samchain/econo-pairs-v1 huggingface dataset:
How interest rates and bond yields respond to shifts in demand Concerns about “monetary finance” have arisen because policy has been eased at the same time the government’s deficit has gone up. The main problem with this argument is that the monetary stance and the fiscal balance are both cyclical – they tend to rise in upswings and fall in downturns. You’d therefore expect  6  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  6  them to be correlated this way. In fact, in the UK data, short-term interest rates have become more tightly correlated with economic growth since inflation targeting was introduced. Since the financial crisis, with policy interest rates pressed up against the effective lower bound, QE has instead become the marginal instrument of policy for many central banks. With much less of a track record to go on, it’s harder to demonstrate as clearly the cyclical behaviour of asset purchases (though the direction of the correlation – QE tends to happen when growth is weak – is clear enough). Nor is the pro-cyclicality of bond yields as evident as it is for short-term interest rates. Nevertheless, if an economic downturn were sufficiently widespread, and expected to persist for some time, it’s quite possible that expected future interest rates (and therefore bond yields) would decline of their own accord, even without the assistance of QE and even if one of the consequences of the downturn was also a rise in public-sector borrowing.

17  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  17  the economy was given over to the war effort – and it ran a deficit of over 20% of GDP (versus an average of 5% from 1792-1815). Under pressure from this scale of spending inflation averaged 16% (versus 2%). As a result, the deflation required to return to gold, in 1925, was far larger and more economically painful than it had been a century earlier23. As such, it’s not clear that the prior belief in such a return was as firm as it had been the first time round24. Nonetheless, even a partial belief in such a policy would have limited the cost of government borrowing in the interim. Long-term bond yields were higher than the 3% average of the pre-war decade but again remained below 5%. It may also have prevented an even worse outcome for inflation itself (by ensuring newly printed money was willingly held). In the 1970s, with no nominal anchor either in place or expected to remain so, the restraining force on inflation expectations was largely absent. So after the end of the Bretton Woods regime, and even though government indebtedness was lower than it had been for decades, inflation itself became harder to control and yields on new borrowing rose precipitously. The series for long-term yields on government debt goes back almost as far as the founding of the Bank of England in 1694.
One reason is the rapid policy response here in the UK and worldwide, which communicated to businesses that policy-makers were actively seeking to reverse the downturn in demand – using monetary policy, fiscal policy and direct interventions in the financial sector. This contrasts with earlier recessions in the UK in which the downturn was preceded by a surge in inflation and economic policy could not be relaxed so readily because of the need to bear down on inflation. 6  The total number of people aged 16 or more in employment was 29.19 millions in July-September 2010 according to the Labour Force Survey, compared with 28.84 millions in January-March 2010. 7  The latest Labour Force Survey measure of unemployment is 7.7% of the workforce. By contrast, unemployment peaked at 11.9% in mid-1984 and 10.6% in early 1993. Approximately two years after the start of the recession in both cases, unemployment was 10.2% at end-1981 and 10.4% at end-1992. 8  The latest figures available show public sector employment falling from a peak of 6.10 millions at the end of 2009 to 6.05 millions in June 2010. BIS Review 158/2010  5  Another factor supporting employment has been the flexibility in wages and working hours which helped companies weather the stresses and strains of recession. Many companies imposed or negotiated pay freezes, and in the downturn employees were willing to accept reduced working hours or a pay sacrifice in order to help preserve their jobs.

A second positive aspect of UK business performance through this recession has been the ability of companies to maintain their financial strength through the downturn. As Chart 4 shows, the retained profits of private companies in the UK fell only slightly during the downturn and have already begun to recover. In the first half of 2010, the financial balance of the private sector (excluding financial companies) was back above its average level over the last two decades, as reduced interest payments offset a squeeze on profits. Companies have also sustained profits by exploiting flexibility in their cost base – including measures to contain labour costs. They also conserved cash during the recession by aggressive destocking and holding back on investment. 6  BIS Review 158/2010  This more healthy financial position puts the corporate sector in a better position than it has been coming out of previous recessions to increase investment as they see demand recovering. The most recent reports from the Bank of England Agents around the country are relatively positive about the investment outlook and this is consistent with investment intentions indicated by other business surveys. 9 These indications of rising business investment also suggest that constraints in the banking sector – which are making it more difficult for many small and medium sized companies to obtain finance – are not acting as a serious obstacle to a recovery in business investment. The third positive development for the supply-side of the UK economy following the recession is the low level of company failures.
On the other hand, the slow decline in domestic consumption could result in a more complex inflationary dynamic. 2  As we noted in our statement after yesterday's Meeting, we believe that the MPR will need to be maintained at 11.25 percent until the state of the macroeconomy signals that the process of inflation convergence to the 3% target has been consolidated. According to the central scenario of the MP Report, which I will present to you shortly, this will take longer than we anticipated in December. Inflation has been high for a long time now, which increases the risks of scenarios where it continues to push its decline back. The Central Bank will not relent in its effort to bring it to target and we will act flexibly in case any of the internal or external risks materializes and macroeconomic conditions so require. Let me now walk you through the contents of the Report. Macroeconomic scenario and projections As I just said, annual inflation is stuck at very high levels. Last February, the annual variation of the CPI stood at 11.9 percent, a figure that, while down from its peak in the third quarter of 2022, is still well above the target defined by the Bank. February’s monthly variation was negative —at 0.1 percent— for the first time in several quarters. However, it responded mainly to a drop in volatile prices. As a matter of fact, the core component of the CPI posted a considerable rise in that month (+0.7 percent) (figure 1).

