samchain/econo-pairs-v1 huggingface dataset:
In addition to the role of these requirements in reducing the probability of failure, higher capital and liquidity requirements for large, complex firms also have the ancillary benefit of offsetting any residual competitive advantage that might remain for SIFIs because of how they are likely to be treated under Title II resolution. The Comprehensive Capital Analysis and Review (CCAR) stress tests are important in this regard because they make the capital requirements for large, complex institutions forward looking. What matters is not just the current capital ratio, but also what the capital ratio could be if a stress environment were to materialize. The CCAR process is also useful because it focuses on the quality of the bank’s capital planning processes. It is not sufficient just to have enough capital; the bank’s management and directors need to be able to evaluate the bank’s ongoing capital needs in a thoughtful and thorough manner. BIS central bankers’ speeches  3  The responsibility of the management of a large, complex firm does not end with capital planning. Firms’ managers need to ensure that they can respond to financial or operational weakness of any type by having robust recovery plans that get triggered long before resolution becomes necessary. Firms should develop and track metrics that not only identify when they are on the verge of insolvency or default, but also trigger appropriate remediation actions whenever the firm begins to become stressed.

I think it is the best plan for implementing Title II given the complexity and scope of large, global financial institutions and I also think it is well-suited to the U.S. bank holding company framework. By assigning losses to shareholders and unsecured creditors of the holding company and transferring sound operating subsidiaries to a new solvent entity, such a “top-down” resolution strategy will facilitate continuity for the critical services performed by the firm’s subsidiaries. This will reduce the costs associated with the failure of the parent company and reduce the degree of disruption to financial markets and financial stability. While the Title II single point of entry strategy holds tremendous promise, I think it is important not to declare victory prematurely. First, there are still significant issues about how the resolution of a large systemically complex firm would work in practice. Second, even assuming that our efforts to overcome these challenges are ultimately fully successful, resolution is still likely to represent a “second best” outcome compared to preventing a systemically important financial institution from failing in the first place. After first describing some of the current implementation challenges associated with Title II resolution, I will return to this second issue. Implementing the resolution regime on a cross-border basis remains one of the most significant challenges. U.S. authorities are working with authorities abroad on the issues that require international collaboration, but the financial industry also has a role to play in overcoming these challenges.
Barbro Wickman-Parak: The financial crisis from a central bank perspective Speech by Ms Barbro Wickman-Parak, Deputy Governor of the Sveriges Riksbank, at the Swedish Bankers' Association annual meeting, Stockholm, 12 November 2008. *  *  *  Introduction In normal times, reporting about the Riksbank is dominated by what we do, or do not do, with interest rates. The focus is usually on one of the Riksbank's two main tasks: maintaining price stability. Less attention is paid to the other main task, safeguarding financial stability; health is silent, as the Swedes say. For obvious reasons, financial stability has been given more prominence recently. We have now lived with turmoil in the international financial markets for rather more than a year and over the past two months have seen it lead to a large-scale global crisis of confidence. The origin of the current crisis, as well as of our Swedish banking crisis in the early 1990s, can be found in reckless lending practices related to property. As we now know, it began when American financial institutions lent money to borrowers with weak credit histories. Whereas the Swedish banking crisis remained altogether Swedish, the American crisis has spread like wildfire and reminded us of just how globally connected the financial markets are. The high-risk sub-prime loans were sold on to a large extent by bundling them together with low-risk loans in what are known as structured credit products. The use of these complex products grew rapidly and had a wide geographical distribution.

