samchain/econo-pairs-v1 huggingface dataset:
In the UK, for example, the banking sector had grown from around 100% of GDP to more than 500% of GDP in 2008. And the UK government had to inject 13 times more money into RBS than had been injected into Continental Illinois.6 Is too big to fail inevitable? The post-crisis period has seen a vast amount of work to come up with a better way to deal with a failed bank and a better answer than ‘the taxpayer’ to the question of ‘who pays?’ Some have argued that it cannot be done. The crisis, they argue, showed that large, complex banks do indeed have to keep operating. They are too interconnected and provide too large a share of essential services to the economy to be allowed to abruptly stop operating. This line of argument leads to the conclusion that if we want to end too big to fail, we need to end being big itself. We need to go back to a world of small, less complex banks. With the help of deposit insurance, these could be wound up quickly and simply without great disruption to the economy and society as a whole. A world of smaller, simple banks may appear tempting. But something important would I think be lost. As the Independent Commission on Banking argued in their Report, splitting up banks would reduce diversification benefits.7 While the cost of failure of small banks may be lower, these banks may hence be more likely to fail.

So the bank has to have enough debt that can be bailed in to restore its capital so it can continue to operate as an authorised firm while it is being resolved. Smaller banks can be more easily separated into the parts that provide critical economic services and that can be sold and those that do not and can go into insolvency. Only the critical parts would be recapitalised in resolution. They need less bail-in debt. The very smallest institutions do not need to be kept in operation. Their abrupt cessation of activity should not generate contagion or damage the economy. Insolvency rather than resolution is the proportionate strategy here. They do not need bail in debt. Gradualism The second key principle is gradualism. The Bank is proposing to allow the full four-year transition period for banks to meet their MREL requirements. This will allow the market for MREL-eligible debt to develop and allow banks to smooth out their debt issuance, minimising issuance and interest costs. Clarity The third is clarity. Banks and their creditors need to have clarity – clarity in relation to the requirements of the new regime and clarity as to their liability if things go wrong. So we need to avoid uncertainty and get on and implement the EU requirements that came into force at the beginning of this year. Bank creditors need to know where they stand if things go wrong.
The Chatroom will provide speedy and timely feedback when new technology or solution is being contemplated, thereby reducing the risk of abortive work by the parties concerned and expediting the rollout of new fintech applications. Second, tech firms may have direct access to the Sandbox. Tech firms may test out their innovation by seeking feedback from the Chatroom without necessarily going through a bank. Third, we understand that our fellow regulators in Hong Kong, the Securities and Futures Commission (SFC) and the Insurance Authority (IA), will shortly be launching their own sandboxes. Following discussion among the HKMA, SFC and IA, we have agreed to link up the three sandboxes through a common interface so that there can be a single point of access by the stakeholders for fintech solutions covering more than one sector. (C)  Facilitating Virtual Banking  We believe that the time is ripe for Hong Kong to try out virtual banks. In some jurisdictions, it has proved to be technically feasible and commercially viable for virtual or branchless banks to operate. A virtual bank operates on a different model of service delivery and may help promote financial inclusion as they normally target small customers, be they individuals or SMEs. Our view is that the emergence of virtual banks in Hong Kong would also provide additional impetus to the application of fintech in Hong Kong and offer a new kind of customer experience in mobile and digital banking.

