 18/1998  -2-  performance to Parliament in a separate section of the Bank’s Annual Report. The Bank’s Remuneration and Audit Committees will, as now, be made up entirely of non-executive members of Court. All of this is in the spirit of the most modern principles of corporate governance. The Bank’s finances A second important change relates to our finances.
Trade in various assets entails large economic gains, among other reasons because consumption in different countries can be evened out over time. Other advantages are the transfer of technology that often accompanies foreign investments and the increased competitiveness in the domestic market that results when foreign companies are allowed to invest locally. A better complement to monetary policy is thus formed by measures restricting supply and demand for credit, which is to say primarily macroprudential policy measures. Measures for reducing the risks are needed now Having low interest rates for a long time entails risks for the financial system. Low real interest rates are contributing to the growing trends of rising housing prices and increasing household debt. Investors with predetermined nominal required rates of return, such as fund managers, insurance companies and pension funds, are finding it more difficult to reach their targets. This risks leading to an excessive increase in risk-taking, the overvaluation of assets and the accumulation of financial imbalances. In several of the countries worst impacted by the global financial crisis of 2008– 2009, the crisis had been preceded by rapidly-rising debts and housing prices. The downturn after a crisis also risks being deeper and more prolonged if indebtedness has risen rapidly before the crisis. The risks of household indebtedness therefore need to be managed and the longer this is put off, the more expensive it risks becoming. Measures thus need to be applied now to reduce the risks in the financial system. Household demand for loans needs to be dampened.

But, for today’s purposes, I shall take as my starting point a speech given by the previous Governor to the RICS in Paris in October 1989. You will recall that everything in the garden then seemed rosy. Cranes were everywhere on the horizon; there was an expectation that rents and capital values could only move upwards. Banks were developing innovative financing techniques and competing fiercely with one another to finance all this activity. Income returns were not out of the ordinary but the market was underpinned by the prospect of capital gain. 4 Yet some participants and commentators were beginning to have concerns about the scale of development. The Governor questioned whether there would be sufficient demand for the supply coming on stream. He noted too the banks’ rapidly growing exposure to the sector. The sector was quite simply heading for overcapacity and overgearing. Why did the lenders not see it coming? Perhaps inability or unwillingness to see the big picture was one reason - but more of that later. We have been asked quite often why we as the supervisor of banks did not stop them overlending. The answer remains the same. The banks have to be responsible for their own commercial decisions. We are there to protect their depositors, not their shareholders. But we can usefully draw their attention to gathering clouds - and that is what we did. 5 As we all know, the required level of demand did not materialise.
In the same spirit, recent ETFs innovations underline the need for securities regulators to work closely with bank supervisors and macroprudential authorities on shadow banking and what I earlier called “financing markets”. For both physical and synthetic funds, the underlying collateral pools are being swapped to provide financing for dealers and banks. It is not clear whether bank supervisors have caught up with this, or whether the risk of the collateral swaps being called is treated appropriately in regulatory maturity-mismatch ladders. Who would have guessed that vanilla collective investment schemes, could be turned to this purpose? The truth is that any pool of assets can be. While the FSB has already called for authorities to act to keep the evolution of ETFs on a sustainable path, the broader lesson is that securities regulators need to be alive to the need  11  Securities and Exchange Commission, Release No. 33-9117, Asset-Backed Securities (April 7, 2010). 12  The FSB took a small step towards addressing this issue in its March 2011 publication, “Thematic Review on Risk Disclosures Practices: Peer Review Report”. This did not get much traction at the time, but the FSB’s Vulnerabilities Group, chaired by Jaime Caruana and on which I sit, plans to draw on that Review in its own work programme. In the US, as noted, the SEC has begun to grapple with this set of issues. Its April 2010 notice proposed enhanced disclosures requirements for asset-backed securities sold privately as well as via the public (registered) transactions.

