samchain/econo-pairs-v1 huggingface dataset:
The launch of these markets, geared to luring medium-sized firms, is also contributing to the development of the capital markets. In particular, in Spain we have witnessed the development of the alternative fixed-income market MARF. That said, their size is still small in most European countries. In the future, this trend towards the greater development of capital markets might continue if progress is made on the European project to create a Capital Markets Union, as I shall later discuss. A further factor pointing in this same direction is the potential increase in long-term saving associated with population ageing. The reason is that, for this investment horizon, capital markets may be a comparatively more attractive option than in the case of short-term saving. Moreover, technological progress might prompt an increase in the activity of new non-bank competitors with innovative technologies. So far, market penetration by this type of player in the credit-supply business is limited in most European countries. Initiatives like the regulatory sandbox currently being designed in Spain, have the objective of promoting the emergence of these type of players. These controlled test environments aim to provide, with all due security measures for participants and the system as a whole, a nimble framework that provides for the viability testing of the new business models based on new technologies. They will also enable the supervisory community to gain knowledge on how new business models and technologies function and the new risks associated with them.

Thus, growing banking disintermediation might diminish the general effectiveness of such instruments, if other participants in the financial system, to which these tools were not applicable, were to engage in activities similar to those of banks. 5/7  To mitigate this risk, the forthcoming creation of a Spanish Macroprudential Authority will provide the appropriate forum in which all financial system supervisors may share their analysis of risks and coordinate the most suitable response, without leaving “gaps” that might restrict effectiveness Private risk mitigation measures in the Economic and Monetary Union In any event we should be mindful that, to ensure greater stability in European financial systems, it does not suffice to adopt measures at the national level; it is also necessary to push through a greater level of development and integration of European capital markets so that, in conjunction with the Banking Union, the risk-sharing and mitigation mechanisms at the level of the euro area as a whole are strengthened. In this connection, allow me to dwell on the importance of private risk mitigation measures. The crisis highlighted the scant power of these channels in the Economic and Monetary Union, compared with other monetary unions. It also became evident that these channels diminish, or even disappear, precisely when they are most needed. It is estimated that in the United States the cross-border ownership of capital across states enables 40% of the asymmetric shocks affecting a State to be diluted among the rest through private capital markets.
If we slice the mark-up data for non-financial companies on a sectoral basis, this suggests this rise has been reasonably broad-based (Chart 5). All but two of the ten sectors have seen mark-ups rise since 1987, although some are volatile. Six of the ten have seen them rise by more than 30 percentage points. Among the largest rises have been in manufacturing (70 percentage points), professional, scientific and technical (62 percentage points) and transport and storage (57 percentage points). This broadly mirrors the international evidence. 12  One apparent exception is the banking sector. Chart 6 plots a measure of banks’ net interest margins (NIMs), as a proxy for mark-ups, in the UK, US and euro area since 1996. NIMs appear to have been broadly flat in these countries over recent decades. If anything, they may have fallen over the past decade. The latter is potentially the result of the low levels of official interest rates, constraining the ability of banks to lower their deposit rates in order to protect margins (for example, Claessens, Coleman and Donnelly (2017)). Another way of slicing the data is to ask how much of the rise in mark-ups is due to a compositional shift over time towards sectors whose mark-ups are already high and how much reflects a generalised rise in mark-ups within each sector. Chart 7 shows this decomposition for UK-listed firms.

Within some range, increased market power raises rents and acts as a spur to investment, innovation and productivity. But beyond a point, those forces go into reverse. Market power is associated with a fall in innovation and investment incentives, with knock-on negative effects for productivity. There is some empirical support for such a relationship. Jones and Philippon (2016) and Gutiérrez and Philippon (2017) suggest increased market power may have reduced investment among US companies. De  14  Our results are consistent with De Loecker and Warzynski (2012) who find that exporters charge, on average, higher mark-ups and that firm mark-ups increase upon export entry. 7  All speeches are available online at www.bankofengland.co.uk/speeches  7  Loecker and Eeckhout (2017) document a negative relationship between mark-ups and the capital share among global companies. And Díez et al (2018) identify empirically a concave relationship between markups and investment, in line with Aghion et al (2005). We can re-run the Díez et al (2018) investment equations using the panel of UK-listed firms. This also finds a concave relationship with mark-ups (Table 2, column 1). The same relationship holds between mark-ups and R&D expenditure (Table 2, column 2). Chart 12 plots the estimated investment curve. It suggests that firms with mark-ups above around two tend to be associated with lower investment rates, in line with Díez et al. With estimated firm-level mark-ups having risen secularly in a number of countries, this is potentially a cause for concern.
Indications of a fall in interest rates are also found in the other two large euro area countries (Germany and France) and are in line with the evidence we have from aggregate bank interest rate statistics. This somewhat more positive picture compared  BIS Review 129/2009  3  with the euro area average indicates considerable heterogeneity of developments across countries, to which I will return in a few minutes. Bank lending in the euro area Let me now turn to actual developments in bank loans in the euro area. The growth of banks loans to the private sector has declined considerably during the financial turmoil, and in recent months the volume of lending has reached the lowest levels seen since the early 1980s, as can be seen in Chart 4. In the case of households, there have been recent signs that the downward movement has come to a halt. More precisely, the annual growth rate of loans to households has gradually fallen from the peak recorded in April 2006, when it stood at close to 10%, to levels of close to zero in recent months (-0.2% in August 2009) (see Chart 5). However, if the distortionary effect of the derecognition of loans on banks’ balance sheets related to the securitisation of loans to the private sector is taken into account, the growth of loans to households appears to be still positive and stabilising.