Rising real exchange rates in NMS in part reflect productivity growth in the traded sectors giving rise to Balassa-Samuelson effects, as well as a growing demand for non-traded goods and the effects of price deregulation. These factors would lead to relatively high inflation rates unless countered by nominal exchange rate appreciation, both of which could potentially hamper the process of nominal convergence necessary to adopt the euro. 5 The broad conclusion which emerges from a number of studies on this issue is that Balassa-Samuelson effects on the real exchange rate in NMS are estimated to be of the order of 1% to 2% per year. 6 With regard to capital inflows, these are usually perceived as a source of economic growth, especially when they take the shape of foreign direct investment (FDI). However, they can also usher in risks of volatility and speculative pressures on the exchange rate. This is indeed a factor that is currently affecting some NMS, as capital inflows appear to be shifting from FDI to portfolio flows of a more speculative nature, perhaps in part a by-product of the increased competition for productive investment from Asian countries. In the near future, capital outflows from NMS may also be occasioned by the creation of second pillar pension systems. Needless to say, net capital inflows are accompanied by current account deficits, reflecting expansions in aggregate demand driven by investment expenditure or lower savings prompted by an expected growth in income.
In some cases, to return to profitability and prosperity, the restructured bank will need to get rid of its most troubled assets. In the Swedish crisis of the 1990s, this was achieved by splitting the most troubled banks into a good part that we sold, and a bad part that we wound down and sold separately. If you opt for this solution, make sure that an independent asset management company, staffed with people with the right experience in handling troubled assets, runs the bad bank. Profit maximisation also implies ensuring that the restructured bank is out of the reach of political influence. This is important for two reasons. Depositors and lenders of the bank may exert influence on politicians to run the bank in a manner that is favourable to them. This may of course compromise profit maximization. Also, public servants are typically not trained to manage banks. But apart from lacking the specific skills, there is also an obvious risk that running a bank will interfere with the regular operations of the public authorities, although these are probably not regular at all during a banking crisis. 6  BIS Review 50/2010  If you get these things right, you may secure that upside that I just mentioned. And you may recoup some (or perhaps even all) of the costs of the banking crisis. For instance, in the Swedish banking crisis of the 1990s, the government capital injections into the distressed banks rendered healthy profits for the taxpayers when (some of) that equity was eventually sold.

It is remarkable how often problems in financial firms can be overlooked because of a sense that are they part of a normal, business-as-usual state of affairs. A diversity of inputs can help us see the flaws in what we accept as normal. Diversity is a frequent topic of conversation, but it is not easy. My view is that, like other ethics, diversity is a habit that takes practice. As first line of defense professionals, try to develop the habit of seeking out other points of view. Diverse points of view may come from junior employees in your line of business. They may also come from HR professionals, sociologists and psychologists, communications experts, even lawyers. For financial firms, prudential supervisors can also contribute to a diversity of viewpoints. Their horizontal view of practices across firms not only helps promote a more stable financial system, but also helps firms identify problem areas. A diverse set of views, professional training, and life experience may help you see shortcomings in your risk management framework—even in the three lines of defense model. Just because three lines of defense is a sensible way to manage risk does not mean it is perfect—no model is. A diverse set of inputs will help you figure out how to apply more effectively the three lines of 2/7  BIS central bankers' speeches  defense in your organization. Choice architecture I recommend as well that you pay attention to choice architecture in deciding how best to construct a first line of defense.
As a result of this, Turkish banks have started to provide interactive banking services to decrease their costs and increase efficiency of banking transactions. They are also part of the Electronic Fund Transfer system for their internal banking transactions and of S.W.I.F.T. for external transactions. Parallel to the process of liberalizing the economy, Turkish banks have made significant progress in investments and in organizations abroad. They opened branches abroad and took important steps to increase their shares in international markets by acquiring financial participations and partnerships. As of June 2000, Turkish banking sector, including branches abroad, operates with the total asset size of USD 140.4 billion, more than 8,000 branches and almost 170,000 personnel. The Turkish banking sector is also open to international competition. At present 25 foreign banks, including development and investment banks, constitute 31% of the total number of banks in the sector. The share of foreign banks has also increased during the past few years. While their share was 5.8% and 5.6% as the end of 1997 and 1998 respectively, it increased to 6.7% as of June 2000, representing the total asset size of USD 9.4 billion. The majority of this share belongs to foreign commercial banks. As of July 2000, Turkish banks have: •  83 financial subsidiaries in 24 different countries;  •  41 branches in 10 different countries; and  •  62 foreign representative offices in 10 countries.

