samchain/econo-pairs-v1 huggingface dataset:
The fact that we were obliged to burden the state and the taxpayers with an exposure worth billions to stabilise a big bank made a lasting impression on me. The lack of resilience in the banking system forced governments across the world to plough huge sums into bank bail-outs. It was the only way to protect their economies from the enormous damage that a banking system collapse would have wrought. The financial crisis demonstrated in no uncertain terms that the banking system was not sufficiently ‘weatherproof’. The financial crisis also showed clearly that particular risks stem from large, highly interconnected banks. Owing to their size and market position, such banks cannot exit the market without severe consequences for the banking system and the real economy. In industry jargon, they are ‘systemically important’. Thus, they enjoy an implicit guarantee that the state will intervene in an emergency. This form of market failure is now known the world over as the ‘too big to fail’ issue. In my speech today, I will be looking into this issue, one that is particularly relevant to Switzerland. I will start by discussing the causes and effects of ‘too big to fail’, and how it manifests itself in Switzerland, before moving on to the reasons why banking regulation before the crisis did not sufficiently address the risks posed by ‘too big to fail’ banks.

The first bank that was referred to as ‘too big to fail’ was the Continental Illinois National Bank and Trust Company, at that time the seventh-largest bank in the US, which sought recourse to state support in 1984. 10 So, at this point, one could legitimately ask the question: why didn’t legislators, regulators and supervisory authorities tackle this known problem more vigorously before the crisis? The short answer is: The risks stemming from ever larger and ever more globally interconnected banks were underestimated, and as a result, the true magnitude of the ‘too big to fail’ issue was likewise underestimated. The pre-crisis era was dominated by a general mood of self-confidence and optimism. This is hardly surprising, considering the long phase of comparatively low macroeconomic turbulence. In such an environment, concerns over the sustainability of economic development appeared to be misplaced. Thus, the risks attached to the growth and the globalisation strategies of many banks were ignored. Moreover, the underestimation of risk was closely bound up with the prevailing regulatory paradigm at that time, which overlooked the significance of mutual dependencies between banks. Instead, it was assumed that the stability of the system as a whole was ensured, so long as each individual bank held enough capital to cover its own risks. Yet this assumption disregards the fact that, as a bank’s size, market share and interconnectedness increase, the economic costs associated with bank failure rise disproportionately.
Horizontal integration, however, allows users to select between interlinked providers, exposing them to ongoing competition. Yet the feasibility of this model depends on whether there is a cost-efficient way for users to route transactions to their preferred provider. In any case, the emergence of poles around Euronext and Deutsche Börse shows that the consolidation process has begun. From a Swiss perspective, both SWX and SIS are engaged in the race - not really as hunters, given their relative size, but as partners with proven technology and know-how. Financial market infrastructures are also subject to higher competitive pressures. The driving forces behind these pressures are, without doubt, technological innovation and the expected profits resulting from the achievement of economies of scale and, possibly, economies of scope. Three kinds of competitors can be distinguished. First, competition among exchanges, clearing and settlement organisations within and across countries has increased. Indeed, for trading, clearing and settlement, physical location has become less and less relevant. As you are confronted with these pressures in your daily business, you certainly know better than any central banker what I am referring to. Second, non-financial institutions may provide trading, clearing and settlement services to financial markets. More precisely, I think here not only of alternative trading systems, but also of outsourcing partners such as payment and securities processing centres. Third, and maybe less visible, but of growing significance, are competitive pressures exerted by large custodians, especially by global custodians.

