samchain/econo-pairs-v1 huggingface dataset:
Overall, the improvement in banks’ funding situation, has not led to increased lending to the non-financial private sector, which has declined in recent months. Admittedly, part of this weakness is due to low demand factors. And here also, some fragmentation can be observed. Among countries: credit distribution is more active in Germany or France than in Italy or Spain. And among borrowers: big corporates can issue at very favourable rates while at the same time, too many SMEs are deprived of necessary financing. This divergence is a source of concern, especially since, in our economies, SMEs play a dominant role in fostering innovation and employment. This situation may not reflect a weakness specific to the euro area. In all advanced economies, banks are engaged in a process of balance sheet repair and deleveraging. Recent numbers show major advances for European banks in their efforts to strengthen their capital base, in line with Basel III requirements and, in particular for big international banks, quite comparable to capital strengthening in US banks (when differences in accounting standards are neutralized). To put it simply, in the euro area, banks are responsible for 80% of total financial intermediation, twice as much as in the US. Consequently, the impact is much stronger on the real economy. What can central banks do? Our actions are guided by the following elements. Inflation is firmly under control. Policy rates are very low. In practice, most central banks today are operating close to the zero lower bound.

It is hard to overstate the benefits that banking union will bring. It will break the link between sovereigns and their banks. It will stop those negative feedback loops that have such perverse effects in times of stress. It will ensure that credit conditions in the euro area will not depend on where you are but on who you are, which is what should be expected of an efficient financial market. The governance structure we have adopted will guarantee that, while the Governing Council will keep the decision power, there will be no conflict of interest between monetary policy and banking supervision. On the contrary, more consistent supervision across the euro area should allow for the early detection of potential risks and imbalances and, ultimately, improve the transmission of monetary policy. Today the first pillar of the banking union is being constructed: the Single Supervisory Mechanism. This is a fundamental first step and its rapid implementation is a major success for the euro area. But alone it cannot achieve all the objectives of a banking union. That is why we must rapidly construct its two other pillars: a supranational bank resolution authority (the European Commission is due to deliver a draft text on this topic before the summer) and a unified deposit insurance system. Naturally, in the current situation, there are some dark spots. One major concern is the stagnation of bank credit, which especially affects SMEs.
The original Basel Capital Accord was itself a landmark event, revolutionary in providing a common capital assessment approach, now used by over 100 countries. However, it has obvious limitations that have become more significant over time. It has become less and less reflective of the risks of our largest organizations, and, accordingly, has become less and less integral to our ongoing supervision of them. Basel I, as we all know, includes such shortcomings as: a) its failure to recognize differing credit quality within the same general asset type; b) its varying the capital charge with the credit exposure’s legal form, such as whether it is on or off balance sheet; and c) its simplistic approach to risk transference and credit risk mitigation. More generally, Basel I was not structured to keep pace with the rapid rate of financial innovation that we have seen in internationally active banks. It clearly has created incentives for capital arbitrage, with banks able to structure transactions with the primary goal of minimizing regulatory requirements without a commensurate reduction in risk. Similarly, it has resulted in distortions in bank activity, by creating a tax on certain activities while understating the risk for others. BIS Review 35/2005  1  These have combined to make the regulatory capital metric less informative to investors, supervisors and counterparties, and have eroded the principle of adequate risk-based capitalization that the Basel Accord was designed to promote.

Under Pillar II, supervisors will assess the integrity of banks’ internal economic capital models - focusing on aspects that are not well-captured in the Pillar I framework, such as the firm’s correlation assumptions within and across portfolios and the rigor of its stress testing programs. Finally, under Pillar III, supervisors will seek to ensure that accurate information about risks will be disclosed by banking organizations. Areas of possible concern with Basel II Procyclicality While I have emphasized the various benefits of Basel II for effective supervision and the preservation of financial stability, there clearly are some possible downsides of the new approach. Concerns have been raised that the adoption of the new Accord will have some destabilizing effects on the international financial system, and emerging market economies in particular. Chief among these is the concern that Basel II will amplify procyclicality as Basel II adopters severely tighten credit standards in response to rising capital requirements in the event of deterioration of credit conditions. We do expect that minimum capital requirements will rise and fall in response to changes in the risk of a bank’s activities, just as the internal economic capital models currently used by banks reflect changing risk exposure by changing capital levels. By itself, this will mean that, even with some changes the Basel Committee made over the years to lessen the effect, some procyclicality still remains.
It also eliminates the need for a lot of interbank trading activity to move reserves to banks that would otherwise find themselves short of reserves on a particular day. In my view, this type of intermediation activity does not have much social value. While the FOMC has discussed these issues, it has made no decision about its choice of longterm monetary policy operating framework. This seems appropriate to me because over the next few years we will gain considerable further experience about operating with a floor-type system. Nevertheless, my expectation is that the FOMC will ultimately favor maintaining a floortype system similar to what is in place today. As support, I would point to the minutes of the November 2016 FOMC meeting, in which participants observed that the current framework had been working well. This leads us to the next question: Assuming that a floor system is retained, what amount of reserves will be needed in the banking system so that day-to-day open market operations are not necessary to keep the federal funds rate within its target range? In other words, how small can the amount of excess reserves be before banks begin to compete and bid for such reserves, introducing unwanted volatility to the federal funds rate? First, there will need to be sufficient excess reserves to accommodate day-to-day fluctuations in the “autonomous factors” that influence the amount of reserves in the banking system. These include shifts in the Treasury’s cash balance, the foreign repo pool, and overnight reverse repo facility usage.

