samchain/econo-pairs-v1 huggingface dataset:
In particular, there is evidence that the agency MBS market, due to the nature of its trading conventions, is prone to dislocation when market participants expect large transitions in central bank agency MBS flows.17 Such concerns can be self-fulfilling: if market participants are concerned that an abrupt shift in flow might be disruptive, they might, for example, withdraw from liquidity provision. An overly fast redemption flow of Treasuries could also create challenges in the government’s management of public debt auctions and result in communications challenges.18 A sustained portfolio runoff at an overly fast pace could also shrink the balance sheet so quickly that it impacts other aspects of monetary policy implementation. Rapid portfolio declines could have unforeseen impacts on overnight money markets, for example by creating significant shifts in dealers’ demand for overnight repo financing. We have seen such impacts in the past. During the Maturity Extension Program, the Federal Reserve sold substantial amounts of shorter-dated Treasuries. Some of these securities accumulated in dealers’ inventories, and secured financing rates rose a bit as dealers sought to finance these holdings. This sort of volatility did not, and would not now, pose a major problem to markets or policy implementation, but it is something worth avoiding if possible. Rapid portfolio runoff could also make it more likely that bank reserves become scarce unexpectedly or more quickly than policymakers had anticipated. Finally, overly fast portfolio runoff could introduce undesired noise into financial conditions.

We could have chosen instead to offset the price level shocks by running a much tighter monetary policy. Had we done so, spending in the economy, activity and employment would all have been squeezed. Conditions have anyway been difficult for many households due to the squeeze on real incomes, but I think it would have been worse if we had tightened policy. Our ability to sustain exceptional monetary stimulus has, I should reiterate, depended on the credibility of our commitment to low inflation over the medium term being preserved. I worried that chatter in the markets in late 2010/early 2011 marked incipient signs of fragility in that credibility. That was one of the reasons why, at the beginning of this year, I had expected to vote for an increase in Bank Rate at our February meeting. The weak output data for Q4 2010 published shortly before that meeting changed my mind, and the Committee’s course, as they revealed that the economy was softer than I had thought. Escape velocity In the months that followed, I made clear that, with inflation well above our 2% target, I would be looking for an opportunity to begin the process of withdrawing the exceptional monetary stimulus once the economy had achieved “escape velocity”. By that, I meant that the economy would need to be growing, and be set to continue to grow, at a rate that would gradually absorb the slack in the economy. “Escape velocity” has not yet been achieved.
This does not preclude that we, as well as others, will with time forget the lessons of the crisis and find ways to create problems or even failures of our banks, but it should be a much more domestic and contained affair. So what did we do? Deposits were given priority over unsecured bond holders prior to the failure of the banks. At the point of failure, smaller domestic banks were carved out of the failing private cross-border banks, which went into resolution governed by law. It was not a clean split, which later became a major impediment to lifting capital controls; however, that impediment has now been removed. Although they were not necessarily clearly articulated at the time, these measures were guided by the following goals: to preserve a functioning domestic payment system, ring-fence the state in the case of bank failures, limit the socialisation of private sector losses, and create the conditions for rebuilding a domestic banking system. 1/2  BIS central bankers' speeches  I have already alluded to some of the lessons learned, which relate to large, internationally active banks in small countries and the flaws in the framework for cross-border banking. This is by now well accepted and is partly what a banking union is all about. But it will not fix the problem for EEA countries outside the eurozone, due to potential FX risks on banks’ balance sheets. Let me now turn back to the other story about macroeconomic management and financial stability in SOFIEs.

