samchain/econo-pairs-v1 huggingface dataset:
This desire to postpone capital raising stems, in part, to the fact that bank executives often do not want to dilute the existing shareholders (which, of course, include themselves). I believe that the management calculus has often gone like this: In good states of the world, I have enough capital. In bad states of the world, perhaps I don’t. But to raise enough capital to guarantee I can endure all the potential bad states of the world, I will have to massively dilute my existing shareholders now. So the self-interested thing to do is to avoid the dilution and hope for a good state of the world. This does not always work well in practice. Once capital preservation becomes paramount, deleveraging intensifies and counterparties grow more wary about engaging. This dynamic, in turn, makes a bad state of the world more likely. What may be sensible for each institution individually, may collectively be a bad idea. That is because each firm does not internalize the cost that their decision not to raise capital has on the overall financial system. A healthy banking system is always essential. But never has that been more true right now given what has happened to the securitization markets and the broad “shadow” banking system. So where are we now? In my view, the deleveraging process is still far from complete. Hedge fund redemptions have soared.

Taking into account the conditions of the Albanian market, with a low level of financial inclusion and education, and the relatively high costs for the provided services, our goal is to urge the banking system to offer citizens easily-accessible and cost-effective services, supporting thus the objective for broader financial inclusion. Therefore, it is both necessary and challenging to intervene in this aspect, especially as we are experiencing rapid and comprehensive developments in technology. Most of the aspects in our everyday life are becoming subject to digitalisation and automated processes and the modernisation of payment systems, in turn, is becoming increasingly important. The research and analyses carried out by the Bank of Albania with the assistance of the World Bank clearly show that the promotion of digitalisation and innovation in the payment market contributes considerably to the reduction of costs of these instruments, providing services that are easily accessible and affordable by everyone. In Albania this development is considerably lagging behind other countries, with which we aim to approximate in the framework of European Union integration process; hence, its promotion becomes even more important both in the framework of this integration, and in the broader context of international markets. The modernisation of these systems through digitalisation will be achieved through a wellregulated development and clearly-set goals in the medium-term strategy, which will be presented later today during the Conference.
On other fronts, there was also an abundance of events which could have affected confidence in the currency over the sensitive period of political transition leading to the resumption in the exercise of sovereignty over Hong Kong by China on 1 July 1997. But the Hong Kong dollar’s link with the US dollar has remained rock solid, with the exchange rate staying very close to the fixed level of $ to $ 6. There are good reasons why our exchange rate has remained so stable against such eventful background. Hong Kong’s economic fundamentals are strong2. We pursue sound macroeconomic policies. We have an impressive track record of fiscal discipline3. In the last 14 years of the fixed exchange rate link, while most countries were grappling with fiscal deficits, Hong Kong has consistently run budget surpluses averaging 2% of the GDP per year. Our fiscal surplus in the financial year 1997-98 was 5.8% of GDP. As a result, we have over the years built up strong fiscal reserves. These are deposited with the Exchange Fund which holds the foreign reserves of Hong Kong, including those backing the issue of our currency. As at the end of 1997, Hong Kong’s foreign reserves stood at $ billion, which was the third largest in the world after Japan and the Mainland of China, providing not just 100% backing, but nearly 800% backing for the currency4. 7.

But it had taken a little time for interbank interest rates for term money to come back down, notwithstanding the fact that the crucial part of the monetary base, as represented by the clearing balance of the banking system, has in fact returned to a level which is a lot higher than before the speculative attack and that the HKMA had been accumulating more foreign reserves in the process19. I would attribute this to market sentiment being affected by the continuing financial turmoil in the region. There is now clearly an Asian premium in the interest rates for Asian currencies and Hong Kong, notwithstanding our currency having remained very stable throughout, is not immune. This Asian premium will remain, for as long as financial turmoil in the region lingers on and with uncertainties in the financial system of Japan looming large in the background. 24. The higher interbank interest rates for the Hong Kong dollar could also be attributed to a realization on the part of the banks of the need to be a lot more careful in their funding strategies. On the one hand, they might have mistakenly provided cheap funding to finance speculative shorting of the Hong Kong dollar by their customers. In doing so they put themselves in a difficult position when the interbank market tightened to beyond their expectations implicit in the pricing of their lending to the speculators.
In this respect, the world we live in is the outcome of how we have handled, reacted to, faced and resolved each of the crises we have experienced as a society. It’s no big revelation to state that the financial sector has recently undergone one of the biggest crises in its history. The crisis was deep-seated, lasting and, most regrettably, it had severe consequences for groups that had little or nothing to do with it arising. As banks and supervisors, we share a responsibility for what happened. We should learn from our mistakes. But, above all, we should correct whatever is needed to prevent anything like this happening again. Much has changed since the global financial crisis broke in the summer of 2007. It is widely acknowledged that the banking sector has undergone far-reaching change, but supervision has also been enormously affected. The old institutional framework has been replaced. In this process, we have sought to draw on the lessons from the crisis, equipping supervision with a set of tools that allow us to act in a coordinated and, we hope, preventive manner. Further, we have moved decidedly towards a truly European-based supervision. This is an essential step towards a Banking Union that will make the overall European financial system safer, thereby promoting sustainable growth in the economy. 3/13  Much still has to be done to complete the Banking Union. In particular, we are still lacking a pan-European and adequately funded deposit guarantee scheme and a recapitalisation fund.

