samchain/econo-pairs-v1 huggingface dataset:
For example, if one of the costs of debt is that it encourages the pursuit of risky ventures by managers, you’d expect to find less of it in fast growing firms and more in mature companies where the opportunities for further growth are more limited. This is what you do find: high-leverage companies tend to be larger, older and have less volatile earnings. They also tend to have more tangible assets, on which debt can be secured, and are less R&D intensive. All this is in line with theory. 14  All speeches are available online at www.bankofengland.co.uk/speeches  14  But theory does much less well explaining why debt grows or falls within particular firms, or indeed across the whole economy, over time.9 One possible reason why the economic fundamentals can’t explain these swings is they they’re often less justified by those fundamentals, and instead driven by swings in sentiment among the suppliers of finance. Empirically, periods of rapid growth in corporate debt in the US have tended to coincide with deteriorations in credit quality and other signs of easing supply.10 Protections for lenders tend to decline, debt issuance skews towards riskier borrowers and, despite this, lending spreads often contract. It’s clear that we’ve seen many of the same things in the recent growth of “leveraged loans”. These are loans issued to already-indebted companies, which are often then packaged up and sold (as “Collateralised Loan Obligations” (CLOs)) to institutional investors.

The respective shares of debt and equity on a firm’s balance sheet don’t matter for anything. What economists have done since is to understand how certain market imperfections – particular departures from MM (as it’s often called) – affect this choice. Some focus on the difficulty in monitoring managers who might have different incentives from the owners of a company. Managers might be tempted to do all sorts of things (spending more on nice offices, building empires) that aren’t in owners’ best interests. Higher debt levels can provide something of a discipline in this respect. They limit managers’ room for manoeuvre. Debt instruments often come with explicit restrictions – so-called “covenants” – on what can be done with the money. They can also deliver control rights to creditors – a say in the decisions of the firm – in the event that something goes wrong. On the other hand, too much debt might itself distort managers’ incentives. For example, excessive leverage can encourage managers to pursue high-risk projects that benefit everybody when they go well but whose costs are borne disproportionately by the debt holders if they go wrong. As I say, there is a huge area in economics and I’m not really going to go into it here. The one point I want to make is that, while these theories have been reasonably successful in explaining the cross-sectional variation in leverage – which types of firms issue debt and which use more equity – they have a harder time accounting for changes over time.
Table 1 The costs of higher capital requirements Benefits  Costs  Required Marginal Probability  present value,  present value,  of 1% rise in risk weighted  % of GDP  % of GDP  capital ratio  Extra Months in the Average Gap between Crises from 25 years  (1) Baseline  55%  4.25  0.077%  5.9  (2) 30% Modigliani-Miller effect  55%  3.25  0.059%  4.5  (3) Tax offset  55%  1.67  0.030%  2.3  (4) More Substitutes to Bank Finance  55%  0.80  0.015%  1.1  (5) Less Sensitive Investment  55%  0.32  0.006%  0.4  Temporary Impact on GDP from Crises  20%  0.32  0.016%  1.2  How do these costs measure against the benefits of a more robust banking sector and a lower frequency of banking crises? I will make the same assumptions as in the FSR, namely that if a bank crisis occurs the initial impact is to reduce output by 10% of GDP. That is almost exactly the amount by which UK GDP is now below the level it would have reached had it continued on the trajectory it was on up to 2007. I assume that three quarters of this reduction lasts for just five years, but that the other 2.5% of lost GDP is gone forever.

There is a clear sequencing of monetary policy actions that has been set and is being followed by the Governing Council. We closely monitor all incoming data and adjustment of the ECB monetary policy instruments will be done gradually and flexibly to target any demand side or second-round inflationary effects or de-anchoring of inflation expectations. The volatility and high uncertainty force a need for optionality in the conduct of monetary policy to ensure price stability over the medium term. It is both interesting and important here to briefly explain the difference in the monetary policy actions employed so far by the ECB and the Federal Reserve in response to the inflationary shocks. The policy actions of the ECB and the Federal Reserve, diverge since they face very different economic environments and data. In the U.S., where the Federal Reserve has already raised rates and delivered today the biggest rate hike since 2000, the inflationary pressure has been made more acute by a tight labour market. In the euro area the labour market is not tight. Also, domestic demand in the euro area is back to pre-Covid levels. In the U.S., it is higher. Therefore, the US is facing demand-side inflationary pressure that monetary policy can deal with. In Cyprus, the rise in oil prices has a direct impact on the households' cost of living and firms' production costs while the sanctions imposed on Russia mainly affect the tourism and professional services sectors of the country and are expected to weigh on economic activity.
I take this opportunity to extend my special thanks to the media and congratulate this community for its work. The media has transmitted the decision-making and activity of the Bank of Albania in a timely and reliable fashion to the public. Year 2011 was a complex year for the entire global economy, especially the European one, to which the Albanian economy is more sensitive. From this perspective, the role of the media takes special significance. I am happy to affirm that in Albania, the media has expanded its broadcast time dedicated to economy and finance-related issues and especially to transmission of information from the Bank of Albania, whose decisions were covered professionally. The media has been active also in promoting reflection by stakeholders. Media has supported Bank of Albania policies, forestalling dissemination of uncertainties amongst the public. The self-adjusting attitude has been another important element in media’s activity. The alarming effect has been cancelled successfully by thorough analysis of news items, providing nuances of the truth beyond excesses and speculations. A fresh example of this responsible behaviour is the EUR/ALL exchange rate fluctuation at the beginning of December this year. Some “panic” was caused amongst the public by earlier media reports and analysis, which were later considered by the media itself as an unreal exchange rate volatility.