I believe that central banks can play a special role in this area. Important “intra-financial system markets” are not restricted to banking. The reinsurance markets, and the mechanisms for sharing risks in Lloyd’s of London, are other examples. As are the inter-dealer markets in derivatives, which have traditionally employed different protocols (notably collateralisation, under Credit-Support Annexes) than get used in transactions with end users. Away from banks, these Over the Counter derivative markets have been the principal focus of policy. They are being rethought, under a mandate from the G20 Leaders7. The third category of markets is those that matter directly in their own right to end users. Notably the primary markets in equity and debt. These markets and the associated secondary markets often rely on “market makers” for liquidity, but they are not the marginal source of financing or risk management for banks and dealers. In the past, they have often  4  Drysdale, Lombard Wall, and so on. 5  See Tucker P M W (2010), “Shadow Banking, Financing Markets and Financial Stability”, January 2010. 6  See Gary Gorton “Securitized Banking and the Run on Repo”. 7  In September 2009, G-20 Leaders agreed in Pittsburgh that: “All standardised OTC derivative contracts should be traded on exchanges or electronic trading platforms, where appropriate, and cleared through central counterparties by end-2012 at the latest. OTC derivative contracts should be reported to trade repositories. Non-centrally cleared contracts should be subject to higher capital requirements.
In relation to the banking sector, the government and Parliament initiated the reform process a year before the markets began to show signs of concern with the explosion of the sovereign debt crisis. Far-reaching measures were taken that enabled the principal problems of the sector to be tackled before they became intractable. The main task undertaken to tackle the structural problems in our banking system has undoubtedly been the restructuring of the savings bank sector. Part of this sector had built up significant imbalances during the expansionary years. This, along with the duration and depth of the international economic crisis, made evident the need to create an instrument with considerable financial capacity and sufficient powers to carry out extensive restructuring of the savings bank sector. For this purpose, at the beginning of the summer of 2009 the Royal Decree-Law on the creation of the Fund for the Orderly Restructuring of the Banking Sector (the FROB) was approved, which would be ratified by Parliament one month later. Since then, the restructuring of the sector, partly achieved with the assistance of FROB funds, has been of an extraordinary intensity. In less than two years, the 45 savings banks previously in place have been reduced to a third of that number, and the consolidation process has affected more than 95% of the total assets of the sector. The objectives of this restructuring and integration process were very clear. First, to correct the excessive fragmentation of the sector.

Banks determine who should be given credit and closely monitor borrowers and their projects. This is a task that would be difficult for small savers to undertake. By offering customers various kinds of financial products, banks also help to diversify and redistribute risk. This function is essential in a modern market economy. At the same time, experience shows that complex financial structures are a source of increased vulnerability. Chart: Securitisation resulted in complex and vulnerable structures Ahead of the financial crisis, there was a proliferation of complex financial products, including residential mortgage-backed securities in the US. In theory, these new products were intended to improve the distribution of risk. Banks’ exposure to risk that had been shifted off their balance sheets would be limited. In reality, it turned out differently. Risk was not very well distributed, merely hidden. With so many links in the chain between borrower and saver, the responsibility for monitoring borrowers became highly fragmented. Good banking is important for a sound and stable economy. Despite thorough credit assessments and close monitoring of borrowers, banks will face unexpected losses. If banks end up with insufficient equity capital following substantial losses in bad times, they will have to tighten lending. This may amplify a downturn, as is currently the case in a number of European countries. Compared with other enterprises, many banks have limited equity capital. It is often more costly for banks to fund lending with equity capital than with deposits and borrowing from the market.
Lars Nyberg: Are hedge funds dangerous? Speech by Mr Lars Nyberg, Deputy Governor of the Sveriges Riksbank, at a meeting at Nordea and the CFA Society of Sweden, Stockholm, 24 November 2006. *  *  *  I shall begin by thanking you for the invitation to come here to Nordea and the CFA Society of Sweden to develop some thoughts on the usefulness and risks with hedge funds. After several years of strong growth, hedge funds are a hot topic among market agents and authorities. Although hedge funds’ percentage of the total capital managed is small, around five per cent, they account for a large part of the liquidity on certain markets. Many people express concern as to what effects hedge funds might have on financial stability and after the much-publicised collapse of the US hedge fund Amaranth in the autumn, the debate on regulation has gained new impetus. As you may perhaps know, Amaranth primarily traded various gas and energy derivatives. After summer 2005, Amaranth held gigantic positions in the gas market – they believed in a price increase. Between August and October 2005 the price of natural gas rose by 50 per cent, partly as a result of the severe hurricanes. The fund earned substantial amounts of money and the fund managers were also expecting this autumn to see high energy prices during the winter. They bought futures for November and March and sold (sold short) contracts for October and April. However, this year did not develop as expected.

