samchain/econo-pairs-v1 huggingface dataset:
The Potential Impact of FinTech on Financial Stability As I mentioned earlier, the FSB is assessing how FinTech developments are affecting the resilience of the system; by identifying the risks associated with new and existing financial institutions and activities, and the supporting financial market infrastructure. In so doing, the FSB is making use of its existing risk assessment frameworks for evaluating the systemic risks around banks, insurers and financial market infrastructure, as well as activities beyond the regulated sector. 14  Our starting point is that there is nothing new under the sun. We need to be disciplined about consistent approaches to similar activities undertaken by different institutions that give rise to the same financial stability risks. Just because something is new doesn’t necessarily mean it should be treated differently. Similarly, just because it is outside the regulatory perimeter doesn’t necessarily mean it needs to be brought inside. 13  In today’s interconnected world, many citizens have authorised the use and onward sharing of their data without realising it. In considering digital identities, there may be opportunity for citizens and their elected representatives to agree what arrangements should be put in place to safeguard data, including who it could be shared with. 14 These frameworks provide methodologies for assessing the systemic importance of: financial institutions, markets and instruments and of non-banks, non-insurers (NBNI); risks from shadow banking; and principles for Financial Market Infrastructure.

But at the same time, the model of ecosystem creation that currently dominates can lead to the monopolisation of the market, and in the end (like any monopoly, no matter how effectively it started out), it can lead to stagnation in the technology market in the long term, and a slowdown in the introduction of innovations, which threatens consumer interests. And, of course, straight away there is a collateral risk that we have to learn to manage: that large amounts of sensitive data (payment, medical and other data) from all spheres of our citizens’ lives are gathered by one system. That is why we as the Central Bank would like to see healthy competition between a number of players. The conditions of access to emerging ecosystems should be completely open, nondiscriminatory to all suppliers, and consumers should be able to choose the most appropriate products and services for them. Meanwhile, “external” ecosystem participants will also have to comply with certain rules and ecosystem requirements — both in line with rules pertaining to sales and high requirements for cyber resilience. Regulating emerging ecosystems is, of course, a very difficult task. But we need this regulation to avoid the risks I mentioned and to develop the benefits that ecosystems offer, which includes safeguarding the potential for small players to develop. Therefore, we propose working with the market to develop approaches to ecosystem regulation. We have established a working group at the Bank of Russia and will soon publish the first consultation paper on this topic.
This accordingly holds even if activity does move into a more subdued phase. •  The overall picture of inflation is also complicated by the krona having been weak recently instead of appreciating as we assumed in October. Moreover, the price of oil remains high. This may mean that the earlier tendency for import prices to counter what has otherwise been gradually growing domestic inflationary pressure may not apply to the same extent. In this respect, then, the outlook is more in line with the risk spectrum we outlined in the October Report than with our main scenario there. The composite assessment of the various risks associated with wage formation, the exchange rate, the price of oil and the possibility of weaker activity is naturally a matter of judgement. In my opinion, however, inflation prospects in general are now somewhat more troublesome than before. There has clearly been a gradual increase in resource utilisation. The overall assessment of activity in the coming years implies that growth will continue to be above the level of 2.0 to 2.5% that the Riksbank considers to be sustainable in the longer run. That applies even if there is a slight slowdown in international activity. There are also the high price of oil, the weakening of the exchange rate and signs of some disturbing tendencies in wage formation. To some extent, therefore, the situation for monetary policy has changed. That is also why I began by saying that the time will soon come to raise the repo rate.