These three most important elements are dependent on developments abroad, international financial markets, and global demand for commodities. The Swiss franc exchange rate, by comparison, does not play a decisive role. There is thus no contradiction between having a strong Swiss franc and a large current account surplus. Nor is the surplus a suitable measure for assessing Switzerland's share in global imbalances. It is much more the case that Switzerland and its extensive level of direct investment abroad contributes significantly to balanced global economic growth. SNB monetary policy is focused on ensuring price stability. In so doing, it takes due account of economic developments. To fulfil this mandate, the SNB must secure appropriate monetary conditions. The current account surplus does not play a role in monetary policy. In an open economy like Switzerland, however, sizeable exchange rate fluctuations have a strong impact on production and prices. In the current environment, and with interest rates close to zero, the minimum exchange rate is therefore the correct monetary policy instrument. The SNB will continue to enforce it with the utmost determination. BIS central bankers’ speeches  1
Think for instance of a real European venture capital market to promote equity financing, which is the most effective way to finance innovative businesses at different stages of maturity (seed, venture, and growth). More specifically, progress towards a Financing Union for Investment and Innovation is needed in three key areas: -  First, completing the Banking Union. This means, as a priority, finalising the Banking Union’s second pillar, namely the single resolution mechanism. Within a strong Banking Union framework, banks in the euro area will thus be able to engage in cross-border consolidations on a sound and safe basis and therefore contribute further to reducing financial fragmentation. -  Second, thoroughly reviewing the incentive schemes for cross-border investments, notably by promoting further convergence of tax and  Page 4 sur 5  regulatory regimes. Enhancing the free movement of capital within the EU requires addressing a wide range of legal impediments, including enhancing the predictability of insolvency frameworks, eliminating fiscal biases that penalise equity, and further increasing the transparency and harmonisation of accounting rules for small businesses. -  Third, expanding the supply of financial intermediation services. This can take the form of new pan-European savings products and investment vehicles – more long-term and risk-oriented – or new market initiatives in green  bonds,  private  placement  or  securitisation  for  instance.

However, there would not be any explicit exchange rate target; instead, the objective would be to mitigate excess volatility due to temporary capital flows and to smooth out short-term fluctuations in the exchange rate. The institutional framework would be the same as it is now, based on an independent monetary policy committee that takes decisions on the application of the Bank’s policy instruments, releases statements explaining its decisions, and gives account of its policies to Parliament and the nation through other channels. This system is broadly in line with best practice abroad and has worked well. Under normal conditions, interest rates on Central Bank transactions with financial institutions would continue to be the Bank’s main monetary policy instrument. Foreign exchange market intervention is also a monetary policy instrument, as I have mentioned, and other instruments can also be used, such as reserve requirements and direct intervention in the bond market. Their efficacy is generally less certain than with interest rates, however, and as a result they are used less often. The MPC would be entrusted with a capital flow management tool or tools to affect carry trade, of the type I mentioned a moment ago.
Chart 3, replicated from a speech I gave last year, shows estimates of the global trend component of the equilibrium real interest rate by Bank staff (in blue) along with other estimates from academic papers. We call this trend component Global R*. Chart 3: Empirical measures of Global R* have fallen in recent decades Estimates from panel of 31 countries from 1900-2015 (a)  (a) Source: ‘The economic landscape: structural change, global R* and the missing-investment puzzle – speech by Andrew Bailey’ (with references to academic papers); and ‘Structural change, global R* and the missing-investment puzzle’, Bank of England Staff Working Paper No. 997 (2022) by Andrew Bailey, Ambrogio Cesa-Bianchi, Marco Garofalo, Richard Harrison, Nick McLaren, Sophie Piton and Rana Sajedi. Bank of England  Page 7  There are wide error bands around the central estimate, but the direction of travel has been clear. Global R* has fallen markedly over recent decades. As we look deeper into the causes of this, two supply factors stand out: a slowdown in productivity growth and population ageing across advanced economies. While this is a global story, let me focus on the United Kingdom. Chart 4: UK productivity growth has slowed since the financial crisis Annual growth in output per hour for the whole economy and manufacturing sector (a)  (a) Sources: ONS and Bank calculations. Chart 4, reproduced from our latest Monetary Policy Report, shows that there has been a marked and sustained fall in productivity growth in the United Kingdom following the global financial crisis in particular.

