samchain/econo-pairs-v1 huggingface dataset:
Another important element affecting culture has been the shift in the prevailing business model away from traditional commercial and investment banking activities to trading; that is, from client-oriented to transaction-oriented activities. Clients became counterparties – the other side of a trade – rather than partners in a long-term business relationship. In general, interactions became more depersonalized, making it easier to rationalize away bad behavior, and more difficult to identify who would be harmed by any unethical actions. High-powered pay incentives linked to short-term profits, combined with a flexible and fluid job market, have also contributed to a lessening of firm loyalty – and, sometimes, to a disregard for the law – in an effort to generate larger bonuses. Often allegiance to an external network of traders has been more important than the ties the trader has to his or her particular employer. This is particularly evident in the illegal manipulations of the London Interbank Offered Rate (LIBOR), and with respect to reference rates in the foreign exchange markets. Although cultural and ethical problems are not unique to the finance industry, financial firms are different from other firms in important ways. First, the financial sector plays a key public role in allocating scarce capital and exerting market discipline throughout a complex, global economy. For the economy to achieve its long-term growth potential, we need a sound and vibrant financial sector. Financial firms exist, in part, to benefit the public, not simply their shareholders, employees and corporate clients.

The banks are the single most important providers of these basic functions. The banks’ income largely consists of payments by consumers to the banks for their specialisation in these functions. This income also reflects the fact that the banks borrow over the short term – for example through our wage accounts – and lend over the longer term – for example  BIS central bankers’ speeches  1  through our mortgages. As it is cheaper to lend over the short term than the long term, the banks also earn money this way. In comparison with companies in other sectors, the banks have little equity. To some extent this is natural, in that the banks’ core activity is borrowing money, which is to say taking on debt. Leverage means that the banks can earn a lot of money by maintaining low equity/assets ratios. Of course, leverage applies to all companies, but, as we will see, banks can have particular reason to take greater risks than other companies. Vulnerability and contagion risks demand special bank regulations The combination of the banks’ central functions and their high indebtedness creates risks. This is a matter of credit risk – the risk of not getting the money you lent back again – and of liquidity risk – the risk of being unable to borrow money. The banks are vulnerable due to their high levels of indebtedness. Problems at one bank also risk spreading to other banks.
Given the huge bills we, as taxpayers, are facing, that is very understandable. I welcome the ongoing discussion and many of the regulatory tools and changes that are being introduced. But while many of these new preventive tools – such as heightened capital requirements and liquidity regulation – will strengthen the resilience of the financial system, we can never completely eradicate the risk of a financial crisis. Also, over time, people either tend to forget or to put too much faith in some new remedy. This time, sophisticated risk management techniques and new models of financial intermediation fostered complacency among investors and regulators. Everyone seemed to believe that history would not repeat itself. But it always does. Regardless of the preventive measures we introduce, crises will reoccur. And when they do, you need to act effectively and swiftly with the regulatory framework you have at hand. Today, I am going to focus on what I see as the core principles of effective crisis management. I am going to give you some examples of what I see as good crisis management, but I will also show the detrimental outcome that may result when these core principles are violated. In addition, I will also touch upon how regulation may facilitate – but sometimes also hinder – the application of these crisis management principles. One of the lessons I have learnt is that resolving a financial crisis takes time. It is a messy process and it costs a lot of money.