The issue of when this will happen does not have to do with either the actual level of unemployment or the number who were employed when activity last peaked in the late 1980s. It depends instead on how serious any bottleneck problems are becoming and how strong those with jobs consider their bargaining position to be in wage negotiations. Briefly, then, important factors in the assessment of the risks of inflationary tendencies are how well the labour market is functioning and how quickly resource utilisation is rising. Monetary policy contributes to stability In an upward cyclical phase, the move towards a situation where the tensions in markets for goods, services and labour threaten to gain the upper hand and jeopardise price stability is a gradual process. That makes it difficult to tell exactly when the imbalances constitute a genuine problem. Observers and those who decide economic policy have to assemble the pieces of this puzzle. In an economy that is approaching a strained situation in resource utilisation, signs that imbalances are beginning to build up will appear with increasing intensity and frequency. As more and more pieces of the puzzle fall into place, they ultimately provide a basis for action. The whole of this process is complicated by the time lag before monetary measures elicit effects. Our premise is that the full effect of an interest rate adjustment materialises after one to two years. So measures taken today would not have their full effect until some time during 2002.
•  Early termination: For resolution to work effectively, resolution authorities need to ensure that counterparties do not use entry into resolution of a firm as grounds for closing out derivatives and other contracts. Disorderly close out could generate exactly the adverse impact of failure on the broader system that resolution is intended to avoid. For that reason, powers to apply a stay on contract terminations and cross defaults are part of the Key Attributes. This power is included in the BRRD, along with to apply a stay power in recognition so that resolution actions taken by non-EU resolution authorities can be enforced within the EU. There are also provisions in the BRRD that will give resolution authorities the power to impose requirements that where EU firms are operating outside the EU, in the absence of a recognition power in the host regime, their financial contracts include terms that ensure the actions of the home resolution authority are enforceable 3. 2  BRRD article 32. 3  BRRD article 55. 2  BIS central bankers’ speeches  •  Bail-in: So to the bail-in where again the KAs and the BRRD are aligned 4. The most important thing to note here is that bail-in must respect the creditor hierarchy. Under BRRD, a small number of liabilities are excluded from bail-in – for example those with an original maturity of less than seven days, and in exceptional circumstances some additional liabilities may be excluded – for example in order to maintain continuity in critical functions.

A final, crucial, aspect in rationalising G-SIBs’ liability structures to make them resolvable is to ensure that the loss-absorbing capacity is issued from the right place in the group. G-SIBs have hundreds, sometimes thousands, of legal entities. Applying resolution tools to each one is not possible. Therefore the resolution strategy for each G-SIB will involve resolving either the whole group, or parts of the group, by applying resolution tools to a single parent, or a small number of intermediate parent entities – or, in FSB parlance, resolution entities which serve as the point or points of entry to resolution. There must be mechanisms in place to ensure that key operating subsidiaries of each resolution entity have reliable access to the GLAC issued by the resolution entity. One way of achieving this is for the resolution entity to downstream the resources raised by external issuance of GLAC-eligible instruments to material subsidiaries as long-term debt that ranks junior to the subsidiaries’ non-capital instruments. This pre-positioned intragroup GLAC could contain provisions that allow the losses to flow up to the resolution entity by converting the intragroup debt to equity without placing the subsidiary into resolution, if home and host authorities agree this is necessary.
Together with the SNB’s willingness to intervene on the foreign exchange market as necessary, the negative interest rate policy has prevented further Swiss franc appreciation and has generally helped to reduce pressure on the currency. Third, in an environment of low interest rates worldwide, the negative interest rate is necessary and appropriate for Switzerland. As a small open economy, Switzerland cannot decouple itself from the global low interest rate situation. What would have happened if the SNB had not introduced negative interest? The Swiss franc would have appreciated even more strongly, there would have been a slowdown in growth accompanied by even lower inflation, and unemployment would have risen. Fourth, a phase of low interest rates, especially a prolonged one, can have undesirable sideeffects, including the possibility of cash hoarding, which limits the scope for monetary policy action. There can also be undesirable consequences for financial stability, which should not be  Page 9/16  underestimated. These challenges and side-effects will amplify, the longer interest rates remain low. Fifth, against this backdrop I would like to emphasise that negative interest, or expansionary monetary policy in general, is no panacea. For a sustained economic recovery, adjustments in the real economy are necessary. Structural measures in the major economies can create the conditions for equilibrium interest rates worldwide to rise once more. This would also allow central banks to embark on a gradual process of normalisation, and the potential adverse effects of persistently low interest rates would be contained. Thank you for your attention.