Mohamed S Fofana: Sierra Leone Stock Exchange – developing the country’s financial sector Opening remarks by Mohamed S Fofana, Deputy Governor of the Bank of Sierra Leone and Chairman of the Stock Exchange Technical Committee, at the inauguration ceremony of the Sierra Leone Interim Stock Exchange, Freetown, 27 July 2007. *  *  *  Your Excellency, the President Honourable Vice President My Lord Chief Justice Your Excellencies, Members of the Diplomatic Corp Hon Minister of Finance Other Cabinet Ministers Mr Governor Mr Secretary to the President and other senior civil servants Heads of Financial Institutions Colleague SETC members Distinguished Members of the Private Sector Ladies and Gentlemen It is my singular privilege and honour to chair this occasion. I must confess that I only agreed to perform this function under pressure from my colleagues of the Stock Exchange Technical Committee, who insisted that as chair of that Committee, I am under obligation to chair this ceremony. My personal inclination was that some more distinguished personality than myself should assume this role. It is not common that such a galaxy of distinguished personalities would converge on the Bank. When this happens, it is a clear indication that something out of the ordinary is in the offing, as is clearly the case today. Your Excellency, the inauguration of the Sierra Leone Stock Exchange, which you are about to perform, is a unique occasion in every sense.
In September 2013, the MPC said that a minimum necessary condition for a rise in interest rates was that unemployment should fall below 7%. This was not a sufficient condition and the Committee was also at pains to emphasise that the actual path of rates would depend on the outlook for the economy at the time. Yet quite a few observers viewed the condition as a hard trigger and were confused when rates didn’t immediately and automatically rise in response (memorably, one MP subsequently likened the Committee to “an unreliable boyfriend, blowing hot and cold”). Similarly, in a speech in July 2015[5], the then-Governor Mark Carney said the “the decision as to when to [start raising interest rates] will likely come into sharper relief around the turn of the year”. This was no more than suggestive and was immediately qualified with a remark about the importance of economic developments in the interim: “I am conscious of several important considerations which mean the actual path [of interest rates] almost certainly will not be mechanical, linear or pre-determined.