In any case, the relatively mild recession and the favourable prospects for banking business in Latin America have encouraged Spanish banks to maintain or even increase their activity in the region at a time of hardship at home. This last factor is indeed an example of the benefits of preserving financial globalisation: strong economic prospects in Latin America have helped Spanish companies to build an important buffer against the deterioration in the domestic market, with an important contribution to our own financial stability. Let me briefly address my third and final point today: the need to maintain the highest degree of global policy cooperation. The immediate crisis response by the international community was first coordinated in the revamped G20. The crisis showed, on the one hand, that the national policies of systemic economies had long neglected the spillovers of their own policies on other countries and, at the same time, that some of these policies entrenched unsustainable patterns of growth. In addition, as mentioned before, the crisis exposed countries to sudden and severe liquidity shortages. Against this background, the G20 has pledged a significant strengthening of both global surveillance and global financial safety nets. The measures taken and the coordination involved highlight the remarkable unity achieved in response to the crisis. However, as the recovery gathers steam at different speeds, some  1  4  See Kamil and Rai (2010), Galindo, Izquierdo and Rojas-Suarez (2009). BIS Review 172/2010  dissent has surfaced.
42  A small number of financial market commentators had opined that use of the tri-party repo infrastructure for the ON RRP facility would make it harder for market participants to borrow the Federal Reserve’s Treasuries in securities lending to facilitate settlement, and therefore result in less liquid Treasury markets. However, use of the Federal Reserve’s securities lending program has been stable since liftoff, suggesting that the design of the ON RRP facility has thus far not contributed to any increase in the scarcity of specific Treasury collateral. 43  If the total amount of propositions received is less than or equal to the amount of available securities, awards are made at the specified offering rate to all counterparties that submit propositions. In the event that the value of propositions received exceeds the ON RRP’s capacity, awards are made at the rate at which the capacity was achieved (the stop-out rate), with all propositions below this rate awarded in full and all propositions equal to this rate awarded on a pro rata basis. The stop-out rate, which can be any value at or below the specified offering rate (including a negative rate), is determined by evaluating all propositions in ascending order by submitted rate up to the point at which the total quantity of propositions equals the overall size limit. The ON RRP FAQs provide more information on the auction mechanism.

This theoretical and empirical examination gave the Federal Reserve confidence that it could effectively raise rates when the time came while limiting undesirable effects on financial market structure, and also ensured that additional term tool options were available if the combination of the overnight tools – IOR and ON RRP – was not sufficient to provide interest rate control.21 At this point, you might have a question: from late 2008 to late 2015, the federal funds rate traded well within the FOMC’s target range of zero to 25 basis points.22 Shouldn’t this have been conclusive evidence as to the ability of the operational framework to provide sufficient control of interest rates? Unfortunately, the answer is no, because there are natural features of the financial system that likely provide support to interest rates near the zero lower bound, or ZLB. These features include the availability of physical cash and a behavioral aversion by some money market investors to investing at negative rates, and also encompass certain unique features of money markets in the United States, such as legal and regulatory incentives applicable to money market mutual funds and the ability of the government-sponsored enterprises to leave unremunerated deposits at the Federal Reserve.23 As a result, while the pre-liftoff testing suggested that the tools were likely to work well, it wasn’t possible to determine with complete certainty the extent to which market rates were driven by the tools or by ZLB effects.
The recent launch of the FAA Learning Standards and the Finance Qualification Structure will facilitate the harmonisation and wider recognition of accredited professional learning programmes which will also be important for this industry to promote consistent standards in the professional development and mobility of its workforce. We have started to engage FAA, the industry and education providers on this initiative and are working towards the accreditation of mandatory core financial advisory training and examination modules in 2015, and continuing professional development programs progressively thereafter. To improve the alignment between the interests of consumers and financial advisers, we will be requiring all life insurers and family takaful operators to implement a balanced scorecard  2  BIS central bankers’ speeches  framework for the remuneration of agents and advisers, beginning with investment-linked products in the initial phase. We believe it is also important that such a framework is cascaded through to how financial advisory firms are rewarding their representatives. Incentives for individual representatives should be structured to promote impartial product advice, and investments in building enduring relationships with clients by providing the highest standards of professional service. The AFA will be expected to play an important role in driving this initiative through its guidance to firms on the operationalisation of the framework in the context of financial advisers. In the medium term, the Bank will examine the issue of the balance between fee-based and commission-based compensation for financial advisers more closely.