This is associated both with borders closed for labour migrants and with the expansion of several industries’ need to hire more staff than before the pandemic. The annual growth of nominal wages remains within the range of recent years. Accommodative monetary policy was required to ensure a faster return of demand to its prepandemic level and to restore output. Once recovery is completed, supply cannot keep pace with further fast expansion in demand. Therefore, accommodative monetary policy would continue to step up inflation rather than expand output. This brings us directly to the second factor underlying our today’s decision. Inflation becomes a growing concern. In May, annual price growth rates reached 6%, considerably exceeding the target level. The current inflationary pressure has intensified. The average three-month (from March to May) seasonally adjusted price growth peaked up to a maximum since January 2016. Similar trends are observed for other indicators of price dynamics under our consideration. It does not seem correct to attribute this elevated price growth exclusively to the impact of transitory supply-side factors, in particular, global price movements. Let me remind you that this explanation was the main one when prices picked up in Q4 last year. At that moment, doubts indeed persisted as to the sustainable nature of demand recovery given the ongoing pandemic. Nonetheless, even then we aired fears that the rise in inflation expectations driven by these external shocks might transform one-off proinflationary factors into sustainable ones.
The requirements for a very significant reinforcement of the fiscal surveillance of the Stability and Growth Pact and for the creation of a new surveillance of competitive indicators and macroeconomic policy have been discussed widely and in much detail by euro area authorities. We have embarked on a deep and comprehensive reform of its economic governance to reinforce economic policy coordination. The Governing Council of the ECB has called for a “quantum leap” in the economic governance of the euro area. This includes in particular (i) greater automaticity of sanctioning mechanisms, particularly in the Stability and Growth Pact (ii) as well as truly independent fiscal and economic analyses of macroeconomic imbalances. 2  The recent conclusion of the negotiations between the European Parliament and the EU Council on the economic governance reform package are welcome. Fiscal surveillance will become stronger and more coherent with the reinforcement of the Stability and Growth Pact. While falling short of the quantum leap that the ECB was advocating, this agreement strengthens the initial Commission proposals in many ways and is thus a step in the right direction. The EU budgetary frameworks will also be strengthened, including through the introduction of fiscal rules at the national level. The so-called “European Semester” can be expected to provide ex-ante and integrated guidance to the Member States for the formulation of national budgets and structural reforms for the following year. This will be complemented by the introduction of a macroeconomic surveillance procedure, which closes an important gap in the economic governance framework.

At the same time, as most would already try to work to the maximum extent possible immediately after arriving, each of them will have limited availability to further increase their working hours. The labour supply of each immigrant will then become rather insensitive to changes in wages. The result of this is that after a positive shock for economic activity, wages will have to increase substantially in order to convince a given set of foreign workers to satisfy the additional labour  BIS Review 59/2007  3  demanded by employers. This means that once immigration stabilises at more moderate levels than those we have recently seen in Spain, it could be more difficult for labour supply to respond to higher demand, and we’d have higher wage and price pressures. But I think the slowdown in immigration in Spain is still some way off, so we can expect new arrivals to continue having a favourable influence on output and inflation for some time to come. I am more worried about the risk that the beneficial effects of immigration could weaken the political will to reform the labour market. As we have seen, the arrival of workers with higher participation rates and lower reservation wages normally helps to increase employment and ease wage growth, at least for some types of workers. And that might leave us with a notion that the labour market is more flexible and efficient than it really is. There is a danger that policymakers become over-complacent.
11  World at PPP World at market exchange rate  4.0 3.1  -0.6 -2.1  4.9 3.8  4.1 3.0  4.1 3.2  4.2 3.3  4.4 3.7  4.5 3.8  4.6 3.9  United States Eurozone Japan China Rest of Asia Latin America (excluding Chile)  2.3 2.0 1.4 10.4 4.9 3.6  -2.6 -4.1 -6.3 9.2 0.1 -2.0  2.9 1.7 4.0 10.3 7.7 6.4  3.0 1.3 0.8 8.9 4.5 4.2  2.7 1.7 -0.6 8.9 4.8 4.2  2.7 1.7 0.0 9.3 5.0 4.4  3.2 1.5 2.3 8.7 5.0 4.2  3.2 1.5 3.1 8.6 4.9 4.3  3.2 1.7 2.8 8.9 5.2 4.3  Commodity exporters Trading partners  2.9 3.5  -1.0 -0.3  2.9 5.9  2.6 4.4  2.7 4.3  2.7 4.6  3.0 4.6  3.0 4.7  3.2 4.9  (e) Estimate. (f) Forecast. Sources: Central Bank of Chile based on a sample of investment banks, Consensus Forecasts, the IMF . and statistics bureaus of respective countries.

