samchain/econo-pairs-v1 huggingface dataset:
balance sheets Risk tolerance  Private financial system  Percentage of annual nominal GDP 120  120  110 100  110 100  90 80  90 80  70 60  Financial institutions - lending to private non-financial sector (a)  50 40 30 20 10 0 2005  Bank of England(b)  2008  2011  2014  Open for business  70 60 50 40  Unconventional Central banks MP  30 20  Normal conditions  10 0 2017  Liquidity crisis  Degree of systemic stress  Sources: Bank of England, ONS (a) Data as at February. Sterling net lending to non-financial corporations and household sector. (b) Data as at February. Final data point shows the latest published balance sheet data, at 29 February 2016, plus the increase in the loan to the Asset Purchase Facility since this time. The financial instruments underpinning these expansions tend not to be particularly complex when compared to those on commercial bank balance sheets. But the Bank of England has also accumulated material new contingent exposures, reflecting its much wider post-crisis range of policy responsibilities, and a more comprehensive liquidity insurance toolkit. The Bank’s new responsibilities for banking supervision, macro-prudential policy and resolution imply a range of potential new calls on its balance sheet.

Central banks are unlikely to come with anything as complex or potentially toxic as the CDO-squared or cubed! But as I have covered in some detail, central bank operations frequently pose complex risk issues of their own. Take the example of the collateral available to support our contingent lending for liquidity support, and how to estimate the central bank’s exposure to that. The closest this would get to in a commercial firm is a Potential Future Exposure (PFE) calculation. However most risk managers are used to considering PFE in the context of counterparty exposure through OTC derivatives instruments – which is challenging enough! But for us the underlying instrument is not a derivative product with a reasonable amount of pricing information available: it is a set of non-traded mortgage portfolios, which have to be marked to market today and at future points in time. So this is what we have to evaluate: a PFE where the underlying is a pool of marked-to-market mortgage portfolios lacking readily-available market pricing data. In response, we have had to develop robust valuation models linking observable macro-economic variables to potential exit prices, whilst being honest about the range of uncertainty around these estimates. And the Golden Rule applies in this case too – in the form of independent model validation by our own specialist risk supervisors. While central banks do not typically have a profit/risk tradeoff, they do have to trade off the risk taken against the policy objectives being pursued.
Number of work permits in the UK, Ireland and Sweden issued to citizens of new Member States following the EU accession In thousands UK *  Ireland**  Sweden***  Total  In % of workforce †  Lithuania  44.72  26.37  0.37  71.46  4.4  Latvia  23.03  12.94  0.16  36.14  3.2  Estonia  4.68  3.39  0.36  8.43  1.3  Poland  204.90  70.14  2.16  277.20  1.6  Czech Republic  20.01  6.39  0.07  26.47  0.5  Hungary  10.35  3.83  0.20  14.37  0.3  Slovakia  36.36  10.93  0.09  47.38  1.8  10  HSBC “The Great Migration. How China’s 200 million new workers will change the economy forever”, HSBC Global Research, October 2005. 11  Chen N., Imbs J., Scott A. “Competition, Globalization and the Decline of Inflation”, CEPR Discussion Paper No. 4695, 2004. BIS Review 57/2006  5  *Source: Accession Monitoring Reports, http://www.ind.homeoffice.gov.uk. The data include the period between May 2004 and December 2005. NBP calculations. **Source: Skills needs in the Irish economy: The role of migration, A submission by the Expert Group on Future Skills Needs and Forfás to the Minister for Enterprise, Trade & Employment, http://www.skillsireland.ie. The data include the period between May 2004 and August 2005. ***Source: Migracje specjalistów wysokiej klasy w kontekście członkostwa Polski w Unii Europejskiej. Centre for Migration Research, Warsaw University.