BANK Of ZAMBIA  CYBER SECURITY IN THE FINANCIAL SERVICES SECTOR WORKSHOP  SPEECH BY DR. DENNY H. KALYALYA GOVERNOR – BANK OF ZAMBIA  MONDAY, 6th MAY 2019 INTERCONTINENTAL HOTEL, LUSAKA, ZAMBIA  CYBER SECURITY IN THE FINANCIAL SERVICES SECTOR WORKSHOP, SPEECH BY DR. DENNY H. KALYALYA, GOVERNOR – BANK OF ZAMBIA – 6 MAY 2019  Chief Executives of Financial Institutions in Zambia, Representatives from MEFMI, Members of staff from Bank of Zambia and other Financial Institutions Distinguished Resource Persons, Dear Participants, Ladies and Gentlemen. I am honoured to welcome you all to this important workshop on “Cyber Security in the Financial Services Sector”, which is being jointly conducted by the Macroeconomic and Financial Management Institute of Eastern and Southern Africa (MEFMI) and the Bank of Zambia. This workshop aims to discuss financial sector vulnerabilities arising from cyber threats and risks and to develop the necessary skills and tools to make the sector resilient. Let me take this opportunity to extend a special welcome to our facilitator Dr. Rukanda. I am sure the delegates will greatly benefit from your experience and vast knowledge on the subject. Ladies and gentlemen, as you are all aware, Information and Communication Technology (ICT) have over the years permeated all aspects of our lives and in particular, have become the mainstay of the world’s financial sector infrastructure.
In this context, I find the recent initiative of the European Banking Federation for a self-imposed calendar for reducing the level of such fees extremely promising. 4  BIS Review 91/2001  Steps are also being taken in the field of consumer protection legislation. The aim of the recently launched revision of the Consumer Credit Directive is to promote transparency and to ensure that cross-border credit can flow in harmonised conditions for both consumers and lenders. Also, a report on the regulation of e-commerce in financial services has just been launched by the Commission. It draws attention to the problems that arise from the interplay between different legal systems and makes proposals to overcome them. At the supervisory level, the Economic and Financial Committee has stressed the need to work on the convergence of diverging national supervisory practices. The main motivation is to enhance the efficiency of the national supervisory authorities involved in monitoring cross-border financial institutions and thereby to improve financial stability. This is also linked to the new framework for capital adequacy rules being developed by the Basel Committee on Banking Supervision that will significantly increase the scope for supervisory discretion, leaving broad room for diverging implementation across Member States. Thus, demand for supervisory convergence is going to increase. To the extent that this is accomplished, the costs of banks with multi-country operations will also become lower.

An integrated money market exists for liquidity transfers in euro; banks are inter-connected in a common payment system infrastructure; and wholesale securities market activities and corporate finance services do not recognise geographical borders. However, at the retail level, international banks must still treat each country as an individual market. This is because of localised demand and country-specific banking products, and differences in conduct-of-business and consumer protection rules. The remaining differences in regulatory and supervisory practices can also play a role. I believe that few institutions understand this as well as you do, as you still have to cope with the task of navigating business through various national environments. I should like to explore this double feature of euro area banking today. On one hand, there is the challenge for central banks and supervisory authorities to respond to the emergence of a common wholesale banking system in order to maintain financial stability. On the other hand, greater integration, also in the retail field, remains an important policy objective. I should like to address the two aspects in turn, starting with wholesale banking and then moving on to the retail side. A common wholesale banking system I share the view that a common currency and a common central bank actually determine a unified banking system. In a nutshell, access to a common source of central bank liquidity and a common money market – as well as confidence in the common currency – create strong interconnections between all banks operating in the single currency area.