Már Guðmundsson: Capital flows and systemic risk in Iceland Panel comments by Mr Már Guðmundsson, Governor of the Central Bank of Iceland, in Norges Bank's (Central Bank of Norway) 200th Anniversary Symposium, Oslo, 16 June 2016. * * * In my short introductory remarks, I would like to discuss what I consider to be one of the key factors behind the financial crisis in Iceland: the interaction between capital flows and systemic risk. I will focus in particular on those aspects that have more general relevance and herald unsolved problems for economic management and financial stability in small, open, and financially integrated economies (SOFIEs), such as Iceland was before the crisis and now strives to be again, at least up to a degree. The saga of Iceland’s experience during the Great Financial Crisis had two separate but interrelated sub-stories. The first story was related to Iceland’s boom-bust cycle and problems with macroeconomic management in small, open, and financially integrated economies. This is a story that has played out many times around the globe, and many of its elements have been seen before in Iceland. It might have been somewhat more extreme this time around, but it wasn’t fundamentally different. Strong capital inflows that met with an insufficient policy response and contributed to huge imbalances in the domestic economy were a key part of the story. I will come back to this later. The second story was the rise and fall of three cross-border banks operating on the basis of EU legislation (the European “passport”).
But capital flows may also demonstrate an imbalance between demand and output in an economy, which must eventually correct if debt and wealth stocks are not to become unsustainable. Sharp corrections in rates of domestic absorption and/or capital flows could then result, with attendant output costs. In that sense, global imbalances may also be bad cholesterol. 1 So which are capital flows today? Historical evidence is illuminating. Chart 1 plots (the absolute value of) current account balances in thirteen countries, as a % of GDP, since 1880. Other than in wartime, global imbalances are at their highest in well over a century. They have surpassed levels which prevailed during the classical Gold Standard and are more than twice levels during the Bretton Woods period (Chart 2). For some individual countries, these capital flows look larger still, both absolutely and relative to historical norms (Chart 3). It is not just the size of these global flows that is unusual. So too is their direction. Contrary to theory, capital is flowing from developing countries with a low capital stock, towards developed countries with a high capital stock (Lucas (1990)). In other words, capital is flowing “uphill”, away from countries where the marginal product of capital should be high and towards countries where it should be low. This makes the pattern of global capital flows doubly perplexing. 1  Blanchard and Milesi-Ferretti (2009) discuss the causes of “good” and “bad” imbalances. BIS Review 174/2010  1  Perplexing need not mean bad.

They show that home equity withdrawal was driven primarily by households with low credit scores and high credit card utilisation rates, who are most likely to have been credit-constrained in the past (Mian and Sufi (2009)). As these constraints loosened, spending rose and saving fell. Liberalisation fed impatience. These patterns are also consistent with an inequality-based explanation for lower saving (Rajan (2010)). Rising inequality may generate an increased desire to “keep up with the Jones’s”. That, in turn, may have led to higher borrowing, and lower net saving, by the poor. And what applies within countries appears also to apply across them. Among advanced countries, there is a significant negative relationship between within-country measures of inequality and the current account position (Chart 15). Rising inequality, by lowering savings rates among the poor, appears to be deficit-inducing. Rising imbalances may have important social, as well as economic, roots. 6  BIS Review 174/2010  BIS Review 174/2010  7  8  BIS Review 174/2010  Global imbalances – future So what will be the key forces driving global imbalances in the period ahead? Judging from the recent past, two factors have been important:   Global financial integration;    Differential savings behaviour. Consider in turn their likely evolution. Global financial integration. In the period ahead, this will be shaped by a number of mediumterm structural factors. One key such factor is cross-country GDP convergence.
It should also be noted that Spanish banks were the ones that had to make the smallest adjustments as a result of the asset quality review: a total of only 0.14% of their riskweighted assets. In conclusion, the results of the comprehensive assessment show that the restructuring process undertaken in the Spanish financial system from 2012 has been successful and that our credit institutions face the future with healthy balance sheets and a sound solvency position. Similarly, the structural reforms undertaken in recent years have played a crucial role in providing for a firm recovery and in correcting imbalances. It is imperative to stay the course and ensure sufficient growth to reduce the unemployment rate and anchor the economic underpinnings needed to sustain domestic and foreign demand. Thank you. 6  BIS central bankers’ speeches