Examining this sector is important for the ECB because there are differences between SMEs and large firms with regard to the transmission of monetary policy, owing in particular to the fact that SMEs are more dependent on bank financing than large firms. It thus follows that the financing conditions faced by SMEs are linked especially closely to the situation in the banking sector, and in particular to that of small banks, which are the main lenders to SMEs. On the other hand, banks generally face greater difficulties when assessing the creditworthiness of SMEs. This relative opaqueness may be countered to some extent by “relationship lending”, which enables the bank to build up expertise over time with regard to the business and the financial situation of its borrower. BIS Review 129/2009  1  The euro area banking system Before examining SMEs’ access to bank finance in greater detail, I would like to look at the situation in the banking system. I will focus on banks’ deleveraging during the past few quarters and the effects on banks’ earnings as well as their capital ratios. In addition, I will compare the lending behaviour of large banks with that of smaller banks. Since the start of the financial turmoil in the third quarter of 2007, banks have begun to scale down their investment in financial assets, as seen in Chart 1.
This project aims to build a monitoring tool for central banks based on data-streaming technology, which will collect and process millions of messages per hour from multiple trading venues and visualise the results. The prototype is expected to be ready later this year. As you can see, digital innovation brings many new opportunities, and central banks – including the SNB – are positioning themselves to embrace innovation where warranted. But digital innovation also brings with it new sources of risk. Cyber risks The growing reliance on IT systems is increasing operational risks. At times during the pandemic, up to 80% of SNB staff have been working from home. As a result, the amount of digital communication has surged. The SNB’s IT infrastructure has coped very well, offering reliable remote access to our systems and communications. Nonetheless, this surge in the use of remote-access technologies and digital communication has increased exposure to cyber risk. All over the world, the financial sector in particular has been under increased attack from cyber criminals since the start of the COVID-19 pandemic. 12  12  Iñaki Aldasoro, Jon Frost, Leonardo Gambacorta and David Whyte (2021), ‘COVID-19 and cyber risk in the financial sector’, BIS Bulletin No. 37. Page 9/10  Mitigating cyber risks and strengthening resilience is thus of particular importance in the financial sector. While responsibility for protecting against cyber risks lies with individual financial institutions, the SNB does contribute to the cybersecurity of the financial sector within the scope of its mandate.

