samchain/econo-pairs-v1 huggingface dataset:
It actually mandates that 8% of a bank’s liabilities must be bailed in before there can be any recourse to public money or industry financed resolution funds. However, the powers, and indeed the requirement to bail-in, are not enough in of themselves. Bail-in powers need something to work with once a resolution is triggered. For resolution to be effective, we need banks to hold sufficient debt structured in a form that can be safely and quickly bailed in – or, to give it its inelegant full name “Gone Concern Loss Absorbing Capacity” – G.L.A.C for short. There is now agreement on the broad objective for an international GLAC standard: it must allow for an orderly wind down of large, complex cross-border groups, whilst protecting its critical economic functions. Discussions have moved on to the key design features. What sort of standard? How much GLAC? What type of debt should count and where should it be located? On the quantity, I repeat, we are not seeking an amount of GLAC capable of resurrecting any failing bank including the global giants. Rather, we are looking for sufficient GLAC to recapitalise the entities carrying out critical economic functions to a level sufficient to regain and maintain market access. For the remaining entities, sufficient capacity to provide for an orderly run-off is what is required. On what kind of instruments should count as GLAC, the debt needs to be of a sufficient maturity to give confidence that the funding will not have been withdrawn before the bail-in can be executed.

The first step was usually to see whether a healthy bank was able and willing – or at least able and persuadable – to buy the distressed bank’s business. Examples here range from acquisitions of smaller institutions by much larger ones, such as Santander’s acquisition of Alliance and Leicester; to mergers between two large lenders, such as Lloyds TSB’s with Halifax Bank of Scotland and, in the United States, Bank of America’s merger with Merrill Lynch. There were some hasty shotgun weddings. The great attractions of finding a buyer for a failing institution are of course that it both ensures continuity of service provision and avoids triggering deposit guarantees or use of public funds. Depositors find themselves banking with a different bank but access to services  BIS central bankers’ speeches  1  is maintained. And there is continuity in the provision of lines of credit, including through overdraft arrangements to households and corporates. There are, however, two big risks. First, mergers can concentrate supply and so damage competition particularly if both the distressed bank and the rescuer are relatively large. In the UK, the largest six banks and building societies now account for 80% of the outstanding household and corporate lending, up from 65% at the start of 2008. And second, the rescue mission can go badly wrong if rather than pull the failing operation up it pulls the purchaser down.
Turning to the technical aspects of this issue, I would note that even if we can agree on, and then measure, the minimum solvency standard which we should be targeting for our international banks, perhaps the really hard step is making a robust connection between individual banks' solvency and the solvency of the system. The latter is the primary focus of central banks though the former is obviously a necessary condition. I am encouraged to see that a number of the papers to be presented here have a go at making this connection. This is an issue which merits substantially more attention and research. It is far from just a statistical exercise: whilst we might just possibly be able to calculate statistically the joint probability of failure for a group of banks from their existing individual probabilities of failure, this does not of course reflect realities. Those realities are that the risk of collective bank failures depends on hard-to-measure and fluctuating factors such as correlations in risk profiles, and the mood and behaviour of the market once fragility at one institution becomes apparent. (c)  Consolidation  The changing financial landscape complicates the task, and this brings me to the third point I wanted to highlight, namely consolidation. Consolidation of financial institutions is a trend that is relevant to several different facets of systemic risk. First, does consolidation make banks more or less likely to fail?