Higher imports from low-cost countries, competition and improved efficiency in Norwegian production have also kept inflation at a low level. As a result of low inflation, we have kept interest rates low for a longer period. The impact on output and employment is therefore more pronounced. We cannot expect the interest rate to have the same impact from one period to the next. The economy is also exposed to unexpected disturbances. As a result, we cannot fine-tune economic developments using the interest rate, but avoid the largest effects when the economy is exposed to disturbances. Experience seems to indicate that inflation expectations remain stable even if inflation varies somewhat as long as the interest rate is used actively to curb effects. Given our highly open economy, we may have to accept somewhat wider variations in inflation than some other countries. The interest rate level can influence the timing of household and business investment. With the current low interest rate level, many have found it advantageous to move forward purchases of property and other investments which they would otherwise have delayed. Housing demand 10 to 15 years ahead will depend on future income levels, population growth and living patterns. The current level of interest rates has limited implications for housing demand in the longer term. A high level of residential construction today will be followed by a lower level at a later stage. The same may apply to commercial property investment.
Jean-Pierre Danthine: Financial development – can we have too much of a good thing? Speech by Mr Jean-Pierre Danthine, Vice Chairman of the Governing Board of the Swiss National Bank, at the International conference on “Financial development, stability and growth”, jointly organised by the State Secretariat for Economic Affairs (SECO) and the Graduate Institute of International and Development Studies, Geneva, 25 October 2012. *  *  *  I would like to thank Claudia Strub and Till Ebner for their valuable support in drafting this speech. Introduction Typically, the term “development” has a positive connotation. A state of higher development is perceived to be superior to a state of low development. The same is true for the term “financial development”, which we associate with improved financial products, processes and institutions. Financial development leads to an improved allocation of capital, empowering entrepreneurs and facilitating risk bearing and consumption smoothing. All in all, financial development increases welfare and potentially promotes growth. As Schumpeter saw it, “Bankers are the gatekeepers of capitalist economic development. Their strategic function is to screen potential innovators and advance the necessary purchasing power to the most promising.”1 And, indeed, the pre-crisis economic literature on financial development was strongly influenced by King and Levine’s empirical study2 suggesting that “Schumpeter may be right”. Using data on 80 countries over the 1960–89 period, the authors concluded that the cross-county evidence was consistent with the view that the financial system promotes growth.

The recent work by Rogoff and Reinhart suggests this would mean making sure that the 90% debt to GDP ratio is not reached, even after a plausibly serious stress scenario.4 Seen in this light, we may doubt that the 60% debt to GDP ratio that has been the reference since the Maastricht Treaty is sufficiently prudent. Let us now turn to the case of household indebtedness. Here the intermediating factor has been, in most recent examples, the burst of a housing bubble leaving, in particular, the most recent generation of buyers with a mortgage exceeding the value of their houses – that is, with negative equity. Besides system design failures which include policies that portray home ownership as a goal to be reached by everyone (President Clinton declared in 1994, “More Americans should own their own houses!”) and that are encouraged by public sector institutions, behavioural biases can be blamed as the main drivers of indebtedness.5 I could mention, first, a form of herding which is the simplest explanatory factor for an asset price bubble and, second, a “keeping up with the Joneses” effect, which is a plausible reason for the very low American savings rate and which Rajan, among others, uses as a potential link between the rise of inequality and increased indebtedness.
Column (2) adds lagged inflation as a crude measure of inflation expectations, and column (3) further adds the recruitment difficulties measure. Both enter with the expected sign and indicate that a 1 percentage point rise in inflation or a 1-point rise in the agents’ score would tend to correlate with rises in wage growth of between ½ and ¾ percentage point. The coefficient on unemployment remains at around unity. Columns (4) and (5) add measures of inflation expectations. Relative to (3), the inflation expectations measure in model (4) adds little explanatory power and enters with the “wrong” sign, possibly indicating multicollinearity. Dropping inflation, in column (5), restores a role for inflation expectations with the expected sign. Model (5) has overall marginally less explanatory power than model (3). Columns (6) and (7) add productivity growth to the model. In moving from model (4) to (6), there is a small increment in explanatory power, and productivity growth enters significantly, although the coefficient on recruitment difficulties falls and is now estimated less precisely. Inflation expectations continue to enter with the “wrong” sign and their coefficient is estimated  25  In Gali’s model, unemployment is positive under flexible prices and wages on account of a steady state wage mark-up, which captures inefficiencies in wage setting. Unemployment can move away from this rate in the short run, during which period nominal wages and prices are rigid, in response to shocks to the economy. 18  BIS central bankers’ speeches  imprecisely.