And this will hopefully help us to avoid the type of situation I described earlier, when we failed to take remedial action to prevent the build up of risk in Swedish banks operating in the Baltic countries. But our Nordic-Baltic Cross-Border Stability Group was not built in a day. We have, in fact, held productive exchanges between our countries for years. One milestone was the NordicBaltic crisis management exercise we ran in 2007. We based this exercise on the scenario of a major crisis in a cross-border Nordic bank. By trying to handle an imaginary crisis using actual banks, and applying the institutional and regulatory structures of the different countries, we learnt many lessons on how to overcome stumbling blocks and clarify the distribution of roles and responsibilities. So what I am trying to say is that establishing a well-functioning cooperation structure takes time. So for those countries that have not done so, I recommend an immediate start. And do not be dissuaded by the fact that it is time-consuming. It is this process – leading to closer cooperation – that builds trust between the authorities involved. And when it comes to crisis management, this trust is the glue that holds everything together. Had we had better cooperation and a reasonable level of trust between the authorities concerned, I am convinced that many of the recent European cross-border banking failures  BIS Review 50/2010  3  would have been handled very differently.
We have a negative policy rate and have carried out extensive purchases of government bonds to hold longer-term interest rates down as well. Maintaining confidence in the inflation target is the main task of monetary policy. A challenge for monetary policy in recent years has been to push up the excessively sluggish inflation rate, which is one explanation for the expansionary policy. By doing so, we can correspond with the expectations of all the participants in the Swedish economy who base their calculations on the fact that we are aiming for a fixed target. The inflation target has been a cornerstone of the Swedish economy for twenty years, it is well known and established and helps to boost confidence in the Swedish economy. The Riksbank’s forecasts indicate that monetary policy will continue to be expansionary with low interest rates in the period ahead in order to stabilise inflation around the target. But this could also bring new challenges with it. Continued low interest rates could lead to the policy rate hitting its lower bound more often, thereby making it more difficult to stimulate the economy when economic activity weakens and inflation is below target. In such a case, it could be necessary to implement other measures, both from the Riksbank and from other policy areas. 1 For a discussion of the concepts of target range and tolerance band, see Sveriges Riksbank (2016).

Zeti Akhtar Aziz: Better supervision and better banking in a post crisis era Welcoming address by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the Financial Stability Institute (FSI) – Executive Meeting of East Asia Pacific Central Banks (EMEAP) High Level Meeting Dinner, Kuala Lumpur, 16 January 2011. *  *  *  It is my pleasure to welcome you to this Financial Stability Institute (FSI) EMEAP high level meeting for Banking Supervisors. Bank Negara Malaysia is honoured to host this event that brings together senior officials from the regulatory community, as well as, the leadership from the banking industry from the Asian region to discuss Supervision and Banking in this post crisis era. We are now in a period of profound and fundamental change for the industry and for regulators and supervisors. The issuance of the final reform package by the Basel Committee in December 2010 marks the completion of a key milestone in the international financial reform process that began in the aftermath of the global financial crisis. This process has been complex, involving multiple tracks of intense dialogue taking place, both at the international and regional levels. The journey towards building a more resilient international financial system, however, is far from over. For this set of reforms that have been issued by the Basel Committee, the next phase involving the implementation will be equally challenging. There is already great anticipation on how the new standards would be phased in, and its impact on the financial sector landscape.
We feel that this situation has not only come about because of the globalisation of the financial markets, but also because international banks have become increasingly vulnerable over the last few years – vulnerable because of their thirst for profit and their underestimation of the ensuing risks. Second, the banks’ risk measuring and management instruments could not cope with the crisis. Consequently, the actual losses incurred in the area of mortgage-backed securities (MBS) clearly surpassed the potential level calculated by the sophisticated statistical models, and the liquidity haemorrhage suffered by the banks was greater than the most pessimistic scenarios had suggested. In other words, the risk measuring systems failed despite the fact that they were being monitored by the best-informed experts around. This summary may sound a little harsh, but is not intended to put the blame on the banks. Instead, it illustrates that no model can do complete justice to the complexity of financial instruments and the economic environment in which banks operate these days. Third, the events of the last few months raise question marks about the efficiency of the banking supervision standards applied so far. The call for more sophisticated risk measurement systems, supervision and regulation of banks is understandable. There is room for improvement in these areas, and it must be exploited. Nevertheless, it should be pointed out that more extensive regulation on its own represents an unsatisfactory response to the growing complexity of banking activities.

I am looking forward to learning from what I hope will be both an open-minded and a constructive dialogue about the future of monetary and macroprudential policies. Thank you. BIS central bankers’ speeches  1
Several financial institutions are also allocating more capital towards innovation that promotes sustainability – such as in renewable energy sources, and sustainable agro-production and manufacturing. Others are providing incentives to encourage “greener” consumption that is less damaging to the environment. This includes preferential rates for hybrid vehicles and financing projects with a Green Building Index certification which serve to encourage manufacturers and developers to build more sustainable solutions. Climate change will have irreversible consequences for us all. The effects to the planet, and global efforts to transition towards greater sustainability, will certainly have implications for the economy and for financial stability which cannot be ignored. Our window of opportunity to act is narrowing very quickly. In the period ahead, it is crucial that the financial industry faces these changes in a deliberate, informed manner. We must respond strategically, and pre-emptively; and we must act now. We can no longer afford to just react once the worst has already happened. The stakes are simply too high. On our part, the Bank is committed to ensuring that the financial system remains resilient in the face of these risks. To this end, I have set out a broad outline for achieving climate resilience. The task ahead will call for strong leadership in working with authorities, businesses and households to address what may be one of the greatest threats to our generation. Discussions at this conference aim to help us meet this challenge with greater confidence and conviction on what must be done – individually and collectively.