In conclusion let me briefly focus on a few issues that will probably need to be discussed carefully, both in Sweden and on an international level. One lesson that can be drawn already is the need to develop and improve the rules for supervision and management of liquidity risks. More stringent demands for transparency in the financial sector will provide customers and investors with better opportunities to assess the risks associated with companies. Similarly, transparency in the structured credit instruments should be improved so that their associated risks can be assessed. More effective trading with these products is also important; the financial infrastructure needs to be strengthened. This discussion and any resultant changes in regulations should aim to ensure that this part of the credit market can work efficiently once again. Developments in the American investment banks in particular have made us aware that even financial companies that do not accept deposits from the general public, and which therefore are subject to weaker supervision and regulation, may have a crucial impact on financial stability. We should therefore consider how to design regulations and supervision of financial companies that do not accept deposits from the general public. Due to the global scope of the crisis, countries must coordinate measures to solve it. Separate national solutions could result in higher crisis management costs than would otherwise be the case. In all of these areas where supervision and regulation need to be improved, they must be coordinated and harmonised internationally.
Swedish fiscal policy constitutes one of the external preconditions for monetary policy. However, fiscal policy in Sweden does not need to be tightened to the same extent as fiscal policy in other countries. The Government is assuming in its Spring Fiscal Policy Bill that public finances will weaken further by one percentage point to a deficit of –2 per cent in 2010, while we at the Riksbank believe that the deficit will stop at –1 per cent. After that, we are assuming, as is the government, that there will be a gradual improvement in public finances of around one percentage point a year. If fiscal policy is different from our expectations, this may affect the picture of resource utilisation and inflationary pressures, and this could be a reason to adjust the forecast for the repo rate in the future. Concluding remarks Debt crises in several areas in the world around us have illustrated the importance of sustainable public finances. The large deficits in public finances in the wake of the financial crisis tend to lead to higher interest rates and will force tighter fiscal policy to be conducted, which will subdue growth abroad. This is a factor which means that in our most recent Monetary Policy Update we assume that GDP growth in Europe will be relatively weak over the coming years. There is also a risk of a more dramatic development. Greece has recently been the primary object of speculations regarding the sustainability of public finances. But Greece is not the only potential problem.

The more established the surplus target is perceived to be, the higher will be the credibility of Swedish fiscal policy and the lower will be the future interest rates on Sweden’s central government debt. There is a clear parallel here with the Riksbank’s inflation target. 5 The more certain households and companies are that inflation will be close to the inflation target, the less time and energy they will need to devote to adapting their savings, investments and wages to inflation, and the fairer price setting in the economy will be. From the Riksbank’s perspective, it is also clear that monetary policy will be more efficient the more predictable developments in public finances are, and the greater the confidence in the sustainability of fiscal policy. Predictability is important to us as our forecasts for fiscal policy affect our assessments of resource utilisation and future inflationary pressures. Confidence in the sustainability of fiscal policy is important as otherwise it will be the market participants’ demands for risk premiums, which often vary substantially, rather than our repo rate path, which determine interest rates. For these reasons the Riksbank has, in its response to a consultative document from the government in March this year, expressed its support for making the surplus target obligatory by incorporating it into the Budget Act. We have also declared that we share the assessment that general government net lending over the next 10 years should once again average 1 per cent of GDP.
In this framework, policies regarding foreign trade, competitiveness and education-technology should be implemented in coordination and conformity. Conditions for continued success So far, I have tried to explain the relative macroeconomic stability and the structural transformation process observed in the Turkish economy in the last three years. I wanted to draw your attention to the radical changes experienced throughout this process. These radical changes have created an environment in which uncertainties and resulting volatilities have been eased. In this environment, it is now possible to make forward-looking policy suggestions that will enable the improvement of social welfare and necessary measures to be taken. However, despite the significant distance covered in terms of achieving lasting macroeconomic stability, we have not yet reached desired level. In order to make current achievements permanent, the immediate sound policies and the structural transformation process should continue in an uninterrupted manner. As also stated in the 2004 European Union Progress Report on Turkey, structural reforms needed for establishing a healthy macroeconomic environment in the coming period can be categorized under a number of headings. The first one is the necessity of assuring ongoing support to the achieved stability in the banking sector with the help of reforms that will strengthen the sector. Despite the important steps taken on the way to remove problems in the banking systems following the 2001 crisis, there are still shortcomings in this area. In line with the achievements observed in the banking sector, studies for an effective risk management scheme have started.

The Committee looks forward to continued collaboration with the BIS on matters related to financial stability. Basel II represents a genuine success story in international cooperation. And we know that our need to cooperate and to collaborate does not end when we release this framework. Indeed, under Basel II, supervisors and central bankers will need to work even more closely together in the future, especially in view of the evolutionary nature of Basel II. And the Committee has a full agenda ahead of it. We must, of course, continue to work on the specifics related to the implementation of the framework and its calibration. We must also ensure that the new framework keeps pace with market developments and advances in risk management practices. As we carry out this work, the Committee intends to continue its discussions with the industry and other supervisors in the same open and transparent manner as we have to date. It has been an honour for me to participate in and help to lead this process, and I look forward to the next phase of the Basel II project as we turn toward national adoption and implementation. Thank you. 2  BIS Review 38/2004
In addition, there was little competition and little incentive to develop new services. The Swedish banks had too many employees and lived in an environment that must with hindsight be regarded as sheltered. After enduring the crisis, the number of employees had been reduced by one third, but at the same time turnover had increased. However, during the 1980s the regulation structure was slowly eroded. The banks’ balance sheets were full of government bonds that they had been forced to buy at non-market prices, and the credit flows began to move increasingly towards the unregulated sector outside of the banks. Developments in the international financial markets made the currency regulation increasingly difficult – and pointless – to maintain. It was not so much that there was a wish for deregulation; more that developments made it necessary. No one realised that this would entail a rapid and well-needed improvement in the efficiency of the banking system. Nor that the method by which it occurred would lead to a major financial crisis. During this period a Swedish money market began to emerge. As the banks could not and did not want to buy more treasury papers the central government was forced to consider alternative methods of financing the central government debt. They began to issue first short-term and then longer term bonds through regular auctions and these were purchased by pension funds and insurance companies. The banks became mediators in the market – primary dealers – rather than final investors.