Because the monetary policy impulse works through its impact on financial market conditions, I don’t see why the Fed would want to act in a way that deliberately made this linkage less predictable. In actuality, I have been pushing in the opposite direction. By explaining the importance of financial conditions as part of our monetary policy decisions, I am trying to tighten the linkage. Balance Sheet Normalization I’d like to wrap up my comments tonight by discussing the likely next step in the monetary policy normalization process: beginning to allow maturing Treasuries and agency MBS paydowns to run off the Fed’s balance sheet, in contrast to our current practice of reinvesting all of the proceeds. As you are aware, following the June FOMC meeting we issued an addendum to our Policy Normalization Principles and Plans.3 In that addendum, the FOMC outlined how it planned to gradually reduce the Fed’s securities holdings over time. Namely, when that program is implemented, the FOMC will decrease its reinvestments in an orderly way, with repayments reinvested only to the extent they exceed gradually rising caps. For maturing Treasury securities, the FOMC anticipates that the monthly cap will be $ billion initially and will increase in steps of $ billion at three-month intervals over 12 months until it reaches $ billion. For repayments of agency MBS, the monthly cap will be $ billion initially and will increase in steps of $ billion at three-month intervals over 12 months until it reaches $ billion.
Jaime Caruana: Contemporary issues in credit risk Keynote address by Mr Jaime Caruana, Governor of the Bank of Spain and Chairman of the Basel Committee on Banking Supervision, to the Credit Risk Summit USA 2003, sponsored by Risk Magazine, New York, 27 October 2003. *  *  *  Introduction I would like to thank Risk Magazine for inviting me to participate in this summit on contemporary issues in credit risk. Looking at the agenda, it is clear that, while credit may constitute the oldest risk in banking, it remains the most important and is still one where we have much to learn. There is a Latin proverb that says ‘Danger can never be overcome without taking risks’. As a supervisor, I would tend to rephrase that by saying that managing risks properly is the best way to overcome danger. I think this idea is at the core of any modern, innovative and dynamic economy. The next two days will no doubt offer a sense of the rich abundance of research under way to identify risks, to improve our measures for them, and to find better ways to address them. On this front, a risk manager and a bank supervisor share similar interests. A risk manager seeks the best risk measures and management techniques to protect a bank against losses, to hone its competitiveness, and to enhance its profitability and long-term growth. Supervisors advocate sound risk management practices to ensure the adequate capitalisation and prudent management of all banks.

In the coming years, and we  BIS Review 46/2003  5  can start very soon, we look forward to continuing this dialogue with banks, banking associations, and researchers to find ways to move Basel in the direction of full credit risk models. Consistency of Accounting Standards and the New Basel Accord A second area, where work has started and will continue, is the need to align the regulatory framework more closely with the converging standards in accounting worldwide. Many industry representatives have noted quite correctly that a greater “meeting of the minds” is warranted especially now that the New Basel Accord includes explicit disclosure requirements intended to promote greater insight into a bank’s risk profile. Likewise, the Basel Committee’s treatment of provisions and the valuation of financial instruments must keep pace with changes in the relevant accounting standards. The members of the Committee believe that market discipline, and hence financial stability, is strengthened when accounting and disclosure requirements reflect sound risk management principles and are consistent with the control practices that banks adopt. Consequently, we recognise our responsibility to participate actively in the development of national and international accounting standards. Where the development of international standards is concerned, the Committee and its member organisations devote considerable resources and staff time to sharing our perspectives as supervisors with those who make the rules. But the discussions between supervisors and accountants cannot be a one-way street.
And so when exchange rates move sharply, which they do, the currency mismatch results in large losses. 12. But I suppose we all learn from mistakes. We in Hong Kong did so the hard way in the early 1980s when the situation was compounded by uncertainties about the political future of BIS Review 115/1997  -3-  Hong Kong. We had our currency crisis in 1983, after nine years of operating with a floating exchange rate, against volatile capital flows, without any effective mechanism for monetary management or currency anchor. Our banks had been overly exposed to credit, maturity and currency risks, and a total of seven banks had to be rescued directly or indirectly through the use of public funds. In short, we had been complacent. 13. But, thankfully, never have we been in any doubt about the need to maintain free and open markets, and a liberal financial system. The correct response to financial turmoil is not to resort to controls or to apportion blame, but to put one’s own house in order, and ensure that one is in a position to cope. This we did through a series of reform measures to strengthen our monetary and financial systems implemented in the past ten years. This was, in part, also spurred by the desire to minimize the risk of possible financial disturbance ahead of and through political transition, and to provide the environment for Hong Kong’s continuing development as an international financial centre, as required under the Basic Law.