Chart 5 plots a measure of global capital market integration (external assets/GDP) against a measure of the incidence of crises – all crises and banking crises (Reinhart and Rogoff (2011)). Integration appears to have been associated with an increase in the incidence of crisis over the past couple of decades, perhaps especially banking crises. It is not just the incidence, but also the prospective size of crises and their spill-over consequences that has increased. Chart 6 provides one perspective on that. It looks at the scale of IMF programmes over time, normalised by the borrowing country’s quota. Two features are striking: first, the increased incidence of programmes; but second, more dramatically, their increased scale. Academic evidence has long pointed towards important spillover effects from national or international disturbances (Obstfeld and Rogoff (1995), Forbes and Warnock (2012) and Fratzscher (2012)). But recent evidence points towards more potent contagion channels. For example, Rey (2013) finds evidence that a common global risk factor drives asset prices and cross-border capital flows, for both advanced and emerging economies. It is worth putting under the microscope these shifting patterns in global financial market correlations, especially over the most recent period. Charts 7–9 plot correlations between long-term bond yields, equity prices and investment grade corporate bond spreads respectively in the US, UK and the euro-area over the past few decades. Two features stand out. First, there has been a steady rise in the degree of co-movement in asset prices over time. Take government bond yields over the past 50 years.
Many US funds were also impacted by significant redemptions, partly because the customers needed the liquidity, but also because the customers became uncertain of the risks existing in the funds’ investments. In Sweden, the banks had no significant holdings of bad US mortgage securities, but they were still affected by the same difficulties as other European banks in borrowing dollars. Initially, of course, the market did not know that the Swedish banks had not purchased any “toxic assets” and had not lent significant amounts of money to any banks that had. But more important was the uncertainty that arose as a result of the Swedish banks’ extensive lending in the Baltic countries. Only two of the banks actually had significant business in these countries, but, as banks lend money to each other, it was not easy for the rest of the world to know where the risks actually were. Consequently, all Swedish banks encountered difficulties in borrowing on the market. …and how it was solved However, the inability of the European banks to borrow dollars as before turned out to be not only a European problem but, in fact, also a US one. When the flow of capital from the private market in the United States suddenly decreased, the European banks found it difficult to repay what they had borrowed from their US counterparts. But the US banks were already facing difficulties with their liquidity – because they were also dependent upon short-term borrowing from the money market funds.

We believe this benefitted policyholders and left the industry in good shape to weather the recent financial storms of the Great Recession. Those are also desired outcomes that lie at the heart of the Solvency II Directive and so I want to leave you in no doubt that we will implement the Directive in a full and robust manner so as to continue to deliver the level of financial resilience consistent with the safety and soundness of firms and policy-holder protection. Another difference in the UK is that we are anticipating more internal model applications than any other EU country, which is not unexpected given the scale and diversity of the UK industry. This creates an unprecedented challenge for the industry, and for the Bank, in ensuring that models are of a high quality and that they meet the Solvency II requirements. It also creates some logistical challenges which you need to be aware of. If there are a lot of you trying to get approval, and only one of us, don’t expect that you can all present us with your models at the last minute and expect a one-to-one service. If too many firms leave their preparations too late, then we will have to prioritise – if you want to be sure, then get in as early as you can. Naturally, a significant proportion of our work relates to internal model approval, given the complex nature of many models and the detailed requirements of the Solvency II Tests and Standards.
While these frictions may vary over time, they should generally do so only slowly. 7 The pull of IOER should also be affected by the quantity of reserves in the system. An increase in bank reserves that increases bank assets makes regulatory leverage ratios more binding, raising the shadow marginal cost of bank balance sheets. It also accentuates the competitive frictions I described above, and reduces individual bank demand for additional reserves. 8 As a result, as the level of reserves declines during normalization, marginal balance sheet costs should fall, competitive frictions should lessen, and the demand for additional reserves from individual banks should increase. These factors should strengthen the magnetic attraction of IOER and pull the fed funds rate and other market rates up toward – and at some point equal to or above – the IOER rate. However, excess reserves will remain plentiful for some time, and while that’s the case the FOMC intends to use an ON RRP facility and other tools as needed to complement IOER in controlling the fed funds rate. 9 When the Desk conducts ON RRPs, as in its current testing program, it sells Treasury securities held in the SOMA with an agreement to buy them back the next business day at a pre-determined price. This leaves the size of the SOMA portfolio unchanged, but shifts some of the liabilities on the Fed’s balance sheet from bank reserves to reverse repos.