At the SNB, we are aware of these benefits and have been using FX EAs for our reserve management. In our view, EAs can be useful execution tools in order to reduce market impact and help minimise our footprint in the FX market. But the increased use of execution algorithms may also change the dynamics of FX markets. EAs make it easier to shift trading activity away from public trading venues to proprietary platforms. And this so-called ‘internalisation’ of FX trading creates new challenges. Too many internalised trades could reduce the trading volume at primary venues to a point where the price discovery process is jeopardised. More research is needed to ascertain whether – and to what extent – the growing use of EAs could trigger or amplify flash events in the markets. These changes complicate market monitoring for central banks, which need to be alert to market dislocation, liquidity issues and volatility – as the market turmoil in March last year once again illustrated. To guard against risks arising from these changing dynamics, central banks must step up their efforts to monitor and analyse these markets. This is no small feat. Besides developing new market functioning indicators, it involves accessing a whole new generation of data – possibly at sub-millisecond frequency. For this, we need to set up a new data architecture, new tools and new expertise. In order to address such challenges the SNB and the BIS Innovation Hub’s Swiss Centre have launched a big data project called ‘Project Rio’.
This increase comes on the back of a decline in lending by Euro-area banks – over the same period, their share decreased from around a third to less than 15% as they pulled back from the region. Second, Asian banks have been acquiring the Asian business lines from global banks, especially in wealth management. In 2013, Sumitomo Mitsui Banking Corporation bought over SocGen’s Japanese private banking arm. And just late last year, OCBC Bank acquired Barclays’ wealth and investment management business in Singapore and Hong Kong. Even as Asian banks push for growth, they continue to maintain high prudential standards. The average Tier 1 capital ratio of Asian banks was 13.4% as of last year, up from 10.6% in 2008 and comfortably above the Basel minimum requirement of 6%. Key Asian jurisdictions who are members of the Financial Stability Board – including China, Japan, Indonesia, Korea, Hong Kong and Singapore – have been assessed to be compliant or largely compliant with the Basel Committee’s capital and liquidity standards. Several other Asian countries – Malaysia, Philippines and Thailand – have also implemented the Basel III rules. Asian banks are dealing with cyclical headwinds The major Asian banks’ sound prudential standards position them well to face the challenges in the current environment – ranging from geopolitical risks to heightened policy uncertainty in the advanced economies. The post-crisis operating environment has been difficult for banks around the world. European bank profitability remains depressed seven years after the global financial crisis, with return on equity or RoE averaging below 3%.

It is such action, called for at the level of the international community three days ago in Washington by the G7, the IMFC and the G20, that the Europeans considered indispensable, particularly in the euro area last Sunday, with the adoption of a concerted European action plan. This plan has six dimensions: ensuring appropriate liquidity; facilitating the funding of banks through various means (guarantee, insurance or similar arrangements for new medium-term – up to five years – bank senior debt issuance); providing additional capital resources to financial institutions; recapitalisation of distressed banks; ensuring appropriate implementation of accounting rules; and enhancing cooperation among European countries. The very day after the meeting, namely yesterday, a large number of euro area countries displayed their implementation of the Eurogroup commitments at the level of the Heads of State and Government. I will not hide the fact that I am impressed by the degree of responsibility and decisiveness that was demonstrated last Sunday and this week in the euro area. I am impressed by the will of the countries that share the single currency not only to work together, but also very closely with the United Kingdom and all EU Member States. And I see that the new decisions taken in the United States are further reinforcing this very impressive implementation of the plan that has been approved by the international community. This is no time for complacency. Central banks will remain solid anchors of stability and confidence.
If the interest rate is increased to the extent that output is reduced to a level that is consistent with stable inflation over time, inflation may be too low as a result of an appreciation of the exchange rate in the short term. A trade-off must be made in the short term between the inflation target and stability in the real economy. A cost shock, which fuels inflation and at the same time reduces output and employment, leads to a more marked conflict in the short term between the inflation target and stability in the real economy. Different types of disturbances will often occur at the same time, and the central bank must continuously make trade-offs between variations in output and employment on the one hand and variations in inflation around the target on the other. Given that inflation over time shall be close to the target, these trade-offs are at the core of flexible inflation targeting. In the theoretical literature, making trade-offs between price stability and stability in the real economy is often described as minimising a loss function, where variations in output and variations in inflation are included.7 The central bank shall then choose the path for interest rates ahead that minimises the discounted “losses” in all future periods. The loss in one individual period will be:  In the equation, denotes inflation, * the inflation target and (y-y*) the output gap. The loss function thus includes the deviation between output and the output potential and between inflation and the inflation target.