If an institution cannot meet its target through the inter-bank market, it can use the Bank’s standing deposit and lending facilities. Under these facilities, reserve account holders can deposit with, or borrow from the Bank overnight for unlimited amounts at a fixed penalty to Bank Rate. So in practice, these facilities impose a narrow corridor on either side of the Bank Rate. For example, if it becomes cheaper for a commercial bank to borrow under the standing facilities than to borrow in the  1  Cross, Fisher and Weeken (2010), Quarterly Bulletin, 50, 1, pages 34–42. 2  For the rest of this speech I will take references to “banks” to include building societies. 3  Exceptionally at the current moment, the main asset is a loan to the Bank of England Asset Purchase Facility Fund. BIS Review 126/2010  1  market, then it will do so, providing a natural ceiling to short-term market interest rates. That in turn ensures that overnight interest rates 4 remain close to Bank Rate set by the MPC. Exceptionally, to fund the programme of asset purchases in 2009/10, the Bank unilaterally increased the size of commercial bank reserves on a massive scale – from around £ at the start to a peak of around £ Since that level was far in excess of the commercial banks’ own targets we suspended the reserves averaging system and agreed to pay Bank Rate on all reserves held with us.
Svein Gjedrem: Ethics and the Government Pension Fund – global Dinner speech by Mr Svein Gjedrem, Governor of Norges Bank (Central Bank of Norway), at the conference “Investing for the future”, Oslo, 16 January 2008. *  *  *  Minister, ladies and gentlemen, We are gathered here for a conference – and a dinner – centred on ethics. At this venue, it is obvious that no one will be cheated, and each will get his or her due. Clearly, no one should need to leave this place hungry, or unfairly treated. For that we are truly grateful. Norges Bank is proud, and fortunate, to be the manager of the global part of the Government Pension Fund. And we are proud that Norway has been one of the frontrunners in promoting the idea of ethical investment. Although the debate has broadened over the past few years, some criteria for the management of the Fund have been in place since the beginning: We must have leaders and employees who do their job in a morally impeccable way. We must also make sure that environmental sustainability and social issues are factored in, since they are crucial to future returns, and to the Fund’s legitimacy. And there should indeed be barriers against certain acts and investments, no matter how profitable, basically because ethical behaviour is a goal in itself. In addition to our job of managing the investments, we have been given the task of being active and engaged owners of our global stock portfolio.

Being engaged internationally is, fortunately, a trait by which Norwegians are known. Maybe we do not always succeed in our endeavours. But the idea of not being engaged, of not using our influence, of not taking the long-term perspective, and instead just standing on the sidelines, is foreign to us. This Fund is global in the truest sense of the word, and it does have a say through its equity holdings, even if this influence is subject to clear limits. The authority to do so is laid down in the mandate and guidelines. It is a task that we have taken on with great commitment and a strong sense of purpose. The management of the Fund is of course subject to certain requirements. But when considering what these requirements should or should not comprise, it is important to tread carefully. Even though globalisation has reduced the emphasis on national borders, we must show caution when we invest in foreign markets – because when we do so, we are entering our neighbour’s house. For one thing, the distinction between ethics and politics may be different in other countries. For another, when we say that a company’s activities are in conflict with the ethical guidelines, we are not only pointing a finger at the company. We are also pointing a finger, albeit indirectly, at the laws and regulations in the country that permits those activities to continue – and we are pointing that finger as a representative of another state.
For instance, the low level of interest rates is still having a stimulating effect on the economy. Domestic demand continues to be supported by high immigration. In addition, the repercussions of the high Swiss franc value are not only negative. For example, imported preliminary products for companies and consumer goods for households have become cheaper. Finally, Swiss firms and their employees have made huge efforts to deal with this difficult situation. Overall, the SNB expects moderate economic growth of close to 1% for the year 2012. This modest economic momentum is likely to be reflected in a moderate increase in unemployment over the course of the next few quarters. The expected economic activity is lower than would be the case for normal capacity utilisation. This means there will be no inflationary pressure from this source. Our conditional inflation forecast of mid-March 2012 shows that there is no risk of inflation in Switzerland in the foreseeable future. The forecast also makes it clear that the threat of a deflationary trend has been kept in check. Inflation rates are only temporarily negative. Nevertheless, the monetary policy challenges for the SNB remain very considerable. I would now like to go into a little more detail on our reflections on monetary policy, particularly with respect to the minimum exchange rate. Reflections on Swiss monetary policy After being announced on 6 September 2011, the minimum exchange rate was rapidly attained. When our press release was issued, at exactly 10 am, the euro was trading at a little over CHF 1.12.