In order to obtain a simple formula, I therefore include the credit terms in the “interest rate margin”. Interest rate margins and credit terms tend to vary over time with the financial cycle. When the future outlook is bright and financial agents, households and companies alike are optimistic, risk premiums are usually low, which leads to lower lending rates and generous credit terms. This contributes to a rise in credit growth and asset prices. When outlook deteriorates, banks’ lending becomes riskier, or is at least perceived as such, which can be noticed in higher risk premiums and tougher credit terms. The banks, quite simply, become more restrictive in their lending in bad times and we will have a downturn in the financial cycle. So, why should central banks take account of fluctuations in interest rate margins and credit terms? Well, because there is a series of so-called external effects associated with financial activity which lead to the banks (and other financial agents) intensifying these fluctuations. The majority of the external effects are due to the fact that the social costs of financial instability are greater than the costs borne by the banks. Put simply, financial stability can be equated to stable interest rate margins and credit terms over time.4 In other words, interest rate margins which are not too low in good times or too high in bad times, and credit terms which are not too generous in good times or too restrictive in bad times.
And while, in this country particularly, we are having to work harder to keep her from tasting Father Bear’s porridge, there are now signs that the porridge itself may be beginning to cool down - as it needs to do, quite soon and quite quickly, if we are not to see inflation pick up. Some US business people - and certainly some British business people - engaged in international trade are understandably discomforted by the recent strength of our respective exchange rates - not vis-à-vis each other because the dollar-sterling rate has been relatively stable, but against the rest of the world. But the domestic environment, here and in the United States, remains - actually and prospectively - relatively benign. We are though both exposed to the chilly winds now blowing from Asia. And I should like to devote the rest of my remarks to discussing the problems in Asia and considering just how serious a threat they pose to the global economy. I emphasise “problems” in this context because it is important to recognise that the situation in Asia differs materially from one country to another, even though they are all inevitably affected to varying degrees - through their close commercial links with each other by the present economic weakness in the region as a whole. Let me begin with a few words on Japan. Japan is of course much the largest economy in Asia.

Mr. George discusses the problems in Asia and considers the risks they pose to the global economy Speech by the Governor of the Bank of England, Mr. E.A.J. George, at the British-American Chamber of Commerce Lunch in London on 22/1/98. The role of the Chamber is to promote Anglo-American trade and investment, and you’re doing a pretty good job. Two way trade in goods and services is running at around $ billion in each direction, and has grown at an annual average rate of about 8% over the past five years. Over the same period the US has accounted for just over half of all inward direct investment into this country and close to a third of all UK outward direct investment. These examples suggest that our commercial relationships are in good shape. Economic developments in our two countries have provided a favourable backdrop to British-American commercial relationships. In the US Goldilocks continues to tiptoe through the tulips. Total output has been growing for seven years - at an average annual rate of around 2¼%. Unemployment has fallen from a peak of 7.4% to 4.7%; and consumer price inflation has averaged 3%. In this country output has been growing for the best part of six years - at an average annual rate of close to 3%. Unemployment on a comparable basis has fallen from a peak of 10.7% to below 7% and underlying consumer price inflation has averaged around 2¾%. If that’s not Goldilocks exactly, it is surely her younger sister!
We continue to explore ways in which the provision of greater information to counterparties and to the markets more generally could help reduce vulnerability to financial crises. For now, though, the practical limitations on achieving greater transparency underscore the importance strengthening the robustness of the shock absorbers in the financial system. We are not likely to ever be in a position where we have the capacity to identify the source and estimate the probability of future financial shocks. And policy makers are unlikely to ever be in a position to diffuse concentrations of risk or crowded trades ahead of a crisis. The most sensible thing we can do is to improve the capacity of the core of the financial system to handle adversity, and this requires continued focus on improving the strength of the capital and liquidity cushions, as well as the market infrastructure. Let me end with a few quick thoughts on the role of monetary policy in this context. Can monetary policy play a pre-emptive role in reducing the vulnerability of financial markets to the type of dynamic we saw in 1987 and 1998? Central banks cannot realistically hold out the prospect of using monetary policy to prevent asset price bubbles, conditions of "excess" leverage in parts of the financial system, or other factors in markets that might lead to the types of positive feedback dynamics that were at the heart of some past crises.