On the other hand, banks need to appreciate and accept that they must revamp the way they offer financial services to their customers. It is true that, compared with unregulated entities, there is a high degree of public trust in banks, but customers now demand much faster and convenient services, not just in payments but also over a wide range of financial services, many of which are now made possible by the advancement in technology. Banks must become more “customer-centric” by offering highly personalised services to meet what the customers actually want rather than pushing out products or services that the firms think the customers should have. So what does it mean on the ground? I believe that in a couple of years’ time, there will be a high degree of convergence in the way in which banks and tech firms conduct their businesses and compete in the arena of finance. This means that the landscape of banking and finance will undergo a profound change during this process of convergence between banking and technology. So how does Hong Kong move from here to there and what role will the HKMA, as 1/6  BIS central bankers' speeches  bank supervisor, play in preparing the banking sector for the change? First of all, let’s take stock of where we stand at present on electronic or digital banking. Hong Kong is the premier international financial centre in Asia, and has been at the forefront of smart banking in terms of digital or internet banking.
For instance, I mentioned before that Banking Union will tend with time to consolidate the banking sector and open the possibility for an increased role of capital markets in diversifying the financing of the European economy. However to fully reap the benefits of capital markets integration we need legislative changes that complete the programme of financial services integration, particularly in relation to the capital markets. That would include changes to company law, bankruptcy rules and procedures, and higher harmonisation in the taxation of financial products. I would urge the Commission to promote these issues. Other necessary institutional developments have also been well identified in the President Van Rompuy’s Report “Towards a genuine Economic and Monetary Union”.14 They include the reference to progress towards fiscal union, economic union and political union. First, a more complete Fiscal Union along the lines described in that Report seems necessary for the euro area, which goes beyond mere disciplinary rules. Specifically, it calls for the euro area “….the establishment of a fiscal capacity to facilitate adjustment to  13  Dirk Schoenmaker and Daniel Gros “A European Deposit Insurance and Resolution Fund: An Update” DSF Policy Paper Series September 2012. 14  See “Towards a genuine Economic and Monetary Union” a Report by the President of the European Council in close collaboration with the Presidents of the European Commission, the Eurogroup and the ECB, (http://www.european-council.europa.eu/the-president/eurozone-governance). BIS central bankers’ speeches  9  economic shocks.

In such a case, the Council should, still within these first 24 hours, either approve or object to the Commission’s proposal by a simple majority decision. In other words, they cannot amend it, only approve or  BIS central bankers’ speeches  7  The Single Resolution Fund Turning to the Fund, the Board’s control of a common resolution fund is an essential element of the SRM. The Fund will be key to ensure adequate resolution financing without drawing on public funds and for taking swift actions, since it eliminates the need for protracted burdensharing discussions for cross-border banks. Although the SRM Regulation set up the Fund, the order by which bank contributions are raised at national level and pooled at EU level are detailed in accordance with an Intergovernmental Agreement on the transfer and progressive mutualisation of those contributions into a single fund. According to the political agreement reached, the target level for the Fund will be 1 % of the amount of covered deposits of all banks authorised in the participating Member States. This target should be reached in eight years, with the gradual mutualisation being frontloaded with 40% of the total in the first year. During the transitional period of eight years, the contributions collected at national level will be allocated to separate national compartments corresponding to each participating Member State. These national compartments will be subject to progressive mutualised usage and will cease to exist at the end of the transition period.
It is probably also to the euro’s existence that we owe the Swiss franc’s reduced volatility and its rather controlled weakening, whereas the dollar experienced difficulties. This is a reaction to which we were not accustomed; moreover, it is good news for our economy. While it may be justified by the United States’ huge external deficit, the slide of the greenback has nevertheless exerted an asymmetrical impact: it has hit European exporters hard, but has not affected Asian currencies that have been kept artificially low by massive intervention. The Swiss franc's fall against the single currency has sheltered us somewhat from these upheavals. Guarded optimism for 2004 Our economic forecasts for the current year are marked by cautious optimism. The recovery that began in the third quarter of 2003 is set to continue. The production gap, which measures the difference between actual production and its potential level, is expected first to stabilise and then to gradually narrow. However, this will take time. As usual, the first signs of an economic recovery appeared in the industries geared to exports. Next, capital goods investment began to pick up, driven by the high rate of depreciation in new technologies; there is therefore significant pent-up demand. To a large extent, these investments feed on imports, so  BIS Review 25/2004  1  that the immediate impact on our economy is limited. Moreover, as investment is also gaining steam among our neighbours, our own capital goods industry, with its strong export bias, has improved.

Measures to promote growth would certainly be instrumental in ensuring the smooth future functioning of our economy, but they would also allow us to develop a climate of confidence necessary for today’s investment and consumption decisions. Their impact on the economy would thus not be negligible. As for monetary policy, its role in this area can only be to provide price stability, an essential factor for confidence and macroeconomic efficiency. Dawn of a new era Ladies and gentlemen, as the President of the Bank Council indicated earlier on, the National Bank is at an historic turning point today. As of tomorrow, our institution will be governed by new legislation. The new National Bank Act will enter into force in less than 24 hours. Our operational framework, our range of instruments, our organisation and our duty of notification will all be affected. Likewise, our mandate will be - perhaps not modified - but at least made more explicit. Article 5 of the new Act stipulates that “The National Bank shall pursue a monetary policy serving the interests of the country as a whole. It shall ensure price stability. In so doing, it shall take due account of the development of the economy”. The objective of price stability is not new. In fact, the National Bank has always been guided by this goal in its activities.