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Under an inflation targeting regime the central bank would be forced to calculate and publicize the long-run implications of its short-run actions, thus ensuring that they would be subject to public scrutiny and debate. To the extent that the central bank governors dislike admitting publicly that they may miss their long-run inflation targets, the existence of an inflation targeting framework provides an incentive for the central bank to limit its short-run opportunism. The advantage of the inflation targeting regime is its great emphasis on the regular communication with the public and transparency. This property plays an important role in the success of inflation targeting, particularly in the industrialized countries. The policy makers in the developed countries use every opportunity to communicate with public speeches, and takes a step further by way of inflation reports. Transparency and openness of the operating framework of monetary policy can bring important credibility gains, and institutional arrangements such as greater independence of the central bank can be helpful in this regard. European Central Bank and central banks in the EU zone are good examples for a model. Hence, it is perhaps not surprising that in many countries the adoption of official inflation targets has been accompanied by moves toward central bank independence and accountability. Nowadays, central banks are increasingly publishing information on their policies that they would have considered state secrets only twenty years ago, like minutes of board meetings and policy models.

Any action taken by a central bank today must be based largely on considerations about the rate of inflation one to two years down the road. So even though the underlying rate of inflation has been lower, central banks have to consider what is likely to happen to prices in the future. Long and variable lags made it difficult to know what the appropriate policy was at each moment for the purposes of fine tuning future economic activity. In addition, political pressures tended to emphasize the immediate or short-term benefits of stimulating the real economy at the expense of long-term increases in inflation from such policies (myopia). The combination of these lags and myopia imparted an inflationary bias to policy with the result that in the 1  BIS Review 95/2000  long run inflation was higher than it otherwise would have been, with no gain in real output. The more systematically monetary policy was used to fine-tune economic activity, the more the inflationary consequences of such policies were anticipated. An anticipated monetary stimulus would be passed through immediately to prices with no affect on real output. A second problem of the monetary policy is the need for a nominal anchor. If monetary policy could not be expected to dampen business cycles by fine tuning, it might do so by stabilizing inflation expectations as the result of a clear and credible commitment to a nominal anchor that is believed to stabilize prices on average in the long run.
37  All speeches are available online at www.bankofengland.co.uk/speeches  37  Chart 18: Mark-ups and optimal policy weight on output stabilisation Weight on output stabilisation 0.5  0.4  0.3  0.2  0.1  Estimated increase in global mark-ups  0.0 1.0  1.2  1.4 1.6 Mark-up level  1.8  2.0  Sources: De Loecker and Eeckhout (2018), Galí (2008) model and Bank calculations. Notes: Parametrisation such that 𝛽 = 0.99, 𝜃 = 2/3, 𝛼 = 1/3, 𝜑 = 𝜎 =1. Chart 19: Impact of mark-ups on inflation and output gap volatility Standard deviation of inflation 20 Baseline 15  Higher mark-up shock variance Higher mark-up shock variance and higher mark-ups  10  D  5  B C  A  0 0  0.5  1  1.5  2  2.5  3  3.5  4  4.5  Standard deviation of output gap Sources: Galí (2008) model and Bank calculations. Notes: Parametrisation such that 𝛽 = 0.99, 𝜃 = 2/3, 𝛼 = 1/3, 𝜑 = 𝜎 =1. Standard deviation of mark-up shock increases from 0.1 to 0.125 when moving from the blue to red line. The steady-state mark-up level increases from 1.1 to 1.6 when moving from the red to the green line.

But this design may not ultimately be the most efficient use of central bank liabilities for the financial system, because an important role for commercial banks in the two-tier monetary system is their ability to support the provision of credit in the economy.16 Stablecoins backed by other instruments, such as high-quality liquid assets, could moderate growth in the central bank’s balance sheet relative to a stablecoin backed entirely by central bank reserves. However, this structure would also give rise to liquidity risk for stablecoin issuers, which might in turn give rise to a need for a backstop source of funding. These considerations raise important questions for how best to integrate digital currencies and ensure smooth market functioning and interest rate control in times of stress. How might the central bank’s balance sheet adapt? Possibly the biggest question over time for monetary policy implementation is how much of the central bank balance sheet should be used to support innovation in currencies. The current two-tier system of money and payments has central bank balances at its center, but also features an expansive set of private money offered through bank deposit balances. Innovation in payment systems may have clear benefits for consumers and businesses, and private currencies backed by safe central bank balances or other highly liquid safe assets are certainly better than alternatives created by less regulated firms and backed by lower quality or illiquid assets.
SPEECH  The path ahead Speech by Christine Lagarde, President of the ECB, at “The ECB and Its Watchers XXIII” conference Frankfurt am Main, 22 March 2023 The euro area has been hit by an inflation shock, which is now working its way through the economy. While headline inflation is likely to decline steeply this year, driven by falling energy prices and easing supply bottlenecks, underlying inflation dynamics remain strong. In such an environment, our ultimate goal is clear: we must – and we will – bring down inflation to our medium-term target in a timely manner. But to achieve this goal we need a robust strategy, which takes into account the high levels of uncertainty we are facing today. As John Maynard Keynes once observed, “it would be foolish, in forming our expectations, to attach great weight to matters which are very uncertain”. In current conditions, a robust strategy calls for a data-dependent approach to making policy and a clear reaction function so that the public understands the sources of information that will be important to us. To that end, our future policy path will be determined by three factors: our assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission. At the same time, I have made clear that there is no trade-off between price stability and financial stability.