The SNB will closely monitor the effectiveness of the revised self-regulation. In  1  Federal Council (2019): Bericht des Bundesrates zu den systemrelevanten Banken. www.admin.ch/opc/de/federal-gazette/2019/5385.pdf  Page 2/4  Berne, 12 December 2019 Fritz Zurbrügg  News conference  parallel, it will continue to regularly reassess the need for an adjustment of the countercyclical capital buffer. Climate change and financial stability  Let me now turn to climate change, a subject already addressed by my colleague Thomas Jordan. Climate change can pose longer-term risks to financial stability. There are primarily two ways in which climate risks can affect the financial system. One is through the increase in the frequency and severity of natural disasters with all their consequences, and the other is through changes to climate policy and to the corresponding regulations. It is the responsibility of individual financial system participants to fully understand climate risks relevant to them and to correctly assess the potential consequences from a business perspective – just as with other risks. For its part, the SNB is focusing on how climate risks could impact on the stability of the Swiss banking system as a whole, as well as on systemically important financial market infrastructures. Currently, the SNB considers the likelihood of risks linked to climate change threatening the stability of the banking system as a whole to be low. In the case of financial market infrastructures, climate risks are minimised, for example, by stipulating that technical facilities be distributed over different locations.
And many emerging market economies have provided excellent examples of good relationships with their creditors, thus enabling them to raise new money or lengthen debt maturities at times of stress. The choice is not between large bailouts and no official finance. It is between an orderly framework, which recognises the complementary roles of private and official finance, and a disorderly process of default. The combination of transparency to prevent crises and private sector involvement to resolve crises, follows naturally from the view that markets require information to work efficiently but that investors should take responsibility for the risks they choose to bear. This sentiment is remarkably close to views expressed recently by the new US Treasury Secretary. Now is the time to put in place a more systematic framework for the prevention and resolution of financial crises so that emerging market economies can take their rightful place in the international economy. What do these clouds mean for the UK economy? Fortunately, our own imbalances are on a much smaller scale than those in the US. But here too, final domestic demand growth, which has averaged 4% a year for four years, has exceeded supply and the trade deficit has risen. Indeed, net trade is now likely to have made a negative contribution to output growth for five consecutive years, the longest such period since the nineteenth century. Final domestic demand growth, and especially that of private consumption, needs to slow.

I am pleased to inform the public that based on the outcome of the review and stress test, the Governing Council have concluded the following: 1. The Bulgarian banking system is stable. The main indicator of a bank’s financial resilience, the ratio of bank common equity tier one capital to its risk-weighted assets, or the CET 1 ratio, remains significantly above the required minimum regulatory requirements on a system level and is above the EU average as announced in the latest European stress test. The CET1 ratio adjusted for the results of the asset quality review is 18.9% on system-wide level compared to the minimum regulatory requirement of 4.5%. The stress test indicated that if the latest 2018 macroeconomic forecasts materialize, the CET1 ratio would increase to 22.2%. In the case of a severe economic crisis, which is very unlikely, the CET1 ratio would decline to 14.4%. For the European banks, the results are significantly lower – 13.9% and 9.4% respectively. Therefore, banks’ capital adequacy is strong and banks have the capacity to absorb shocks in unfavorable market conditions. 2. The capital adequacy of each bank after potential adjustments from the asset quality review remains above the minimum regulatory requirements. Indeed, the individual results vary across banks. Follow-up plans have been developed in line with individual results and include measures aimed at maintaining existing capital buffers for some banks or increasing capital buffers and decreasing risk-weighted assets for others.
It is not clear that before the late 19 century a single dominant financial centre existed in Europe as the economies of scale were not sufficiently developed. 5  There is perhaps another puzzle in the way financial services have developed, one that is closer to home. The resurgence of London. According to the Global Financial Centres Index, London is the world’s leading 6  financial centre, just as it was in the days of Cunliffe Bros. But as we know, London did not enjoy uninterrupted status as a premier financial centre over the intervening period. As I have noted, international financial activity dried up materially after the First World War. But even accounting for the overall decline, London’s relative importance as a financial centre declined further as the global footprint and importance of the UK economy decreased along with sterling’s reserve currency role. It was only with return to financial globalisation, some 50 years ago, that this process was reversed – leading to the concentration we now see. The puzzle here is that historically, the clustering of financial activity has tended to follow trade and commerce. It was commerce that led to the rise of Venice and then Amsterdam as financial centres in the th  th  16 and 17 centuries.