Towards the end of 2011, with a decision unprecedented in the history of the euro, the ECB’s Governing Council decided to conduct two three-year refinancing operations. At the end of February, or when the second three-year operation was completed, the net increase in loans granted to counterparties was around € billion. The motivation for the two operations can be summarised by the following strategic view. A central bank is mandated with the crucial task of ensuring the sufficient supply of liquidity to sound bank counterparties in return for adequate collateral. In normal times, “sufficient liquidity” means a volume of refinancing in line with the need for banks to meet the obligatory reserve requirements and the financing of other independent factors which explain the growth over time in the demand for money. In times of increased financial instability, “sufficient liquidity” indicates a volume of available central bank money which avoids the risk that – under such market conditions – the temporary inability of banks to provide refinancing leads to insolvency and thus to a situation of widespread default. In neither of the two cases – normal times or crisis periods – can the central bank be considered responsible for the survival of bank counterparties that are close to bankruptcy.
As you all know, the banking industry is confronting a series of emerging challenges and environmental changes such as a rising interest rate environment, new businesses and technologies that may disrupt the traditional financial services industry, and novel cyber-threats that seek to exploit our highly interconnected society. In addition, over the past year or so, we’ve witnessed significant turnover in the leadership at federal regulatory bodies including the Federal Reserve, the FDIC, and the OCC, which has the potential to change the regulatory environment. And, finally on the legislative front, Congress is currently considering the Economic Growth, Regulatory Relief, and Consumer Protection Act, which if passed in current form would entail the most significant statutory change to the U.S. banking regulatory framework since the passage of the Dodd-Frank Act in 2010. All of this change presents both opportunities and threats. For my remarks today, I’d like to explore three specific changes that are relevant for community banks: first, a shift in community banks’ business models in response to market changes and regulatory pressures; second, the growing competition and potential disruption introduced by “fintech” firms; and third, the critical threat that cybersecurity risks pose to all community banks. Following my remarks and throughout the day, I look forward to hearing from you about these forces as well as on other changes, trends, and challenges that you and your firms are facing.

I’ll highlight a few interesting trends that our examiners and analysts have observed through this monitoring. For the three-year period ended December 31, 2016, aggregate Second District community bank loans grew by 46 percent.1 These loans were often funded by non-core funding sources, which grew by 49 percent in the aggregate over the same period. This raised concerns among supervisors who consider non-core funding sources as higher risk from a safety and soundness perspective. Moreover, the primary source of loan growth for this period was commercial real estate. In response to this growing CRE concentration, the Fed intensified its monitoring of this sector and directed our supervisory focus toward how firms are risk-managing their CRE portfolios. More recently, during 2017, we saw more moderate asset growth for community banking organizations in the District—approximately 7.5 percent—which is in line with national peer group averages. Aggregate loan growth in 2017 was 10.5 percent for the year, which is also comparable to the national peer group averages. Over this period, we observed a small shift from commercial loan growth toward retail loan growth, specifically in the areas of one-to-four family homes and indirect automobile loans. With respect to funding in 2017, we observed strong growth in core deposits and less reliance on non-core funding sources—a positive trend from a safety and soundness perspective. In the competitive environment of the Second District, we’ve observed community banks seeking revenue from more niche businesses such as wealth management and indirect automobile lending.
As I see it, financial cycles, at least those which are big enough to create significant disorder, are often the result of the regulations governing the financial system not being sufficiently stringent or even, perhaps, of fundamental shortcomings in the entire ‘business model’ of the financial sector. The failure of important markets to function sufficiently well may also be of great significance. One example that I have raised before, but which is worth raising again, is the comparison of how policy rates and housing markets have developed in Sweden and Germany (see Figure 6). Despite a similar monetary policy, the development of housing prices in Germany has differed entirely from that in Sweden. Of course, a wellfunctioning financial sector and well-functioning markets would not generate completely stable credit paths, for example. But it is highly likely that the large and dangerous fluctuations would be heavily restrained. It seems reasonable that the financial system should be sufficiently stable and robust to be able to handle both an occasionally very low neutral interest rate – as is the case today – and that monetary policy is conducted in a manner that fulfils normal monetary policy targets – such as an inflation target – without collapsing.