Notwithstanding this 25bp increase, Bank Rate remains close to its lowest rate its 323 year history (Slide 2). 4  All speeches are available online at www.bankofengland.co.uk/speeches  4  I wasn’t in that majority. That was not because I disagree with the overall framework for setting monetary policy in this exceptional period, but rather because I have a somewhat different assessment of the economy. By way of framing my own decision, let me give a few comparisons to how things might have turned out in the absence of Brexit, for which I will use the MPC’s May 2016 forecast as a proxy (Slide 3). GDP growth in the year to 2017 Q2 (the latest quarter for which we have a full set of both expenditure and labour market data and the latest data available at the time of the November MPC decision) was 0.8pp weaker than the MPC’s May 2016 forecast, within which business investment growth was a full 5.2pp lower. Despite the weakness in output, employment and hours have actually been stronger than expected, meaning productivity growth per hour was been 2.2pp weaker in the year to 2017Q2. Nominal wage growth was 1.5pp weaker than in the pre-Brexit forecast, which, coupled with the effects of the depreciation on inflation, meant real wage growth was 2.6pp weaker. So, how does this nexus of data fit into my assessment of the economy? Let me start with demand, which is arguably the most straightforward to explain.
From those foundations emerged the physical exchanges which dominated the period from the 18th right through to the 20th centuries. Central trading exchanges maintained their near-monopoly status for 300 years. In the space of a few years, that monopoly has been decisively broken. A diverse and distributed patchwork of exchanges and multilateral trading platforms has emerged in its place. These offer investors a range of execution characteristics, such as speed, cost and transparency, typically electronically. Equity market trading structures have fragmented. This has gone furthest in the US, where trading is now split across more than half a dozen exchanges, multilateral trading platforms and “dark pools” of anonymous trading (Charts 3 and 4). Having accounted for around 80% of trading volume in NYSE-listed securities in 2005, the trading share of the NYSE had fallen to around 24% by February 2011. A similar pattern is evident across Europe. In the UK, the market share of the London Stock Exchange has fallen from two-thirds in June 2008 to less than one third today (Charts 5 and 6). The same pattern is found in Germany and France. In Asia, there is as yet less fragmentation. 2  2  Arestis and Demetriades (1997). BIS central bankers’ speeches  Accompanying this structural evolution in trading has been a technological revolution. Electronic trading is not new. The first electronic exchange (NASDAQ) is already over forty years old. But advances in computing power have shifted decisively the frontier of electronic, and in particular algorithmic, trading over the past few years.

An altogether bigger prize would be to put these data to work before the fact, identifying the next victim pre-autopsy. That could mean using transactions data to help detect early warnings of systemic fault-lines and stresses. This is a potentially massive analytical and technical challenge. The technical challenge is certainly surmountable. Advances in computer power over the past decade mean that storing and processing huge volumes of data poses no technological barrier. The answer lies in the clouds – conveniently enough, since they too exhibit fractal properties. If we can search and track the world wide web in close to real time, we can certainly do the same for its financial sub-component. The analytical challenge is altogether greater. In essence, it is to find summary measures of billions of transactions data which are informative about impending market stress. There is serious needle-in-haystack risk with such an endeavour. And experience in economics and finance of finding robust early warning indicators is mixed. But here again, the market microstructure literature offers some tantalising clues. For example, Easley et al (2011b) have suggested that measures of “order imbalance” may provide early warning signs of liquidity voids and price dislocations. Their measure of imbalance follows closely in Mandelbrot’s footprints. It uses a volume-based metric of the proportion or orders from informed traders. Any imbalance towards informed traders causes potential liquidity problems down the line as a result of adverse selection risk.
The process runs as follows: Domestic interest rates at the longer end of the maturity spectrum tend to become more closely correlated with the global rate, or the rate of the largest trading partner, and less correlated with the domestic policy rate. This means that monetary transmission tends to go increasingly through the exchange rate channel, which is only a problem, however, if the exchange rate behaves badly. Unfortunately, there is a lot of evidence to suggest that it does. Uncovered interest rate parity (UIP) does not hold except over long horizons. Interest rate differentials give rise to widespread carry trading, which is by nature a bet against UIP. Exchange rates  BIS central bankers’ speeches  1  thus diverge from fundamentals for protracted periods, followed by sharp corrections. So the exchange rate often seems to be as much a source of shocks and instability as a tool for adjustment and stabilisation. Ultimately, these cycles can take the boom-bust form and, in extreme cases, can result in serious financial instability or crisis. The research on this phenomenon is still ongoing, but there is a lot of evidence to suggest that the problem would not disappear even if macroeconomic policies in the traditional sense were perfect. This process was important in the Icelandic episode. The capital inflows were driven by the traditional push and pull factors.