That is a key reason why we committed to raise interest rates significantly and at a steady pace over recent meetings – and why we decided last week that a further 50 basis point hike was necessary. The policy path ahead Now a sizeable policy adjustment is already behind us: since July last year we have raised interest rates by 350 basis points. However, inflation is still high, and uncertainty around its path ahead has increased. This makes a robust strategy going forward essential. Such a strategy has three elements. First, with high uncertainty, it is even more important that the rate path is data-dependent. This means, ex ante, that we are neither committed to raise further nor are we finished with hiking rates. Indeed, as I explained last week, if the baseline scenario in our most recent projections is confirmed, we will still have ground to cover to make sure that inflation pressures are stamped out. Second, while the European banking sector is resilient, with strong capital and liquidity positions, in view of recent financial market volatility, we are ready to act and provide liquidity support to the financial system if needed and to preserve the smooth transmission of monetary policy. But it should be clear that there is no trade-off between price stability and financial stability. As we have proven many times, we are able to set the appropriate policy stance to control inflation and at the same time use other instruments to address risks to monetary policy transmission.
The second main stream is full unification of the supervision of banks, securities companies and insurance companies, all in one institution. The trend since some 15 years is that bank supervision in a number of countries has been moved outside the NCB and has been consolidated with the supervision over securities and insurance companies. However, the most common structure is still the traditional one 1 . 1  Martin Čihák and Richard Podpiera: IMF Working Paper WP/06/57 from 2006. BIS Review 49/2007  1  But there are many variations. One is the combination of banking and securities supervision, which is logical due to the close relations between banking and securities activities. Another is the combination of securities and insurance supervision with the aim to create a stronger authority with more resources and expertise. There are also some broader alternatives. The FSA in the UK performs supervision over a wide range of financial institutions, including brokers, pension funds and many more. Its objectives also include financial sector consumer issues and even the promotion of London as a financial market place. All kinds of supervision and other activities related to the financial sector are placed under one roof. The Netherlands, Australia and others have followed an approach based on the purpose of the supervision. In these countries prudential supervision of banks and securities firms is conducted separately from the oversight of the conduct of the financial markets. The underlying rationale is that these activities are different.

However, some countries have gone the opposite way by moving securities and insurance supervision under the umbrella of the NCB. They have benefited from the independence and resources of the NCB. On the other hand, these sectors require partly different staff skills and methods and they include issues which are normally outside the mandate of a central bank such as investigations of market conduct and law enforcement actions against individual firms or persons. Failures in securities and insurance companies may affect overall confidence in the NCB, although these institutions are in most cases of limited interest to the NCB from the point of view of financial system stability. Such failures might even lead to what Professor Goodhart calls “a creep of the Central Bank safety net” 4 implying that exceptional liquidity assistance might be used for non-systematically important institutions. My conclusion is therefore that you should only bring securities and insurance supervision into the NCB if this is needed because they can not fulfil their tasks outside the NCB for some reason such as lack of independence or human resources. After having discussed whether supervision should be inside or outside the Ministries and the NCB, I now turn to the issue of unified supervision. These are some often-heard arguments for the consolidation of supervisory authorities: Consolidating supervision in one authority Information sharing and coordination will be facilitated if the different sector supervisors are located in the same authority. In my experience this is mostly true, both for practical and legal reasons.