It is therefore understandable that when the reversal of capital inflows came, it caused the damaging financial turmoil that we have seen in a number of Asian economies. 10. Financial liberalization encourages greater financial intermediation, domestically and internationally, and this obviously is beneficial to economic growth and development. But clearly the risks arising from this worthy process must be identified and managed properly before the long term beneficial effects could be realized. The risks are, nevertheless, not well appreciated, simple as they may be, particularly with the benefit of hindsight. 11. There is, as always, credit risk. Yet it is such a common feature that undue exuberance on the part of investors would push price to earning ratios well beyond fundamentals. Bankers also fail to assess the impact of interest rate hikes on the value of collateral or on cash flows. The result is therefore the usual over exposure of investors and lenders to asset losses. Then there is maturity risk. To say that it is risky to finance illiquid non-tradables, such as property, with short term capital inflows is, I suppose, teaching grandmothers to suck eggs, particularly in this company, but this again has been a common feature underlying financial shocks, not just in Asia but also in other parts of the world. The same with currency risk. Many borrowers, in both the private and public sectors, were keen to borrow foreign currency funds to finance investments that do not generate sufficient foreign exchange to repay the debt. Such debts were also unhedged.
But I will say that no one involved in those workshops has suggested that they provide a reason to delay moving away from LIBOR on the timetable that we’re now all too familiar with. I want to be clear—as the ARRC and the Fed have been from the beginning—that no one is requiring that everyone use SOFR for all purposes or for any specific purpose. There are other alternatives out there, and nothing prevents you from using any rate that’s robust, appropriate for your institution, and fit for the use you’re putting it to. What is most important is that you move off of LIBOR and do it now. But in deciding what to move to, remember that SOFR is the foundation for the transition from U.S. dollar LIBOR because it meets very high standards. The ARRC went through an extensive review and consultation process and got input from a wide range of market participants. It evaluated a number of alternative rates for benchmark quality, methodological quality, accountability, governance, and ease of implementation. SOFR was the clear first choice. It’s produced by the New York Fed and is based on about a trillion dollars’ worth of daily transactions in a broad and liquid market that a wide array of firms of all types have access to. The New York Fed has provided detailed public information about every aspect of SOFR, including historical data and a point-by-point description of how it complies with the benchmark principles set out by the International Organization of Securities Commissions (IOSCO).

But it’s also clear that a significant speed bump in transition is uncertainty about how the switch to new rates will be treated under the huge range of existing regulations that weren’t written with this kind of event in mind. The official sector must pave the way for transition by eliminating that uncertainty. Paving over the speed bumps, if you will. Since my last speech about LIBOR, the official sector has worked closely with the ARRC and others to provide clear guidance and offer the prospect of relief from existing rules. There is a final rule on swap margins for legacy swaps that transition away from LIBOR,16 a proposed CFPB rule on transitioning consumer credit,17 accounting guidance from the FASB and the SEC,18 tax guidance from the IRS,19 and relief from the CFTC.20 The Federal Housing Finance Administration has taken a number of actions, including prohibiting the Federal Home Loan Banks from entering into LIBOR transactions or investments.21 Fannie Mae and Freddie Mac will stop accepting LIBOR-based ARMs by the end of this year22 and have created new ARM products indexed to the 30-day SOFR average.23 The supervisory agencies have also eliminated uncertainty about what stance they will be taking on LIBOR transition in their supervisory and examination work—they’ve said very clearly they’ll be focusing on it, and every supervised firm needs to focus on it too.
Jean-Pierre Roth: Review of the Swiss economy Introductory remarks by Mr Jean-Pierre Roth, Chairman of the Governing Board of the Swiss National Bank, at the end-of-year media news conference, Zurich, 13 December 2002. *  *  *  The National Bank has decided to leave the target range for the three-month Libor rate unchanged at 0.25%–1.25%. For the time being, the three-month Libor is to be kept in the middle of the target range. Owing to the low level of inflation, we have been able to ease monetary policy substantially since March 2001, having since then lowered the target range for the three-month Libor by a total of 2.75 percentage points. We took decisive steps in response to declining economic growth and the upward trend of the Swiss franc. Interest rates were last lowered on 26 July of this year. The imponderables with respect to the development of the global economy remain considerable, and a sustained economic upswing in Switzerland is not likely until some time in the second half of 2003. We are therefore maintaining our expansionary monetary policy and shall keep the attractiveness of Swiss franc investments low. This does not jeopardise price stability. Assuming that the three-month Libor rate will remain stable at 0.75%, average annual inflation is expected to lie between 0.7% and 1.6% in the next three years. For 2003, we are anticipating economic growth of just over 1%, while zero growth is to be expected in the current year.