So even if inflation is now high, people can trust inflation to come back down to target. As a result, savers have come to demand a lower premium to compensate for expected inflation. But it is not just nominal interest rates that have fallen. If we adjust nominal interest rates for inflation and look at real interest rates, we can see that they have fallen too. Chart 2 shows the UK ten-year real interest rate, measured directly from index-linked bond prices. It is clear that the real interest rate is quite responsive to cyclical events, and that it has risen sharply over the past year. But beneath the volatility, there appears to have been a fairly steady downward trend from the 1990s at least up until the onset of the Covid pandemic. Bank of England  Page 6  Chart 2: The UK ten-year real rate has fallen over recent decades Ten-year zero coupon yield (spot interest rate) from UK index-linked gilts (a) Per cent 6  6  4  4  2  2  0  0  -2  -2  -4 1985  -4 1990  1995  2000  2005  2010  2015  2020  (a) Sources: Bloomberg Finance L.P, Tradeweb and Bank calculations. Much has been said about this trend in risk-free interest rates.
These would, in turn, affect Singapore’s growth, particularly in trade-related sectors and sentimentsensitive segments in the financial services. BIS central bankers’ speeches  1  11 Having said that, barring significant escalation, moderate spillovers to Singapore from these geopolitical developments should be accommodated within current forecast range of 2–4% growth. Overall inflation has moderated but underlying price pressures persist 12 Let me move on to inflation. 13 In assessing inflation in Singapore, we look at two main indicators. First, All-Items or headline inflation, which is the most comprehensive measure. Second, core Inflation, which excludes the volatile components of car and housing costs and is a better measure of underlying inflation. 14 Core or underlying inflation in turn has two sources: imported and domestic. 15 I will start with imported inflation, which has been flat. On average, imported inflation has been zero so far this year, compared to same period last year. The appreciation of the Singapore Dollar has neutralised the impact of foreign prices on domestic prices. 16 However, the prices of non-cooked food items – although imported – have been volatile and generally higher. Papaya prices went up by 16% (y-o-y) in first half of this year, while banana prices went up by 18%. This was due to the effects of adverse weather in Thailand and Malaysia. At the same time, the prices of oranges went down by 7% and tomatoes by 10%. Looking beyond fruits, sugar prices were down, wheat prices were up, while the price of Thai white rice was broadly stable.

On the contrary, they need to contribute to the design of the measures to make them robust and effective across countries. Similar holds for regulatory objectives, as what is considered a priority for regulators in advanced countries, like the G20 countries, might not be considered as urgent in emerging market countries. In this regard, I welcome and strongly support the effort of the Basel Consultative Group (BSG) as a forum for deepening the engagement of the BCBS with non-member authorities, international institutions, and regional groups of banking supervisors on the regulatory reform and banking supervisory issues. I see cooperation between the BCBS and the BCG as a key component helping to design robust regulation and supervision, taking into account financial sector aspects in both advanced and emerging markets and developing countries. As a member of the BCG, the CNB has actively participated in the work of the group. We contributed to the work agenda evaluating major intended and unintended consequences of Basel III implementation for emerging and smaller economies in the past. We also hosted a workshop on this topic in 2013. As I see your workshop agenda, I appreciate that you are going to discuss the timely issue of sovereign exposures in emerging markets. The reasons for the high share of government bonds in commercial bank assets in emerging markets are clear and straightforward. Financial markets in these countries are still under development and shallow, which is limiting their ability to diversify assets.
It has become fairly common to say that such groups should be resolved on a regional basis, ie broken up. Maybe. But even if that is correct, “break it up” hardly amounts to resolution plan. What happens to the broken-up parts? Under a “breakup” strategy, a plan is needed for all of the parts, both distressed and undistressed. That can’t be a free for all. Indeed, it is worth underlining that, under the FSB Standard,3 it is the responsibility of the home authorities of the group to ensure that a group-wide resolution plan exists. There is no ducking that. It removes an ambiguity that has quietly haunted banking authorities for decades, including in the UK. Imagine an international commercial banking group whose operations in various jurisdictions are both big and complex. Good subsidiaries might be sold or floated off. But that won’t be possible for the bankrupt parts of the group. The realisation of the assets via a standard liquidation of those subsidiaries would be liable to destroy a lot of value, creating disorder that could spill over to other jurisdictions and possibly globally. Such subsidiaries need to be  3  4  FSB Standard Key Attribute 11.8. BIS central bankers’ speeches  resolved. That could be via bail-in of their bondholders and other creditors. But what happens if there are not enough bonds in issue to absorb all of the losses and recapitalise the operation? A way of cutting through that would be for each Deposit Insurer to be bailed in.