Naturally, we cannot anticipate the results of the forthcoming negotiations, but one principle of consistency must be observed: access to the single market must continue to be contingent on the strict observance of all of its rules. There can be no cherry picking or free-riding. And we must obviously maintain our common European trade policy if we wish to retain our clout in future trade negotiations at the global level. Third asset: our common social model in Europe. It is less widely discussed, but it is what fundamentally defines continental Europe, and it is what German and French society and public opinion share. Our social model combines a high level of public service, relatively low levels of inequality – much lower than in the United States – and a good intensity of social dialogue. And this has been achieved in a market economy. I would like to stress the extent to which this social market economy (Soziale Marktwirtschaft) is a response to the questions raised in the AngloSaxon world, rather than protectionism: Germany, like many other European countries, proves that economic success can go hand in hand with social welfare, and less inequality. We can be proud of these three assets that we have built together. But for the future, while some no longer seem to believe in the benefits of the European project, we can no longer afford to be complacent; we cannot simply rest on our laurels. II. In order to control our common destiny we need to build a better Europe.
4, part 2 (November 2000): 1007–35; Miles Kimball, “How and Why to Eliminate the Zero Lower Bound: A Reader’s Guide,” Confessions of a Supply-Side Liberal blog, September 20, 2013. BIS central bankers’ speeches  privacy. If these aren’t enough however, let me suggest another, very important benefit of currency that I explored in a paper with Charles Kahn and William Roberds. 3 The anonymity afforded by currency transactions prevents a buyer from suffering from any actions taken after the transactions that could exploit the knowledge gained by the seller of the buyer’s identity. For example, identity theft, or theft of credit or debit card information, is avoided through the use of currency. This is an economic benefit that is distinct from valuing privacy from a civil liberties point of view. If currency cannot be used in transactions, buyers are at a disadvantage, and many otherwise beneficial transactions (not related to buyers seeking to engage in tax evasion or otherwise illicit activity) would not take place. It is important to consider whether the move to eliminate currency, or to alter radically how currency works, represents a degradation or an improvement in technology. Should society voluntarily abandon a widely used technology that has enormous benefits and features that are currently irreplaceable, such as the privacy that comes with an untraceable transaction? While some of those features are used by criminals to facilitate socially destructive activities, the vast majority of currency uses are legal and productive.

And over 2018 it fell for four consecutive quarters by a total of 2½% - the first time this has ever happened outside a recession, and completely outside the range of recoveries from previous recessions (Chart 8). Chart 9: Business investment in the May Given all this, while the ½% increase in investment in the  2019 Inflation Report  most recent data is welcome if it can be sustained, so far Percentage change on previous year  it offsets only a tiny fraction of the investment weakness of the previous three years. And likewise the recent quarterly strength in GDP appears to have been driven more by stockbuilding ahead of the initial 29th March Brexit deadline, as well as by further rises in consumer spending, than by underlying strength. 15 10 5 0 -5 -10  The main driver of the investment weakness is the uncertainty generated by the Brexit negotiations, which  -15 -20 2000 2003 2006 2009 2012 2015 2018 2021  is discouraging businesses from investing. We hear that 8  All speeches are available online at www.bankofengland.co.uk/news/speeches  8  message clearly both from our Agents’ and our own conversations with business leaders such as yourselves and through our formal Decision Maker Panel survey of over 7000 firms. That uncertainty intensified as the March Brexit deadline approached, explaining the further weakening in investment in 2018. If the government is able to agree a transition deal ahead of the new October deadline, that should lead to some easing in uncertainty.
Indeed, developing an integrated surveillance mechanism, identification and prevention of emerging risks in the Islamic financial system, as well as the establishment of an integrated crisis management and resolution framework, are crucial to the maintenance of financial stability in the global Islamic financial system. This would allow for a comprehensive and prompt response to a financial stress, and thus increase the prospects for an early recovery. This was the basis behind the setting up of the Islamic Financial Stability Forum (IFSF) in 2010, as a platform to build closer cooperation among regulatory authorities. More specifically, the IFSF carries the mandate of promoting international dialogue, engagement and cooperation in the area of financial stability. It also aims to broaden the understanding on the external repercussions of policy action or inaction in a given country on other national financial systems, and in considering the merits for collective action. Whilst effective international cooperation requires a framework for shared commitments, important in this process is the recognition of the remits of national autonomy given that financial regulation and intervention are subject to country-specific circumstances. This arrangement can contribute towards enhancing mutual understanding and prevent dilution of the commitment towards common objectives. 4  BIS central bankers’ speeches  A concrete advancement in cooperation and collaboration that has paved the way for the development of yet another important international financial infrastructure is the establishment of the International Islamic Liquidity Management Corporation (IILM), in 2010.