Thomas Jordan: Monetary policy in a climate of increased uncertainty Summary of a speech by Mr Thomas Jordan, Member of the Governing Board of the Swiss National Bank, at the SNB Money Market Event, Geneva, 1 November 2007. The complete speech can be found in German on the Swiss National Bank’s website (www.snb.ch). *  *  *  Uncertainty about the extent and distribution of losses from US “subprime” mortgages has resulted in a marked squeeze on financial markets. In particular, there is considerable uncertainty concerning the true valuation of securitised assets and structured products based on subprime mortgages. Demand for liquidity has surged. In certain instances, the crisis of confidence among financial market participants was so pronounced that some markets did not function at all. The “re-pricing of risk” has caused risk premia for most financial instruments to soar. Risk premia are important for the Swiss National Bank (SNB) for two reasons. On the one hand, they act as economic signals and should therefore be as unbiased as possible in the way they reflect underlying risks. In addition, there are certain risks attached to extreme values of risk premia. Abrupt and uncontrolled corrections could lead to instability on financial markets and interfere with their smooth functioning. On the other hand, risk premia affect the restrictiveness of monetary policy. An increase in such premia tightens monetary policy. The SNB monetary policy concept, where the three-month Libor is at the centre of the implementation of monetary policy, takes systematic account of changes in risk premia.
Chart 15: Fiscal measures to counter Covid-19 (% of each country’s GDP) 40  12 Right scale  Left scale  35  10  30 8  25 20  6  15  4  10 2  5  Additional spending and forgone revenue  AEs  G20  EMs  LIDCs  United States  Japan  Germany  Brazil  Australia  United Kingdom  Canada  South Africa  Italy  China  Spain  Korea  Argentina  France  Indonesia  Russia  Saudi Arabia  India  Turkey  0  Mexico  0  Loans, equity, and guarantees  Sources: IMF WEO, June 2020. Accompanying these fiscal measures have been equally extensive measures by central banks, including lower interest rates, large-scale liquidity provision and purchases of assets across the risk spectrum. Among the world’s major central banks, there has so far been an expansion of asset purchases to end-May of around $ trillion, with a further $ trillion planned by the end of this year. Taken together, the growth in major central bank asset purchases since the crisis already amounts to around 5% of (pre-Covid) global GDP. In the UK, the pattern has been similar. The MPC increased the stock of asset purchases by £ billion in March, alongside a cut in Bank Rate by 65 basis points and the introduction of a new Term Funding scheme for Small and Medium-sized Enterprises (TFSME).

If the higher starting level of GDP were maintained, the cumulative loss of GDP would more than halve to around 8%.12 “The Third Quarter” Looking to the second half of the year, what might we expect? In the May MPR, the MPC’s scenario foresaw a sharp pick-up in activity, with quarterly growth rates of 12-13% in each of Q3 and Q4. These increases were driven, in large measure, by the assumption of a phased relaxation of lockdown measures, and accompanying policy support, between July and September. To my mind, two paths are possible in the second half of the year. One involves a negative feedback loop from higher unemployment to lower spending, the other a positive feedback loop from higher spending to lower unemployment. The first poses a downside risk to the outlook, the second an upside risk. As things stand, it is unclear which of these scenarios, or feedback loops, will prove the more potent. The negative loop has its roots in the labour market. So far, levels of employment appear to have fallen less rapidly than output. Against that, the number of furloughed workers has exceeded expectations, perhaps by in excess of a million people. This is good news for household incomes in the short run, as the income loss from furlough is far lower than from unemployment. Indeed, this might help explain some of the greater than expected strength in demand in Q2.