It is at its heart about a few regulators getting together with the top management of the firms and saying this is what we would plan to do to you if the only alternative was liquidation, and working out how to operationalise that strategy. That is something the key countries, the key governments, have every reason in the world to co-operate on. In the FSB, we are putting in place a process where the most senior officials will talk to each other to reassure themselves on the resolvability of globally significant firms. From that will follow detailed operational planning, and requirements to remove impediments to executing resolution strategies. And flipping from my global hat to my domestic hat, at the Bank of England we have been working closely with the FDIC on how we would operationalise resolution strategies in a cross-border setting. You shouldn’t doubt that this will happen. Don’t listen to siren voices who question our capability or will. Financial protectionism and the FSB agenda Which brings me, in conclusion, to a broader point. The international authorities are committed to maintaining global finance – global capital markets, the free flow of capital across borders. We are not trying to create a new order that incorporates financial protectionism. On the contrary: the balkanisation of finance would cut against the extraordinary historical changes towards a much more globalised real economy. But allowing a fragile financial system to persist would also be a threat to globalisation.
Credit spreads and measures of future volatility derived from financial market data have fallen, suggesting that investors and savers expect the greater realized stability in growth is likely to endure. Real interest rates at longer horizons have remained relatively low, reflecting at least in part that the global supply of savings has increased relative to demand for investment. A range of different asset prices has risen significantly, and the expected volatility of many asset prices has fallen. These developments in market prices have occurred in the context of important changes in financial intermediation, including the substantial expansion of access to consumer credit and capacity for homeowners to borrow against the equity in their homes, the greater use of financial instruments for transferring and mitigating risk, and the growth of financial flows between countries. And in this context, balance sheets have continued their impressive growth, with assets and liabilities of both households and of economies as a whole growing faster than income. These broad trends are obviously related. Less overall concern about inflation and real risk, the positive outlook for productivity growth, and the increasing depth and sophistication of financial markets, all might be expected to induce an increase in the scale of gross liabilities and assets relative to income, for leverage and net borrowing to increase relative to income. BIS Review 2/2006  1  While policymakers can witness the movements in key financial market variables, it is difficult to say for sure what their implications are for economic fundamentals, that is, for inflation and output.

But to acknowledge these complexities does not weaken the case for the importance of trying to make sensible judgments about how monetary policy should respond to asset price developments. Here are some considerations for how central banks should navigate through these challenges. 2  BIS Review 2/2006  First, in circumstances where the central bank observes a large realized movement in asset prices and is confident in its knowledge of the impact of those moves on the path of aggregate demand, monetary policy may need to follow a different path than might have seemed appropriate in the absence of those developments. In other words, when policymakers have already witnessed a significant move in asset values, and are confident in what that move means for the outlook, it should be prepared to adjust policy accordingly. Note that in order for this seemingly straightforward proposition to apply the central bank must be responding to its assessment of what an already observed movement in asset prices will mean for output and inflation. Of course central banks must always be prepared to respond when factors threaten to push aggregate demand away from aggregate supply and impact the inflation outlook. Movements in asset prices certainly have the potential to be one of those factors, and the implications of this approach apply in both directions.
Since 2011 and the end of the "too-big-to-fail" doctrine, these groups have become increasingly aware of this, and have drawn up their recovery plans and worked closely with the authorities to ready themselves for crisis situations. The role played by the authorities in these continued efforts is crucial. Accordingly, the ACPR in France, and the ECB and the SRB at Banking Union level, guide and support these efforts, while also preparing for failure scenarios. 4  To this end, as of 2015, the ACPR has provided a decisive boost that has led to the drafting of the first resolution plans by France's leading institutions. Today, all institutions under the authority of the Single Resolution Board have a resolution plan in place. As for the institutions under the direct responsibility of the ACPR, a first wave of plans has been completed and plans will be finalised for all the 142 institutions concerned at the end of 2018. These combined efforts to pre-empt and to manage crisis situations must therefore be maintained in order to ensure the continuity of banking operations that are essential to the functioning of the economy, to avoid harming financial stability, to protect the resources of the Member States and to strengthen protection for depositors and investors. 5

Although developments in Iceland showed many of the same characteristics as those in some of the other Nordic Countries during the post-liberalisation rapid expansion, such as credit expansion, current account deficit, exchange rate depreciation and so on, Iceland escaped the difficulties suffered by banking systems in some of the other countries. Icelandic bank credit grew very rapidly in the late 1990’s and into the year 2000 and a sizable portion of the credit expansion was financed with credit from abroad. The capital adequacy ratios of banks fell for a while but nevertheless remained comfortably above the minimum required and internationally recognised levels. The year 2001 also turned out to be quite favourable for the banks, a development which continued by and large into the current year. Consequently, the capital position of the banks has improved and all the major banking institutions have relatively strong capital adequacy ratios at present. Loan losses have increased, as was to be expected in the wake of the credit expansion, but nowhere on the scale experienced in some of the other Nordic Countries a decade ago and very much less than they did during the downturn in the Icelandic economy around and after 1990. The conclusion to be drawn is, therefore, that the Icelandic banking system weathered the relatively turbulent post-liberalization boom period of 2000 and 2001 pretty well and is well poised to meet new challenges, including continued rationalisation and intensified competition from foreign banking institutions. In the most recent decades, the Icelandic economy has also seen structural shifts.