A key part of this is to make certain that banks and financial markets perform their functions efficiently, and that their business poses no systemic threat to the financial sector and the economy. Hence, for a long time now, the main focus of bank regulation and supervision have been to ensure that banks manage their exposure to risk effectively. These include exposure to credit risk, market risk, liquidity risk, and operational risk. Much progress has been made in honing the approach for a more accurate assessment and a more effective management of risk, culminating in the Basle II, which is a global standard for bank’s risk management. BIS Review 18/2008  1  But, in spite of what has been achieved, mishaps can and do happen. From time to time, we still read about banks suffering large losses that originate from the under-management of these risks. More often than not, the losses are linked to a breach of internal controls or systems that have been put in place to rein in excessive risk-taking in the first place. Ladies and gentlemen. On the security risk aspect, the growth of electronic banking and real-time funds transfer have made the challenge of risk management even greater, as the nature of security risk to banks has shifted considerably. Clearly, the main concern now is not so much about ensuring property security or preventing theft of physical assets, but about ensuring information security and preventing identity theft.
Efficiency in individual financial institutions As regards individual efficiency, deposits institutions have the capacity to pursue selection processes among potential borrowers and, at the same time, on the basis of the relative risk, to set different prices. Moreover, they undertake monitoring, seeking to minimise the risk of borrowers not meeting their obligations. In sum, deposit institutions help reduce both adverse selection and moral hazard problems, while their ability to transform maturities allows them to provide liquidity. The enabling mechanism for the proper functioning of this system is depositors’ confidence in deposit institutions. Efficiency in savings banks Among overall deposit institutions, savings banks undoubtedly play a significant role, contributing as they do to the distribution of market share among a bigger number of institutions, thereby fostering  2  BIS Review 31/2003  competition. Likewise, in a sector whose cornerstone is depositors’ confidence, properly run savings banks contribute to reinforcing the stability of the financial system. Savings banks are an old and peculiar form of financial institutions, and display a set of particularities relating both to the significant social content of their action and to their strong regional roots. I shall address these two aspects. First, savings banks have, since the outset, been characterised by their contribution to preventing financial exclusion. That is to say, central to their objectives is a concern to ensure that the more disadvantaged segments of the population may have access to financial services.

Therefore, these are important risk factors that should seriously be taken into account. Dear Guests, I would like to draw your attention to credit cards regarding the household indebtedness issue. As it is known, in general, the credit card is a payment instrument that enables its owner to purchase goods and services at member businesses without using cash. Moreover, if credit card users wish to withdraw cash or to delay their credit card payments for a determined period, the relevant amounts spent turn into credit and thus the credit card becomes a credit instrument. Institutions issuing credit cards incur POS (Point of Sale) machine investment and membership to national and international payment systems expenditures, and they are exposed to liquidity risk due to unforeseen cash withdrawals. Consequently, banks tend to determine higher credit card interest rates than those of consumer credits due to their higher risk exposures, namely the higher credit risk because of weak collateral structure and liquidity risk because of unforeseen cash withdrawals. A survey of country practices also reveals that credit card interest rates are determined higher than interest rates set for consumer credits. Therefore, it is in the interest of credit card users to meet their short-term credit needs via consumer credits rather than their credit cards. Moreover, the interest rates applicable to credit card transactions differ significantly from bank to bank.
Trends in College Pricing, last accessed February 5, 2015. BIS central bankers’ speeches  3  levels more than double those at public institutions, average net tuition and average loan sizes were considerably higher at for-profit educational institutions. In addition, a much larger proportion of students at for-profits took out subsidized direct loans. [Chart 4] Returning now to the surge in aggregate student debt, an increase in borrowing for college is not by itself a concern, given the high average lifetime payoff to college. In fact, in part the increase in debt reflects an arguably sensible increase in educational investment during a period of weak labor market opportunities. However, the growth in debt has important implications for the overall economy, and there are several worrisome aspects of the increase in student debt. Many of these problems have to do with the high rates of delinquency and default on student debt, and the generally low repayment rates on these loans. Over the past eight years there has been a considerable increase in payment difficulties for student loan borrowers. The most common measure of inability to meet the debt obligation is the proportion of borrowers 90 days or more past due on their payments. We refer to this as the “measured delinquency rate.” As of the fourth quarter of 2014, about 17 percent, or 7.3 million borrowers, were 90 days or more delinquent on their student loan payments; see the left panel of Chart 5.

What the ECB can do to help in this area is, first of all, to maintain stable monetary conditions. By creating an environment of price stability, we allow private sector agents to focus their attention on those questions which are of most relevance to their activities and to take advantage of the benefits of this stable environment, such as the possible extension of their planning time horizons. Secondly, we can, to some extent, increase the awareness of the developments in the euro area’s financial structure and banking sector by providing euro area-wide information, and also analyses of these developments. All in all, the introduction of the euro and the single monetary policy has created a fundamentally new environment for banks in the euro area. A new environment that will entail certain risks, but that will also provide many opportunities for growth and enhanced efficiency in the banking industry. I am convinced that the latter will prevail. BIS Review 83/2000  6