On the assumption that the three-month Libor rate will remain stable at 0.75% during the next three years, inflation should average 0.7% in 2003, move up to 0.9% in 2004 and reach 1.6% in 2005. Forecast inflation will remain below 1% until the end of 2004 except in the fourth quarter of 2002. In the course of 2005, however, a marked acceleration will set in, with forecast inflation reaching the 2% mark in the fourth quarter of 2005. The new forecast is consistently below that of June 2002. It reflects the delay in the economic upswing. In the new forecast, inflation will rise more markedly at the end of the forecasting horizon due to an even more expansionary monetary policy since June. Expansionary monetary policy to be continued At our last media conference, I pointed out that the National Bank must be prepared to react quickly to changes in the economic situation. When the delay in economic recovery became discernible in summer, we acted immediately by again lowering interest rates. Since then, nothing of basic significance has changed in our assessment of the situation. We shall adhere to our expansionary monetary policy in the foreseeable future. We will thus contribute to the economic rebound and continue to keep Swiss franc investments unattractive. The low interest rate level and the relatively strong growth of monetary aggregates currently do not represent a threat to price stability. Once a sustained economic recovery becomes discernible, we shall have to review our monetary policy and adjust it to the new circumstances.
Chinese authorities now appear to be doing just that. In the 1930s, many countries resorted to devaluations, tariff barriers and regulation of crossborder capital movements to protect their own manufacturing industry. But this was the wrong medicine. World trade fell, and the international division of labour went into reverse. This led to lower income for everyone. In his letter to The Times, Hayek made the following comment: “.... the right way [...] to proceed is [...] to abolish those restrictions on trade and the free movement of capital which are at the present impeding even the beginning of recovery.” Today, the global system of trade and cross-border investment is again under pressure. In both Europe and the US, influential groups have argued in favour of erecting new walls and barriers to the international exchange of goods. This is a recipe for yet another downturn. Norway is a small open economy with substantial wealth invested abroad. As a nation, we are completely dependent on a functioning international system of free trade and investment. In the short term, major economies have less to lose from closing themselves off. We trust that they will not, after all, abandon the global economic system that has been built up over the past 70 years. Hayek or Keynes? The current situation on our continent – Europe – has much in common with the 1930s.

What was interpreted as a cyclical problem was fundamentally a structural problem. There was a pressing need for restructuring. Norwegian industries – shipping and wood processing, shipyards and steel works – had allowed themselves to become dependent on high growth and cheap energy. High wage increases pushed up cost levels in manufacturing, and inflation accelerated, amplifying imbalances instead of solving problems and weakening international competitiveness even further. The current account deficit was record-high. A countercyclical policy that resulted in labour market pressures and that kept firms alive artificially provided little help. It delayed restructuring, while inflation and fiscal deficits made restructuring even more urgent. Economic structures were protected rather than being reformed. Countercyclical policy became counterstructural policy. 2 When economic policy changed course around 1980, the Norwegian economy started to get back on its feet again, but Norway’s growth potential was low and new imbalances were building up. The fall in oil prices in 1986 sparked a new, and even deeper, crisis in the Norwegian economy. The economic policy conducted in the 1970s was intended to follow Keynes’ advice. Subsequent developments proved Hayek’s point. To curb a crisis on a lasting basis, the measures implemented must also address the deeper causes of the crisis. The global financial crisis was triggered by the Lehman Brothers bankruptcy on 15 September 2008. The crisis has been attributed to a number of factors. One important event was China’s accession to the World Trade Organization (WTO) on 11 December 2001, almost seven years earlier.