samchain/econo-pairs-v1 huggingface dataset:
We need to avoid a repeat of the 1997 Russian default, where Russia received a programme of aid, everyone expected it to work, but the needs turned out to be much bigger two months later. There is also a very rapidly increasing risk of citizens running on Greek banks as well as a rocketing risk of some other EU/eurozone country’s voters producing an outcome that will, in addition to other more likely and more profound consequences, further complicate finding a solution to the technical issues, i.e. how to structure the debt restructuring. To conclude, this is a crisis whose causes lie in eurozone institutions, which we were assured were created – together with the eurozone itself – to prevent crises. Without further close involvement of eurozone institutions, including the ECB and eurozone member states, it will most probably result in a disorderly meltdown of at least some European economies. On many levels, including the level of European institutions, the crisis was caused by incoherent and/or insincere communication, which increased the uncertainty of market participants in the broad sense. Our country’s history tells us that a generally predicted loss of a currency fix has much lower costs (including political ones) than an unexpected one. If eurozone countries and EU institutions opt for “safe” Greek membership in the eurozone, they must present a solution that is broad, generous and general enough to convince the markets of its credibility. This solution had better come fast, though, as muddling through has significant economic costs and increases the risks dramatically.

Ability to act  Of course, notwithstanding these design features, exit will require a number of policy decisions. Therefore, an important question and the third cornerstone of our exit strategy is whether a central bank has the technical and institution capability to take such decisions. a. Technical capability and the operational framework  On the technical side, the question is whether we need to set up new rules and procedures to exit. This is not the case. The ECB’s operational framework is well equipped to facilitate  6  BIS Review 103/2009  the unwinding of non-standard measures when the need arises. The framework embodies a rich and flexible set of instruments, including fine-tuning operations, for the absorption of abundant liquidity – promptly if necessary. Moreover the framework permits short-term interest rates to be changed while keeping some non-standard measures in place, should continued credit support be needed. This feature is of great consequence: it means that the Governing Council can choose the way in which interest rate action could be combined with the unwinding of the non-standard measures. There is no pre-determined sequence between a change in interest rates and unwinding of non-standard measures. Hence, the Eurosystem retains appropriate flexibility as to the way in which interest rate action will be combined with the unwinding of the additional credit support measures, notably its extended framework for longer-term refinancing operations. In short, the ECB has in place all the technical ability to absorb liquidity as required. b.
In this regard, the euro area is seriously lagging behind: equity capital amounted to only 68% of GDP at end-2016, compared with 128% in the United States. And yet, resources are abundant: the excess of savings relative to investment is around EUR 350 billion per year, which is more than 3% of GDP. It is therefore crucial for the euro area’s economy to better steer these savings towards productive investment across borders, notably by shoring up equity which is the key to an innovation economy. Start ups are well aware of this, but our European scale-ups, midcaps and SMEs also need greater access to equity leverage. The insurance sector has a key role to play since it is the largest institutional investor in the euro area, with total assets of close to EUR 7,800 billion in the second quarter of 2017. In practice, what is the way forward? A large part of the solution lies at the European level. The efforts so far are going in the right direction, but work should now be accelerated with what I call a “Financing Union for Investment and Innovation”. This Financing Union is the microeconomic accelerator that we need to make concrete progress towards a genuine Economic Union in the euro area.

In line with this principle, the validation of internal models, for instance, should preferably remain the responsibility of the NCA in order to reflect the close link between this decision and the on-going dialogue that takes place between the insurer and its national supervisor; EIOPA for its part could concentrate more efficiently on the essential task of enhancing the harmonisation between national practices. In addition to these desirable adjustments of the European institutional framework, there is a need to make concrete progress towards a European resolution mechanism, which would provide more adequate tools to limit the impact of an insurer failure and increase trust and confidence. France has been working along these lines at national level and such a mechanism will be in place in our country before December. 1 The French resolution insurance regime requires insurers of a certain size to set up preventive recovery plans, which will form the basis for preventive resolution plans. Moreover, the ACPR is entrusted with several powers to be used in a resolution context, such as the possibility of appointing a resolution administrator in the insurance undertaking, limiting the distribution of dividends, or organising portfolio transfers to another insurer. 2. Economic innovation Let me now turn to my second point: economic innovation. As Europe’s economy is close to the “technological frontier”, businesses need to innovate more. As such, they need to be able to take more risks, which requires more equity financing, over the long term, rather than debt financing.
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.