But perhaps a better way to think of it is to recognise that, thanks to this ability to make credible commitments, Blue essentially gets to choose future as well as current policy. This is a pretty valuable addition to the set of monetary tools when the current interest rate can’t be cut (and if the economy responds sensitively to forward rates). Without it, as you can see, the simulated performance of the economy deteriorates significantly as the neutral real interest rate gets closer to the lower bound (i.e. as the red line approaches the origin). Unable to do much about them, the fully discretionary policymaker will spend quite a bit of time in these low-inflation, low-output traps. But because he effectively controls future as well as current policy, and can credibly “promise to be irresponsible” (i.e. to keep rates low even in the event of positive inflationary shocks in the future), the blue policymaker manages to avoid the worst effects of the lower bound for interest rates. Forward guidance in practice What about the real world? Is it blue or red? In practice, looking at what central banks have actually said about future policy, the boundary between the two is less clear in practice than in the theory. Even a fully discretionary policymaker – one who can’t credibly commit to future policy decisions – may react slightly  differently to incoming data around the lower bound.
Retail customers now expect to be able to integrate e-commerce, social media and retail payments. They also expect to be able to switch seamlessly across digital platforms. These are not areas of strength for many banks: given their heavier compliance obligations, banks have traditionally invested more in the security and resilience of their systems rather than optimising the user experience. BIS central bankers’ speeches  1  Third, payments technology is evolving at an unprecedented speed. Contactless cards, online payments, mobile payments, are all becoming more prevalent. Keeping pace with those technologies will require major investment from banks, and they have to contend with the fact that their new competitors – for example PayPal and Apple – already have an edge in digital technology. The initial effect of this disruption in the payments may well be to reduce the role of cash payments, which will not fundamentally affect banks. But in my view banks should not take this challenge lightly. According to estimates by Deloitte, retail payments will generate around € billion in revenues for banks in 2015, or around a quarter of total European retail banking revenues. 1 With profits already depressed on lending activities, banks can scarcely afford to start seeing margins being squeezed and market share lost in other areas. So banks would be well-advised, to my mind, to face this challenge head on. Whether via joint ventures or higher investment, they need to keep up with technological change if they are to have a long-term business model.

From my viewpoint as a central banker, I hope that banks indeed seize on this opportunity, because I think it would ultimately lead to a more robust banking sector as a whole. For example, European securitisation markets would improve risk-sharing among banks: one can imagine a world where small, local banks originate loans while larger, global banks securitise and market them. And a true CMU would also mean convergence of some parts of insolvency law and deepening of markets for distressed debt, which would help banks work through NPLs more quickly in future and hence increase the resilience of the banking sector to shocks. Moreover, if bank finance declines in importance over the longer-term, that might also encourage some much needed consolidation in the banking sector, which would in my view be beneficial for the real economy. We see at the moment that overcapacity hinders the recovery of bank profitability, as weaker banks distort competition and make it difficult for other banks to re-price loans.4 Whether all this materialises, however, hinges crucially on how far-reaching the CMU project really is. The Commission’s Action Plan for CMU has put forward many areas for further work, but each will take years to implement. What type of CMU will ultimately emerge therefore remains to be seen. I am sure Commissioner Hill will give us more guidance on this tomorrow. 3  Ryan, R., O’Toole, C. and McCann, F. (2014), “Does bank market power affect SME financing constraints?”, Journal of Banking and Finance.
I would say it is all about discipline – particularly fiscal discipline, and a changing culture. I am sure that, under the umbrella of this complex topic, all these issues are full of substance so that I strongly encourage participants to debate on the challenges the European Union, in general, and countries like Romania, in particular, face when it comes to economic governance. I wish you success and invite Mr. Gheorghe Ialomiţianu, Romania’s Minister of Finance, to deliver his address. 2  BIS central bankers’ speeches

Since joining the IMF, Romania has been part of the Dutch Constituency. In 2012, Belgium and Luxembourg joined, establishing the Dutch-Belgian Constituency, one of the largest and most diverse constituencies at the IMF. I have to mention that the National Bank of Romania has extensively benefited during the whole transition process from technical assistance from members of this Constituency in two essential banking areas, such as bank supervision form the Nederlandsche Bank (DNB) and market operations from the National Bank of Belgium. Actually, the first Law on the Statute of the National Bank of Romania was drafted following the model of the National Bank of Belgium, while the Dutch influence goes even further back in time. If history simply wanted to repeat itself: one knows that the name of our national currency draws its name from the löwenthaler (leul taler), a silver Dutch coin that circulated approximately four hundred years ago. Allow me to introduce, even though many of you already know him, Paul Hilbers, the IMF Executive Director of the Dutch – Belgian Constituency, a very dear and old friend of Romania. I would like to thank him for his current work representing our country within the IMF Executive Board, and for all his support throughout his career.