Confidence among financial market participants remains insufficient. The pressure on participants who are still only able to refinance themselves in the market on a very short-term basis remains high. As long as uncertainty with respect to the scope of the credit problems exists, the disruptions on the money market are likely to persist. Second, the central banks have played a fundamental role in calming and stabilising the money markets through close consultation and targeted operations. The SNB reacted rapidly to the tensions in the Swiss franc money market. The flexibility of our monetary policy instruments demonstrated its value in this difficult setting. Above all, short-term interest rates calmed as a result of the measures taken. The difficulties in bank refinancing over longer terms and the rise in risk premiums in the money market came about through the loss of confidence. Central banks can not compensate this lack of confidence simply by injecting additional liquidity. On the contrary, the financial market participants themselves must take the fundamental steps needed to restore this confidence. Third, the crisis in the money market once again clearly demonstrates that liquidity management is a core task of each and every bank, falling within the direct accountability of bank executive management. Liquidity provisioning must begin in good times. It is critical that sufficient liquid assets be held. Only first-class securities are suitable for this purpose. These can be sold in the markets or mobilised via repo transactions, even in difficult conditions.
Typical management actions might include, for example, an insurer assuming that it can replace reinsurance following the default of a reinsurer or at policy renewal, or a life insurer assuming that it could reduce bonus rates on a with-profits fund if it was in financial distress. Solvency II allows insurers to assume management actions provided it would be reasonable to implement them in stressed market conditions. We found that some insurers, however, were inconsistent and insufficiently rigorous in their approach. Good practice is to bring all future management actions together into a single document that, at least at a high level, the board can review. This plan should quantify each management action and show how it is used in the calculation of reserves, capital requirements or otherwise (for example, in stress testing). 5  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  5  Model Risk Management  I have focused so far on models used to help calculate regulatory capital and reserves. Insurers use many other models though, notably for pricing. For many of these models, new technology is bringing rapid change. Processing power continues to increase, including from use of the Cloud. This is enabling development of models that employ artificial intelligence techniques, such as machine learning, to analyse so-called Big Data – larger, more complex information from new sources, some of it structured but a lot of it unstructured.

However, that confidence must be tempered by a proper understanding of model limitations and assumptions, which the use test indeed also requires. Insurers should try to de-mystify models as much as possible and avoid any sense that they are “black boxes”. They need to understand for what purpose a model has been developed and the boundaries of its legitimate application. Criticism of the model ought to be welcomed and followed up: for example, arising from independent validation. Stress testing should be used to explore and improve understanding of model weaknesses. Management should challenge the outputs of complex models using other simpler models, rules of thumb and expert judgement. 7 For example, internal model estimates of capital can be compared to simpler standard formula or leverage measures. We encourage insurers to develop their own model drift measures and not limit themselves to the PRA’s metrics. To take another example, in a rapidly changing world, it is good practice for insurers to pay close attention to claims 6  Model risk: illuminating the black box, British Actuarial Journal, 22 August 2017, R. Black, A. Tsanakas, A. D. Smith, M. B. Beck, I. D. Maclugash, J. Grewal, L. Witts, N. Morjaria, R. J. Green and Z. Lim. 7 In the Dog and the Frisbee, 2012, Andy Haldane and Vas Madouros explained how simple rules of thumb often outperform complicated models in complex, uncertain environments. https://www.bankofengland.co.uk/paper/2012/the-dog-and-the-frisbee  7  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  7  experience as a risk indicator.
But even this would probably cost quite a lot in terms of money and prestige (for example, it is easy to imagine the management being replaced), so, in general, this is probably not an alternative that a bank would wish to consider. Naturally, one way of reducing the risk would be, quite simply, to decrease lending in dollars and thus also the need for borrowing in dollars. In such a case, customers would have to be referred to other banks. Of course, at least major customers generally also have contact with US banks, which never encounter acute liquidity shortages, as they can turn directly to the Federal Reserve in the event of a crisis. So they have access to a lender of last resort which can create dollars. This is exactly what the Swedish banks lack. Now, naturally it hurts for a bank to refer good customers to a competitor, but if you don’t have any dollars, then you don’t have any dollars. It’s all a question of what risks the bank is willing to take. Another way of minimising the risk is for the Riksbank to maintain a foreign currency reserve that the banks can have access to in a crisis, as it does at present. The Riksbank has several reasons for maintaining a reserve in foreign currency, but one important argument for its current size is precisely the need to be ready to lend to the banks6. The Riksbank’s foreign exchange reserve is currently equivalent to about SEK 300 billion.