Here again, estimates vary from one study to the other, and all agree on the same finding: a huge potential is still there to exploit. This being said, risks in the financial sector are the most varied and most important, especially in terms of money laundering, financing terrorism, cyber security, as well as protecting customers and personal data. Such risks have become major concerns both at the national and international level. For us, central banks in particular, the changes brought by the Fintech challenge us in several aspects, namely in our core functions. Now, even the monopoly of issuing currency is exposed, leading some central banks to consider the option of issuing a digital currency, and therefore reduce the costs related to conventional banknotes’ production and use, and minimize the insecurity risks involved. 6  Among the other fields concerned is financial supervision. This area is now gradually expanding as new actors and financial products have emerged, which can certainly affect monetary policy transmission. Ladies and gentlemen, The digital transformation we are facing today is primarily driven by operators and private companies that continue to invest heavily in this area and seize the opportunities and the potential it offers. Considering the important economic, financial and social implications of such a revolution, public authorities are compelled to set an adequate legal framework and provide an environment  conducive  to  technological  innovations  and  Fintech  development.
To do this, supervisors need to continue to leverage our cross-firm, horizontal perspective to better understand how the industry is evolving and what it might mean for our objectives around safety and soundness of individual firms and the efficient provision of financial services for the economy as whole. 1 I would like to thank Nicola Cetorelli, Bev Hirtle, Michael Holscher, Anna Kovner, Paul Licari, Jackie McCormack,  Siobhan Sanders, Joao Santos, Katherine TilghmanHill, and James Vickery for helpful discussions and analytical work. 2 See Getting It Right: Factors for Tailoring Supervision and Regulation of Large Financial Institutions, Randal K.  Quarles, July 18, 2018. 3 See Lessons from the Financial Crisis, William C. Dudley, November 6, 2017, for reviews from a regulatory  perspective; Early Observations on Improving the Effectiveness of Post-Crisis Regulation, Randal K. Quarles, January 19, 2018. 4  Federal Reserve Board, Consolidated Supervision Framework for Large Financial Institutions, December 17, 2012. 5 The latest CCAR results can be found at www.federalreserve.gov/supervisionreg/ccar.htm.

Firms are navigating statutory changes and a suite of new regulations that are still evolving and being implemented;2 responding to investor pressures for higher returns in a rising rate and more competitive environment; and seeking to capitalize on fundamental technological advances, while managing the risks associated with cybersecurity and greater competition from potentially disruptive new entrants. One recent observation is that the largest firms in the U.S. appear to be growing increasingly similar in terms of their underlying business models and strategies. This has implications for balance sheet structure, earnings profile, and organizational structure. For example, some firms traditionally focused on capital market activities, are shifting into lending activities, while other more traditional banks, are expanding capital markets activities. In both cases, this serves to diversify the individual firms, while also making them more similar in terms of the business strategies they pursue, the products they offer, and the customers they serve. If firms are responding to the same exogenous forces, this might not be surprising. Indeed, similar observations were made in the late 1990s as the deregulatory forces that culminated in the Gramm-Leach-Bliley Act (GLBA) led to predictions of a few “financial supermarkets” that would offer the full range of financial services to all customers. More recently, industry analysts and commenters have pointed to the range of capital and liquidity regulations that may be pushing firms toward the same target state business model where large firms provide a wider range of financial services.
The ASEAN story is equally compelling as the region transforms into an economic powerhouse. With a combined GDP of USD 2.4 trillion in 2015, ASEAN was the third-largest economy in Asia and the sixth largest in the world13. ASEAN is the second-fastest growing economy in Asia after China, expanding by 300% since 200114. It is the 3rd largest market in the world with 622 million people in 2014 15 3/7  BIS central bankers' speeches  behind only China and India15 and has the third-largest labour force in the world. Mckinsey16 estimates that there are currently 67 million households in ASEAN which are part of the “consuming class17”. This number could grow to 125 million by 2025. This means that ASEAN will be a pivotal consumer market of the future. III. Seizing Synergies between Shanghai and Singapore 10 Against this backdrop, Singapore sees greater opportunities for collaboration with Shanghai. As international financial centres serving different but complementary parts of the Asian financial system, there is much scope for both sides to explore common interests for synergies. 11 Shanghai remains at the forefront of China’s financial reforms. Continuous strong pace of financial development and innovation is a hallmark of Shanghai’s success. To cite a few noteworthy initiatives: (i) a Shanghai Free Trade Zone (FTZ) bonds pilot scheme was recently announced18; (ii) the Shanghai Insurance Exchange was successfully launched in June 201619; and (iii) the China Internet Finance Association was established in Shanghai in March 2016 20.