Jiří Rusnok: Basel Consultative Group Meeting - welcome speech Welcome speech by Mr Jiří Rusnok, Governor of the Czech National Bank, at the Basel Consultative Group Meeting, Topic "Regulatory Treatment of Sovereign Exposures - Survey of Recommendations", Czech National Bank and Bank for International Settlements, Prague, 4 October 2016. * * * Dear Basel Consultative Group members, Dear experts from all around the world, Dear ladies and gentlemen, Let me warmly welcome you to the Czech National Bank (CNB). We are proud to host the expert meeting on the Basel regulatory reform and its design, using the perspective of emerging markets and developing countries. In the wake of the recent global financial crisis, the Basel Committee on Banking Supervision (BCBS) is making reform steps towards more healthy, stable, and resilient banks and financial systems. The latest Basel reform includes more and better bank capital, leverage and liquidity requirements, as well as macro-prudential measures, ranging from G-SIB surcharges to countercyclical capital buffers. The reform effort is successfully underway and new standards are gradually being implemented worldwide, covering advanced as well as emerging markets and developing countries. When designing further details of the regulatory reform, we have to pay special attention to differences in financial systems among countries and regions. Namely, financial systems in emerging markets and developing countries are often shallower and less liquid than in advanced economies. Therefore, emerging market countries can hardly take over all regulatory measures without modifications.
For example, one of the alternative scenarios in the new Monetary Bulletin assumes a considerable delay in the construction of the Helguvík aluminium smelter and related power facilities, with the bulk of the development taking place in 2012. Economic recovery is delayed, and the contraction in GDP will be 4% in 2010, instead of just under 2½%. •  Inflation has been higher than forecast in the recent term, as a result of a weaker króna and a slightly smaller output slack than previously projected. •  Inflation will subside quickly in 2010, however, and underlying inflation will be at or near target in the latter half of the year. As regards the current economic situation, the outlook I have described here, and indicators that private sector balance sheets are somewhat less exposed to exchange rate risk than previously thought, the Monetary Policy Committee decided to make changes in Central Bank interest rates that entail an unchanged or slightly more relaxed monetary policy stance. The main change, however, involves adapting the Central Bank interest corridor to the effective level of monetary restraint, which is currently determined primarily by interest on the Bank’s current accounts and certificates of deposit. If the króna remains stable or appreciates, and if inflation falls as forecast, then the preconditions for further monetary easing should soon be in place. Available forecasts assume that the Icelandic economy will recover in the next few years.

Those as long in the tooth as me will know that, even in nominal terms, it costs less to buy a pair of jeans and a t-shirt today than it did thirty or forty years ago. The result is a significant contribution to real income growth over that period. In what follows I’ll flesh out these numbers a little further and say something too about their distributional effects. (One particular point in this respect is that the real income benefit of lower import prices is probably most marked for those at the lower end of the distribution.) I’ll mention the parallels, long recognised by economists, between the effects of growing trade and those of technical progress, and the role of the latter in rising inequality in the US. I’ll conclude with some remarks about the sort of things economists might have to think about as the UK leaves the EU. Globalisation and its effects on UK clothing Globalisation hasn’t occurred smoothly nor is there a single, discrete date at which it began. Its broad features are reasonably clear in Charts 1 and 2. Chart 1: Globalisation: a timeline  Source: NBER Macrohistory Database and Barclays calculations (Keller et al 2017)  1  D. N. McCloskey, "The Industrial Revolution in Britain 1780-1860: A Survey," in Roderick Floud and Donald McCloskey, The Economic History of Britain since 1700.
This serves the interests of governments and taxpayers; but it is also in the fundamental interests of the financial system itself, since it is not impossible that a future crisis could outstrip the resources of monetary and fiscal policy, thus rendering it impossible to rescue systemically important banks. 2.  International approach  Consequently, there is broad international consensus between the relevant authorities on what the objectives of future regulatory measures should be. The Financial Stability Board (FSB), in which Switzerland is an active participant, has clearly formulated these objectives. The financial system must be brought to the point where it contributes to sustained economic growth. Never again must it be allowed to combine such high risks with such minimal safety buffers. Moreover, steps must be taken to avoid profits being privatised while losses are borne by the public at large. In essence, there are two ways of achieving this goal. The first approach is to adopt preventative measures aimed at reducing the probability of a bank collapse or a systemic crisis. This can be done by increasing safety buffers – for example, by imposing higher capital and liquidity requirements. The second approach is to take steps designed to reduce the costs of a crisis once it has already occurred.