One dimension of liquidity is the availability of credit or the ease with which institutions can borrow or take on leverage. This is generally referred to as funding liquidity. Another dimension of liquidity is the ease with which market participants can transact, or the ability of markets to absorb large purchases or sales without much effect on prices. This is what is generally called market liquidity. Although these two concepts are distinct, they are closely related and are often mutually reinforcing. Fundamentally this is so because when funding liquidity is abundant traders have the resources with which to finance trading positions that smooth price shocks and make markets liquid. In practice, this mutually reinforcing behavior is driven by a complex array of factors, including the degree of leverage embedded in the markets at any given time, the difficulty that lenders face in discerning whether a surge in volatility is driven by a transitory shock of some kind or a permanent shock to fundamentals, and risk management practices. Institutions manage the credit risk in their trading-related exposure by requiring some counterparties to post collateral or margin. Typically, institutions require of hedge fund counterparties both initial margin against potential loss and variation margin, which requires payment to cover any decline in the value of the position. If the position declines in value, the counterparty will have to meet margin calls. If it does not have enough liquidity on hand to meet those calls, it will have to liquidate other positions to raise the requisite cash.
The larger the mark-up, the greater the degree of market power, whether at the firm, sector or national level. Mark-ups also have the benefit of being the relevant measure of market power in the workhorse models of the macro-economy used by policymakers. 4 5  Excluding financial services firms. See, also, Bell and Tomlinson (2018). 4  All speeches are available online at www.bankofengland.co.uk/speeches  4  In that spirit, a number of recent papers have estimated measures of mark-ups based on individual company accounts data. These cover a wide range of companies, sectors, countries and time periods (for example, Díez et al (2018)). The findings from these studies are, in macro-economic terms, both quite striking and quite strikingly uniform in the broad trends they reveal. For example, De Loecker and Eeckhout (2018) have recently calculated mark-ups for around 70,000 firms 6  across 134 countries over almost four decades. Since 1980, they estimate that the sales-weighted mark-up 7  for the average firm across countries has risen by a remarkable 50 percentage points. Table 1 shows their mark-up measures for the G7 economies over the period. Though there is cross-country variation, average mark-ups have risen significantly in every G7 country, by between 30 and 150 percentage points. Taken at face value, the macro-economic implications of these shifts in mark-ups could be very large. The most direct and immediate impact would be on measured inflation rates.

Another strand of the literature has examined whether unlevered investors may also be prone to this fire-sale mechanism. This is a question of rising importance given the rapid growth in open-ended investment funds since the crisis. In Feroli et al (2014), asset managers are motivated by their relative ranking. This generates a feedback loop in which falling asset prices incentivise further selling for fear of diverging from the pack (Morris and Shin (2016), Vayanos and Woolley (2013)). This channel is amplified if investors perceive there to be a first-mover advantage in withdrawing funds, generating ‘run-like’ behaviour (Goldstein, Jiang and Ng (2017), Chen, Goldstein and Jiang (2010), Morris, Shim and Shin (2017)). A recent paper by Bank of England colleagues (Baranova et al (2017)) provides a framework for quantifying the risks posed by investment funds in corporate bond markets (see also Ceterolli et al (2016)). In their model, investors act pro-cyclically, withdrawing funds when corporate bond prices fall and causing investment funds to make a first-round of asset sales. Dealers provide liquidity, but require a further fall in price as compensation. This leads to further redemptions and further asset sales, amplifying the fall in price. Chart 21 shows that this amplification effect can be quantitatively significant: weekly redemptions from bond funds of 1% of total net assets, similar to the level observed at the peak of the crisis, increase the liquidity premium in bond spreads by 40 basis points.
Pablo Hernández de Cos: Navigating through a storm - policy challenges in the current macro-economic environment Introductory address (via video) by Mr Pablo Hernández de Cos, Governor of the Bank of Spain, at the pannel "Navigating through a storm - policy challenges in the current macro-economic environment", during the Sixth European Systemic Risk Board annual conference "Addressing financial stability challenges", Frankfurt am Main, 8 December 2022. *** Good afternoon everybody and welcome to this first discussion panel of the Sixth Annual Conference of the European Systemic Risk Board. In this roundtable, we will be discussing and sharing views on identified challenges affecting the conduct of policies in the current turbulent times, which are having important repercussions for the economic and financial environment. As noted by President Lagarde, during her welcome address, in the course of this year we have witnessed an increase in financial stability risks. The appalling invasion of Ukraine by Russia, initiated as we were recovering the activity levels previous to the pandemic, has contributed to either fuel new or exacerbate existing systemic vulnerabilities in Europe and beyond. Spikes in energy and food prices, continued disruption of global supply chains and demand pressures have resulted in higher and more persistent inflation across the board. This has triggered a response of monetary policy, which is now normalising around the world, contributing to tighter global financial conditions and increased volatility and liquidity tensions.