The depth of Spain’s problems, along with the lack of a suitable European response, has led moreover to the crisis becoming systemic, acutely affecting countries with problems of a different nature and magnitude. True, there has been some progress in European governance in recent years, with the strengthening of procedures already in place, the design of new macroeconomic surveillance procedures and the implementation of new Treaties. These treaties include that establishing the European Stability Mechanism, and the Treaty on Stability, Coordination and Governance in the euro area, which makes provision for the so-called Fiscal Compact. But this progress has not been sufficient to stabilise the situation, partly due to the lack of broad consensus that is apparent in the stance and statements of different European authorities. In these circumstances, action by the European Central Bank has been key to easing the moments of greatest tension and extending the time available to adopt the necessary measures in other economic policy areas. Evidently, the ECB cannot resolve the serious underlying problems of this crisis, be they national or related to the European architecture. It can only address some of the manifestations of these problems, in particular those reflected in financial markets, with a view to smoothing the way so that governments can take the corresponding measures. Spain is a clear example of an economy in which Eurosystem action has overcome critical situations and has provided the time needed to set in train ambitious reforms in various areas.
If we use a real discount rate of 2.5% a year, the present value of a permanent fall in output of 3% is in excess of 100% of current annual GDP. This is at the high end of estimates of the cost of higher capital requirements. Recent analysis by economists from the National Institute of Economic and Social Research (NIESR), commissioned by the FSA, puts the present value of the costs of permanently raising capital requirements by 1% at approximately 2.7% of current GDP 3. And illustrative estimates in the most recent Bank of England Financial Stability Report (FSR) indicate, under certain conservative assumptions, that the long run costs could amount to 4% of current annual  2  “Interim Report on the Cumulative Impact on the Global Economy of Proposed Changes in Banking Regulatory Framework”, Institute for International Finance, 2010. The report assumes: a three-fold increase in the risk weights assigned to trading book assets; a 2pp increase in the minimum Tier 1 and overall regulatory capital ratios, to 6% and 10%, respectively, to take place at the end of 2012; capital redefinition effects including exclusion of minority interest from Tier 1; higher holdings of liquid assets as a result of the minimum Liquidity Coverage Ratio being increased; a greater reliance on longer-term over short-term wholesale funding, as a result of the Net Stable Funding Ratio at 100%.

Prior to 1970 published accounts understated the true level of banks’ capital because they did not include hidden reserves. The solid line adjusts for this. 2009 observation is from H1. (c) Change in UK accounting standards. (d) International Financial Reporting Standards (IFRS) were adopted for the end-2005 accounts. The end-2004 accounts were also restated on an IFRS basis. The switch from UK GAAP to IFRS reduced the capital ratio of the UK banks in the sample by approximately 1 percentage point in 2004. Sources: Bank of England, Financial Stability Report June 2009 and “The British Economy, Key Statistics 1900–1970”, published for the London & Cambridge Economic Service. From 1968 the liquidity ratio is: Cash + Bank of England balances + money at call + eligible bills + UK gilts as a percentage of banks’ total asset holdings. Prior to 1968 the ratio is calculated as the liquid assets of the London Clearing Banks as a percentage of gross deposits, as defined in “The British Economy, Key Statistics 1900–1970”. Furthermore, in recent years the quality of banks’ capital deteriorated as banks exploited the availability of new hybrid capital instruments which often had the tax advantages of debt. In practice hybrid capital did not absorb banks’ losses despite being treated for regulatory purposes as if it was like equity.