In such cases, it pays for the country to try to reduce its current-account deficit by restraining domestic expenditure or increasing production. Many of the euro countries that are having problems have had both current-account deficits and deficits in their public finances. Probably the most effective way of reducing the deficit in such cases is to improve competitiveness and reduce domestic expenditure at the same time. Postponing consolidation in such a situation would only entail domestic demand continuing to be higher than it should be. Figure 4 shows the current-account balance in a number of euro countries last year. 4  BIS central bankers’ speeches  Figure 4. Current-account balances Per cent of GDP, 2011 6  6  4  4  2  2  0  0  -2  -2  -4  -4  -6  -6  -8  -8  -10  -10  Source: European Commission  Like the Riksbank, most forecasters expect a tighter fiscal policy to dampen growth in Europe in the period immediately ahead. It is difficult to assess the precise effects as these will depend on how and when the measures are implemented. But the measures will of course have an impact, particularly when several countries reduce their public spending and/or raise their taxes at the same time. This will happen, furthermore, in a situation in which there is little scope for monetary policy to further stimulate demand. But what’s the alternative?
And repo has enriched the money markets. But it is also true that anyone holding a securities portfolio can build themselves a shadow bank using the securities lending and repo markets. One simply lends out the securities at call for cash, and then one employs that cash by making loans or buying credit-assets with a longer maturity. This is leverage and maturity mismatch. That example assumes the shadow-banking business is built by the investor who holds the securities outright. But, of course, nothing is so simple. The first lender of securities might lend against securities collateral and do no more; that is relatively common in European markets. But the entity that has borrowed those securities could themselves repo out the borrowed securities for cash, and employ the cash in a lending or credit-asset business. And  4  BIS central bankers’ speeches  so on – ie at any point in the chain of securities lending, an intermediary can build themselves a shadow banking business. Such chains can prove fragile for all sorts of reasons – because many securities are at call, and because many secured lenders try to realise their collateral instantly upon default. It is also worth mentioning that some asset managers have no – zero – appetite to hold the underlying paper outright in the event of their counterparty defaulting, either because the assets are not covered by investment mandates or the fund managers do not know how to manage them, etc.

These have included the change of competition law and the regulatory framework, the reform of the judicial system, and the reform of regulated professions and of the housing market. Finally, programme targets for privatisation were achieved ahead of time. Structural reforms need a long-term commitment As I said at the start of my remarks, an improvement of the underlying prospects for these economies has moved expectations. Perceptions about the sustainability of the recovery path in Portugal, in particular, have been reflected in persistent improvements in confidence and associated reductions in risk premia. Over time the economic and social pay-offs of reforms will be high, in terms of higher wealth and employment. High and sustainable GDP growth will in turn bring about improvements in fiscal positions and sizeable reductions in debt-to-GDP ratios in the medium to long-run, contributing therefore to long-term debt sustainability. However, to reap these benefits implies a long-term commitment. The reform process is a continuum. A reform that has just been legislated does nothing for the citizens of a country, if it is not followed-up with effective implementation. Making sure that reforms transfer from the statute book to the real economy requires painstaking monitoring, as well as a prompt reaction in case outcomes deviate from expectations. When countries exit adjustment programmes, such an orientation will help prove to markets that reforms have been undertaken not only due to external pressure, but also out of a genuine recognition of their benefits.
In reality, the capital drawdown banks would have faced, had the COVID shock happened in 2007, would have been a function of their 2007 balance sheets – so the loan losses may well have been higher than those we pencilled in for banks as part of the illustrative scenario. 6 In the first quarter of the year, major UK banks expanded their net lending to businesses by £ (compared to a reduction in net lending of £ by these banks in 2019 as a whole. 6  All speeches are available online at www.bankofengland.co.uk/news/speeches  6  outweighed by the losses they would suffer from the broader economic damage that would result from a widespread withdrawal of credit. No financial system of course can be infinitely resilient. Given its function of providing credit and risk mitigation to firms and households, the banking system is exposed to the real economy. There is inevitably some level of damage to the economy that the banking system cannot weather. Over the coming months we will learn more about how well the post crisis reforms work under stress. One particular area of attention will be the usability of the capital and liquidity buffers intended to absorb a tail event shock. The results of the FPC’s desktop stress test reinforces the message that the clue, as they say, is in the name: the buffers exist precisely to buffer a shock like this. All elements of the buffers banks now have are intended to be usable in stress.