This market deals in maturities of less than one year, but the overwhelming portion of trading deals with securities with maturities of three months or less. Money market funds continue to be major investors. More long-term borrowing is largely conducted in euros through the issuance of covered bonds. Pension funds and insurance companies are the main investors here.2  Obviously, the risks of a bank entering into an acute liquidity crisis become smaller as borrowing becomes more long-term. Consequently, the new regulations in Basel III require a greater proportion of long-term borrowing than most banks have opted for so far. Unfortunately, before the crisis, it was highly advantageous to borrow dollars over the short term, and this was also exactly what the European banks did, including the Swedish ones. Borrowing for longer maturities was much more expensive. And as the new Basel regulations have not entered into force yet, there still exist significant incentives for the banks to borrow dollars over the short term. This applies to the Swedish banks in particular, who are also regarded favourably by the US market due to their strong balance sheets, particularly in comparison with a number of their European competitors. 2  In recent months, a couple of Swedish banks have actually succeeded in issuing covered bonds with maturities of 3–5 years in the United States. It would naturally be desirable to gain access to the market for longer maturities in US dollars, but I feel that the journey there would be both long and rough.
Ardian Fullani: Recent economic and monetary developments in Albania Speech by Mr Ardian Fullani, Governor of the Bank of Albania, at the joint press conference with the Albanian Minister of Finance and the IMF Mission Chief for Albania, Tirana, 22 June 2011. *  *  *  Dear media representatives, In the last two weeks, a team of the International Monetary Fund (IMF) led by Mr Gerwin Bell, Mission Chief, visited Albania. During this visit, we had intensive discussions on the current economic developments, the economy’s expected performance and appropriate orientation of macroeconomic policies. This visit in the framework of Article 4 Consultation focused also on structural issues of the Albanian economy, highlighting the steps to be made for ensuring sustainable long-term growth. Brief overview of key issues discussed First, the 2010 and early 2011 economic and financial developments showed that, overall, the Albanian economy overcame the global crisis effects with success and has the prerequisites to generate economic growth in the period ahead. Foreign demand was the main contributor to the 2010 economic growth, while the current year is expected to be characterised by a resurgence of domestic demand and slower growth rates of Albanian exports. Overall, the macroeconomic situation is balanced, characterised by low and controlled inflation; safe, liquid and well-capitalised financial system; improving financial markets; and improved current account position. These developments reflect, inter alia, the relevant policies, which have proven effective in buffering large shocks from the global crisis.

*** During the consultations, I found that we share with the IMF and the Ministry of Finance the same views on the need to maintain and further strengthen macroeconomic stability. Moreover, there is a modern consensus on division of duties between the two central institutions of macroeconomic administration (central bank and Ministry of Finance) as well as a concrete commitment to continue this co-ordination in the future. In conclusion, I would like to reiterate that the Bank of Albania remains fully committed to observe the inflation target of 3%, and continue to orientate its monetary policy exclusively to this function. 2  BIS central bankers’ speeches
But fire services do not offer free insurance for people who smoke in bed or set fire to their own house, thereby encouraging them to take risks that endanger others. When it became clear that Northern Rock could not find funding elsewhere, it came to the tripartite authorities (FSA, Treasury and Bank) to seek financial support from the Bank of England. Rather than stabilise the situation, the actions of the authorities seemed, at least initially, to fan the flames. There are lessons for us to learn. And I will come to those in a minute. But let me return to the queues of depositors. Here is an extract from a local newspaper: “By noon on Friday, more than 40 … customers … were waiting in line at the branch … waiting upward of an hour and a half to withdraw money from their accounts.” “Anxious depositors clutching withdrawal slips filled the offices for a second straight day. … The company placed extra chairs in a waiting area and asked customers to write their names on a sign-in sheet.” This wasn’t Newcastle or London. It was Los Angeles on August 17 and 18. The bank experiencing the run was not Northern Rock but Countrywide, a US mortgage bank. It is a Tale of Two Banks – banks of similar sizes and facing similar difficulties with funding – just a few weeks apart. Like Northern Rock, Countrywide took risks and relied on short-term funding from investors. But the similarity ends there. There were two significant differences.

At the turn of the millennium, they were 2%. Back in 1990, they were 4%. Why have these real interest rates fallen so much? The primary explanation is the high rates of saving in other parts of the world. Japan has been a net saver for more than a quarter of a century. Following the Asian crisis in the mid-1990s, many of Japan’s neighbours also raised their national saving rates. That group includes the country which is now the world’s biggest saver – China. And more recently, after the tripling of oil prices, they have all been joined by the oil-producing nations from Saudi Arabia to Norway. The savings of these countries, evident in their trade surpluses, have flooded into world capital markets. Faced with what Ben Bernanke has called a “glut” of savings, borrowers in the rest of the world have been able to attract long-term loans at remarkably low interest rates. Those rates of interest have, in the developed world, encouraged borrowing and spending, and reduced saving. From the United States to Australia, and also here at home, we have increasingly spent more than we earn, resulting in large and expanding trade deficits. Our own trade deficit is more than 3% of GDP, but that is dwarfed by the United States, with a trade deficit of more than 6% of GDP. The response of central banks in the developed world to these changes was predictable.