Thus, how much one pushes on the short-term interest rate lever depends, in part, on how financial market conditions respond to such adjustments. Imagine driving a car where the connection between the gas pedal and the engine speed was variable and uncertain. The driver would have to constantly monitor and adjust the pressure on the gas pedal to achieve the desired speed. Similarly, we will have to monitor and adjust short-term interest rates to achieve financial market conditions consistent with achieving our labor market and inflation objectives. All else equal, less responsiveness implies larger interest rate adjustments and vice versa. Quickly, let me give two examples that illustrate how variable this linkage can be. First, during the 2004–07 period, the FOMC tightened monetary policy nearly continuously, raising the federal funds rate from 1 percent to 5.25 percent in 17 steps. However, during this period, 10-year Treasury note yields did not rise much, credit spreads generally narrowed and U.S. equity price indices moved higher. Moreover, the availability of mortgage credit eased, rather than tightened. As a result, financial market conditions did not tighten. As a result, financial conditions remained quite loose, despite the large increase in the federal funds rate. With the benefit of hindsight, it seems that either monetary policy should have been tightened more aggressively or macroprudential measures should have been implemented in order to tighten credit conditions in the overheated housing sector.
In other words, the average annual increase in expenditures during the next three years must not exceed Lm5 million, which is just one-tenth of the present growth rate. This implies that measures must be put in place now that would by 2007 reduce expenditures by Lm150 million. Required expenditure and taxation reforms The attainment of this objective clearly requires extensive reforms. In this context, I would like to propose some policy orientations which would help to reduce the deficit to the planned level. For this purpose, it is useful to look at government expenditure from two perspectives. The first is in terms of what it is buying. The second focuses on what such expenditure is achieving. The first of these approaches helps to identify the potential for savings. This year over 20% of total spending, some Lm200 million, will go towards wages and salaries and another 10% will go to public sector bodies, again largely to finance human resource costs. In short, the public sector wage and salary bill absorbs close to one-third of total budgetary expenditures. Against this background it is imperative that the current negotiations for the renewal of collective agreements in the civil service and in the public sector recognize the need to cut spending. It is important that any wage increases be matched by measurable productivity improvements. It is equally necessary to make better use of the human resources available by strengthening both the management culture and work practices.

It is thus essential to ensure that society obtains full value for the resources devoted to public sector activities, both in terms of the quantity and the quality of the outputs produced. Now whereas in the private sector failure to deliver value for money eventually results in bankruptcy, there exists no such effective sanction in the public sector. This is partly because expenditures are typically financed through general taxation and borrowing, and the funds thus raised are not directly earmarked for specific expenditures. Inadequate enforcement of accountability standards is another reason. It is also the case that industrial relations and human resource management in the public sector are often undertaken without sufficient consideration for budget constraints, while job security and tenure are taken for granted irrespective of performance or productivity levels. A further dimension  BIS Review 67/2004  1  of this problem is the fact that the success of government spending tends to be measured more in terms of its potential to produce electoral dividends than in a longer-term growth perspective. All of these factors reduce the incentive to use resources efficiently. Similar arguments apply to the welfare system, where the size of the expenditure can easily exceed that required to maintain social cohesion and the focus be diverted away from genuine needs. This situation has materialised in a number of countries, including the more advanced economies in the EU, which are now facing hard choices regarding the future of health and pension systems.