Property prices soared as a result (Chart 1). Such excesses were possible because a decade of non-inflationary, consistent expansion turned initially well-founded confidence into dangerous complacency. Beliefs grew that globalisation and technology would drive perpetual growth, and that the omniscience of central banks would deliver enduring stability. With a growing conviction that financial innovation had transformed risk into certainty, underwriting standards slipped from responsible to reckless and bank funding strategies from conservative to cavalier. Financial innovation made it easier to borrow. Bonus schemes valued the present and discounted the future. Banks operated in a heads-I-win-tails-you-lose bubble and were capitalised for perfection. And a steady supply of foreign capital from the global savings glut – and in Ireland’s case, the initial euphoria of European Monetary Union – made it all cheaper. When the Minsky moment finally struck, debt tolerance decisively turned and the kindness of strangers evaporated. UK households swung from borrowing 4% of GDP annually to saving 2% of GDP. The comparable swing in Ireland was more than twice as large. 3 In the wake of the crisis, three truths came back to the fore. First, while asset prices rise and fall, debt endures. Second, the distribution of debt and assets matters. And third, it is very hard to reduce high debt in one sector or region without at least temporarily increasing it in another. The debt tail is wagging the market dog. These realities continue to weigh on the European financial system.
It might perhaps have been possible to avoid the house price bubble if tighter monetary policy had been conducted at the beginning of the 2000s, but the price in terms of deflation and low growth could have been unreasonably high. Given the situation at the time the decision was made, the chosen policy appears well-motivated. Should central banks try to prevent financial bubbles from arising? Despite the fact that central banks perhaps cannot be blamed for the crisis arising, I think there is reason – given what has happened recently and the research carried out in recent years – to further consider what role they can and should play with regard to these issues. One often tries to distinguish between pure monetary policy, which is conducted with the policy rate as the primary instrument, and measures that are first and foremost aimed at promoting financial stability. However, this crisis has shown that it can sometimes be difficult to make this distinction. Without the measures to reduce the turbulence on the financial markets, the low interest rate policy conducted to counteract the recession would hardly have had any great impact. At the same time, it may be important to make this distinction as monetary policy is something for which the central bank has sole responsibility, while promoting financial stability is a task shared with other public authorities. There is currently important work being done on designing better methods for promoting financial stability, both nationally and internationally.

Of course, markets only clear in textbooks. In fact people are irrational, economies are imperfect, and nature itself is unknowable. When imperfections exist (which is always), adding markets can sometimes make things worse. Take credit derivatives, which were supposed to complete a market in default risk and thereby improve the pricing and allocation of capital. Financial alchemy seemed to have distributed risk, parcelling it up and allocating it to those who wanted most to bear it. However, the system had only spread risk, contingently and opaquely, in a way that actually ended up increasing it. Risk ended up concentrated on the balance sheets of intermediaries that were themselves capital constrained. With the fates of borrowers and lenders tied together via hyper-globalised banks and markets, problems at the core spread violently to the periphery. A truth of finance is that the riskiness of an asset depends on who owns it. When markets don’t always clear, the ultimate owner may be surprised to find what they do own. When that surprise is – or is thought to be – widespread, panic ensues. The impossibility of completing markets was not the only practical problem with the pre-crisis approach. Even if markets were perfect, nature itself is unknowable. Recall that the Arrow-Debreu world relies on people being able to calculate the odds of each and every possible scenario. 6  Keynes, J M (1936), Chapter 12. 7  But economists of a more nuanced persuasion pointed out as far back as the 1950s that this logic is flawed.