The opposite approach – to ignore the relative riskiness of a bank’s assets in setting its capital requirements, and hold them only to a leverage ratio – is equally dangerous. This is not a difficult point to grasp – it does not make sense to make a lender hold no more capital against a 100% LTV mortgage than it has to hold against a 50% LTV one. The answer to this is to use both metrics on a ‘higher of’ basis – and this is where the post-crisis debate has settled both in Basel and here in the UK. I know this is a sensitive topic with the building societies sector given its concentration in mortgages and the implications for bail-in firms – but I think it makes sense. Although the leverage ratio is sometimes presented as a simple measure, and indeed is often simpler than the risk-weighted side, it is not totally straightforward and there are some important judgements which go into calculating what banks’ exposures actually are for leverage ratio purposes. One area we should pay close attention to is where similar forms of financing – specifically repo, collateral swaps and synthetic prime brokerage – are captured differently in the leverage exposure measure. Of these I think the most important one to watch is collateral swaps. Under the Basel framework, following extensive debate it was agreed that repo transactions would be captured in the leverage exposure measure by including the cash leg of the repo plus an add-on for counterparty credit risk (CCR).
Innovation is as much about creating new institutions and smart collaborations to advance common goals, as it is about inventing a new product. We see this in the notion of “co-opetition”, where competing firms have found benefits in coming together to build shared infrastructure, or to facilitate the exchange of information for the purpose of preventing criminal activity and guarding against cyber threats, all the while remaining fierce competitors in their product and service offerings. Innovation is also about constantly finding better ways to do things within an organisation in order to deliver a better customer experience and to keep organisations interesting and fresh. It is about changing mindsets and culture to ensure that institutions never become tired or irrelevant. It is about re-thinking our approach to developing the workforce so that we are at our most agile to deal with new challenges and risks. These are all important aspects of innovation and I am reminded that in Malaysia’s own journey to transform the MSB industry, we benefitted from charting new and sometimes, untested paths to solve the problems that we faced. For example, we learnt from and then re-defined the principal-agent model to meet the dual objectives of maintaining broad access to money services while raising compliance and operational standards. We departed from conventional regulatory and supervisory approaches, on the conviction that we could not achieve our objectives through enforcement alone.

Prasarn Trairatvorakul: Managing emerging market challenges – Thailand’s and Asian perspectives Remarks by Dr Prasarn Trairatvorakul, Governor of the Bank of Thailand, at the reception of the 2011 Emerging Markets Central Bank Governor of the Year Award for Asia, Emerging Markets, Washington DC, 24 September 2011. *  *  *  Distinguished Ministers and Governors, Ladies and Gentlemen, It is my great honor to receive this prestigious award, and I would like to thank the Emerging Markets for your kind recognition. In fact, such recognition is unexpected as I simply fulfill my obligations as central bank governor. To be awarded for doing your job, I guess the job must be quite difficult or challenging. More importantly, I consider this award a recognition of the dedication of the staff of the Bank of Thailand, who have worked hard to ensure Thailand’s sustainable economic and financial stability over the years. As the Bank of Thailand enters its seventieth anniversary next year, our institution is faced with a great challenge to maintain price stability while sustaining growth in the midst of heightened global economic and financial risks. We have no luxury of taking a wait-and-see approach but to continue our best efforts to better manage the external spillovers on our economy and financial system. With continued volatile global capital movements, central banks in emerging markets need to ensure that our financial institutions and markets remain robust; that they can safely and efficiently manage foreign capital inflows as well as outflows, without disrupting the real economy.
6  anticipates reducing the quantity of reserve balances to a level “appreciably below that seen in recent years but larger than before the financial crisis.” While the FOMC has articulated how the balance sheet will be reduced, there remains uncertainty about the long-run size and composition of the Federal Reserve’s balance sheet. Importantly, the size and composition will depend on growth in the various non-reserve liabilities, demand for reserve balances, and the future monetary policy implementation framework. The FOMC has not made any decisions about the long-run monetary policy implementation framework; however, the minutes from the July/August FOMC meeting suggest that the Committee will likely resume a discussion of operating frameworks in the near future. 17 It is also not known how non-reserve and reserve liabilities will evolve going forward; however, our regular surveys give us a sense of how some market participants are viewing many of these components, which we show in Figure 7. In particular, the surveys ask respondents about their expectations for the size and composition of the Federal Reserve’s balance sheet, on average, in 2025, under the assumption of no return to the zero lower bound. The responses serve as a good proxy for expectations about the long-run size of the balance sheet. The median expectations are for the balance sheet to be $ trillion on average in 2025 and for reserve balances to be $ billion, or about $ trillion below their current level.