Pension reforms if correctly done can also have a significant impact on financial market development when pension funds are encouraged to act as institutional investors involved on the capital market. Participation of pension funds in the capital market can lead to improved clearing and settlement on the one hand, as well as provide more sensitive price information – resulting in better resource allocation, and increasing the availability of capital for financing development. In some developing countries such as Chile, pension funds facilitated internal resource transfers, enabling the government to service its international debts without extreme fiscal adjustment and avoided the drainage of resources that emanates from foreign debt payments. In addition, the funds provided a source of borrowing that did not require excessively high interest payments. Africa can learn from such experiences and undertake necessary reforms to unlock this kind of resource. Pension funds can therefore offer African countries an alternative source of development finance, provide an avenue for restructuring public finances and for the promotion as well as development of the capital markets. 3  Harvey Morris, ‘African states tap pension funds’, in the Financial Times, 24 October 2007. BIS Review 126/2009  3  (c)  Stock markets  Another important avenue for harnessing resources for the financing of development on the continent is the stock market. Stock markets have grown in number across the globe over the past two decades and emerging and developing country markets have accounted for a significant share of this growth.
And if the value of the collateral should fall below that of the outstanding debt – say because of weakness in the second-hand car market – it’s the lender not the borrower that bears the resulting “negative equity” (the loans are “non-recourse”). One shouldn’t underplay the risks involved in PCPs. Even if they belong primarily to lenders, and even if they’re no greater than more traditional car loans, pound for pound, those risks still exist. But the lenders may have deeper pockets than the borrowers, or at least greater scope for diversification. And as evidenced by their dominance of the market these contracts clearly represent a convenient method of paying for a car, even for households who are otherwise adding to savings. Their growth is not evidence that people are outspending their income in aggregate. The more significant contributor to the rise in unsecured debt comes from student loans. At face value, these are currently worth almost 9% of annual household income, up from 2½% in 2007. However, it’s far from clear this is really debt in the conventional sense. There’s nothing to pay on it, either interest of principal, unless and until annual income exceeds a threshold, one that’s currently set above the median for new graduates. So it’s as if, rather than taking on a conventional loan, students are selling to the taxpayer a “call option”, payable only beyond some trigger point. Another way to think about it is as a tax on graduates’ income with a significant up-front allowance.

This is a great challenge for our trade, even more so amid the current deconstruction of overarching paradigms and a slow, if any, emergence of new central banking principles. Such principles need fundamental research as a foundation to help redesign the policy frameworks of central banks and to guide our corrective actions. This is an exceptional opportunity to address the challenges of shaping policy responses in an increasingly integrated and changing world, particularly from a perspective of countries that are or aspire to become members of the European Union and the euro area. I hope I can raise a few relevant issues with the potential to provoke a constructive discussion and obtain much needed research insights. Allow me to briefly summarize the main points for my discussion, structured here in three interrelated topics. First, real and financial cycles exhibit some regular patterns relevant for designing policy responses in open economies exposed to frequent shocks. Second, it is of major importance for the future of the euro area to advance the institutional design in order to make all of the envisaged protective mechanisms operational and enhance setting the right policy mix, which encompasses both EU and national policies. Finally, such a policy mix should pay a particular attention to careful coordination, given the interdependences among different national and supranational policies and immense potential for cross border policy leakages. I will elaborate briefly on each of the mentioned topics. 1.
BIS Review 66/2000  4  Asset management companies Before proceeding, I would like to make a few points concerning the asset management companies (AMC’s) touched upon above, since these seem to be controversial in many countries. They certainly were in Sweden during the peak of the crisis. Asset management companies are simply companies to which a major part of the non-performing assets of a bank can be transferred, given that these loans for some historic reason have grown to become a considerable part of the bank’s balance sheet. The purpose of the asset management company is to dispose of the assets as quickly and profitably as possible and then close down. As I see it, there may be two main causes for such a transfer of assets. First, experience shows that bankers are not best equipped to handle the restructuring and work out of collateral taken in by the bank as a consequence of failing loans. Bankers may possibly be good at lending money and handling minor non-performing loans, but they usually have little experience in reorganising industrial activities and managing real estate companies to the extent required in an AMC. These activities require a different competence. The trouble is that bankers often fail to see this, in particular if they have been heavily involved in handling the failing credits. They talk about long term relations with the customer. They argue that the loans could be kept in the book of the bank and that relevant competence could be hired.

Our policy response was conditioned by the concerns of financial stability, assuming that interest rate cuts would speed up deposit withdrawals from the banking system. Bank of Albania took bold and decisive steps to control these problems and restore the credibility in banking system. As the effects of the fiscal stimulus began to phase out and  BIS central bankers’ speeches  1  confidence was restored in the banking system, we reduced our policy rate to its historic low in order to provide further stimulus for the economy. More importantly, our supervision of the banking system has been enhanced by establishing a thoroughly new Department of Financial Stability and by bringing financial stability issues in the decision-making process of monetary policy. As a result, the set of tools available to the Bank of Albania has extended to include several macro-prudential measures, which aim to address simultaneously both economic growth and financial stability concerns. I believe that similar steps have been taken by most central banks around the world. Willingly or not, the objective of financial stability is now seen as the central duty of our institutions. It does not matter whether the legal mandate of the central bank is amended to include this new objective or not. What matters is that financial stability is a prerequisite to overall macroeconomic stability and monetary stability.