These are a key conduit for choice over time. An efficient capital market transfers savings today into investment tomorrow and growth the day after. In that way, it boosts welfare. Short-termism in capital markets could interrupt this transfer. If promised returns the day after tomorrow fail to induce saving today, there will be no investment tomorrow. If so, long-term growth and welfare would be the casualty. Yet, despite its potential importance for long-term growth, studies of short-termism in capital markets are relatively thin on the ground. There is a sharp disconnect between popular perception of rising myopia, driven by technology and neurology, and empirical evidence.4 This paper aims to provide some evidence on short-termism drawing on equity market experience. It is planned as follows. Section 2 reviews existing evidence on short-termism. Section 3 describes the theory underlying our test of short-termism and its adverse implications for investment choice. Section 4 presents the empirical results, drawing on cross-sectional and time-series data. Section 5 draws out the investment implications of the results and sets out a potential menu of policy options. 1  Haldane (2010). 2  Barton (2011). 3  Carr (2008). 4  A recent interim report on short-termism by a UK government department concludes thus: “Overall, respondents believe that short-termism exists in equity markets, but provided little evidence to demonstrate the scale of the consequences for companies and investors” (Department for Business, Innovation and Skills (2011)).
Hamad Al-Sayari: The “Banker” program in Saudi Arabia Speech by His Excellency Hamad Al-Sayari, Governor of the Saudi Arabian Monetary Agency, in the Inauguration Ceremony of The "Banker" Program, at the Institute of Banking, Riyadh, 28 November 2006. *  *  *  Dear Brothers, I am pleased to welcome you all on this occasion in which we celebrate reaping another fruit of the joint cooperation between the Saudi Arabian Monetary Agency and the banks operating in the Kingdom, namely, the "Banker" program. I would like to take this opportunity to thank all the participating banks and the Institute of Banking for their support and efforts for organizing and executing this ambitious program which aims at meeting the growing needs of the banking sector and qualifying job-seekers of the Saudi youth. As you know, the banking sector has witnessed over the past few years accelerated developments due to the economic growth seen by the Kingdom of Saudi Arabia. These developments have posed a great challenge to the banks and financial institutions as they had to expedite the provision and diversification of financial services to meet the increasing needs of the domestic market. The development of financial institutions must, undoubtedly, be paralleled with development in human resources. This, in turn, requires plans for training and qualifying cadres to enable financial institutions to undertake their important role in serving the national economy.

You should have first set up a political federation, with a federal government and a federal budget. Then you could have introduced a single currency.” Two main arguments were put forward. First, without a federal budget of some significance the policy mix would have been very erratic, depending on the random behaviour of the different national fiscal policies of the member countries of the Monetary Union. And second, without such a federal budget it would be impossible to weather, with the help of the fiscal channel, asymmetric shocks hitting one particular member economy of the Monetary Union. These two economic arguments are perfectly valid and would have been sufficient to discourage the creation of the Euro had we not set up a profoundly original concept of national fiscal policy surveillance. It is this concept, the Stability and Growth Pact which guarantees the coherence and the consistency of the European Economic and Monetary Union (EMU), namely a single currency area without a political federation. On top of these fundamental economic underpinnings a number of other considerations are worth mentioning. In particular, a fiscal policy that is set according to rules, and is lived up to, adds to macroeconomic stability by providing economic agents with expectations of a predictable economic environment. This reduces uncertainty and promotes longer-term decision-making, notably investment decisions, and economic growth. In addition, sound fiscal policies can contribute to lower risk premia on long-term interest rates and thus support more favourable financing conditions for the entire economy.