As prepared for delivery Date accessed: October 29, 2018  “U.S. Monetary Policy Normalization is Proceeding Smoothly” Remarks by Simon M. Potter Executive Vice President Federal Reserve Bank of New York at Banque de France Paris, France October 26, 2018  Thank you for the invitation to participate in today’s discussion about post-financialcrisis monetary policies. 1 My remarks today will focus on the implementation of monetary policy normalization. 2 The Federal Open Market Committee (FOMC) has carefully developed and articulated a clear and transparent normalization strategy and is implementing that strategy. This approach has instilled confidence—a key to maintaining market stability, which has supported the orderly functioning of the broader set of dollar money market rates that are important to policy transmission and financial conditions. 3 Against this backdrop, the FOMC has increased the federal funds target rate from the 0 to ¼ percent range that had been in effect between December 2008 and December 2015, to 2 to 2 ¼ percent at its last meeting. Additionally, since late last year, when the Federal Reserve began a program to reduce its securities holdings by reinvesting principal maturities only to the extent that they exceed gradually increasing caps, the FOMC has reduced the size of the portfolio holdings from nearly $ trillion to about $ trillion. 4 Notably, this month, the principal payments from the agency mortgage-backed securities (MBS) portfolios are below the level of the redemption caps.
Credit volumes, house prices and the level of economic activity should only affect monetary policy to the extent that they affect the forecasts for inflation and resource utilisation. Credit volumes and house prices are not targets for monetary policy. One can claim, however, that the repo-rate path chosen should not threaten financial stability. This may mean that one avoids repo-rate paths with very high repo rates in a situation in which financial stability is fragile and there is a lack of instruments to deal with this. It is also possible that in certain situations this can justify the avoidance of very low repo rates. But, as long as financial stability is not threatened I see no reason to rule out any reporate path at a monetary policy decision. The extended repo-rate path has the same effects as the lower repo-rate path This leads me to the latest monetary policy decision. One of the reasons why different people may prefer different repo-rate paths is of course that they have different views about underlying – of monetary policy independent – economic developments in Sweden and abroad. One may for example have different views about international growth, wage bargaining outcomes and productivity growth. Here I would like to make it clear that I share the view of underlying economic developments in Sweden and abroad presented in the latest Monetary Policy Update.

Managing risk in a soft market Speaking to firms about their approach to the market, they often talk about prioritising margins over growth, focusing on more profitable lines of business – for example, where they have established strong market positions or a particular niche, and making more active use of reinsurance. These all seem sensible approaches for an individual firm but, in aggregate, the risk must end up with someone. One indicator of the competitive pressure on insurers to source new business in the wholesale markets is that brokerage commissions have been increasing as a share of gross written premiums despite the common desire to lower costs in line with lower premium rates. Looking forward, the key challenge for insurers is how they preserve or even grow their activities while avoiding the “Winner’s Curse” of under-pricing in order to get the business. The PRA is a not a price-regulator. But we are concerned to see that firms are adequately managing their exposures – that they can identify and quantify the risks being covered, manage and control overall exposures, and estimate likely claims costs under different loss scenarios. Against this background, I make no apology for repeating the points made earlier this year by my colleague Chris Moulder, our Director of General Insurance, in a Dear CEO letter and subsequent speech.
During this period, a new credit of Lek  BIS Review 8/2004  1  70.6 billion (USD 660 million) was extended to the economy, or 45 percent more than the same period in the previous year. Based on the developments noticed during the first ten months, on the current developments of the banking system liquidity, etc., it could be summarized that monetary developments of 2003 will be a greater contribution to the consolidation of the overall macroeconomic equilibrium of the country. In order to have a clearer view of the expected economic situation by end of 2003, following is given a table showing the general indicators of the country’s economic development, including here the monetary ones as well.

Foreign currency credit increase is expected to be nearly Lek 14.5 billion, or 88 percent of the total increase of the credit to the economy. The difference between the credit interest rates in Lek and those in foreign currency is assumed to be one of main reasons of the slow increase of credit in Lek. Moreover, the high level of the banking system liquidity during 2003 does not seem to have influenced the increase of the credit balance in Lek. The higher increase of the credit balance to the economy forecasted for 2004 is based on the upward tendency of private sector financing needs. Meanwhile, the forecast for a small increase of Lek 2 billion, or 12 percent of the Lek crediting, is based on higher interest rates of Lek rather than foreign currency crediting. The assumption to approach the crediting interests rates in Lek and in foreign currency, would also alter the forecasts on the credit balance increase, for the respective currencies in the future. 8  BIS Review 8/2004