samchain/econo-pairs-v1 huggingface dataset:
But care is needed, not least because these models tend to be least robust in precisely the circumstances of most interest - ie those rather rare cases in which losses are very large, hidden away in the lowest parts of the bottom tail of the probability distributions. The evidence suggests that such events are not well captured by the normal distributions typically used in standard risk models. Markets tend to behave in highly non-linear ways - moving within relatively narrow ranges for long periods, but then adjusting quite sharply. Sometimes these adjustments can be related to clear external events - such as the World Trade Centre attack. But often there is no such trigger. The types of circumstances that generate these outcomes are not particularly well understood. This is, I believe, a central theme of the recent work of some of your founder members, and it is one with significant operational as well as theoretical implications. I noted a few minutes ago that the original Basel Accord had given rise to a number of distortions between economic and regulatory capital. This problem came to a head during the course of 1990s as banks increasingly engaged in so-called 'regulatory arbitrage'. Better credits, over-weighted by the Accord, were progressively being securitised, leaving relatively poorer credits on the banks' balance sheets. And banks were getting little allowance for risk reductions achieved through portfolio diversification and the use of risk mitigation instruments.

The industry has moved ahead: In March, Singtel announced a partnership with its Thai associate AIS to link their mobile wallets up, to enable 1.5 million visitors between Singapore and Thailand to use their mobile wallets at over 20,000 physical merchant acceptance points in both markets. Singtel plans to expand this to other regional associates later in the year. b. More broadly, the banking associations of Singapore and Thailand are exploring the possibility of linking their faster payment systems, PayNow in Singapore, and PromptPay in Thailand. If successful, the benefits of instant, low-cost payments for tourists, migrant workers and professionals will also extend to person-to-person payments and even remittances. c. Earlier this month, when India Prime Minister Narendra Modi visited Singapore, he used his RuPay card issued in India to pay for a Madhubani painting on a NETS terminal. In order to address the challenges of cross-border linkages, central banks need to promote the adoption of common international standards and work with industry partners 22.  on all sides in order to ease future integration efforts and pave the way for further partnerships. D. CENTRAL BANK DIGITAL CURRENCIES (CBDC) As we talk about cross-border linkages, it would be remiss of me not to touch on Central Bank Digital Currencies (CBDC). Benoît Cœuré, our next distinguished keynote 23.  speaker, and I, as co-chairs of the BIS’ CPMI and Markets Committee (MC) respectively, jointly issued a report entitled “Central Bank Digital Currencies”12. Many of you would already have read it.
The size and durability of the imbalances that characterize the world economy today reflect a myriad of different forces: from differences in actual and potential growth rates, the degree of openness of financial and product markets, the type of exchange rate regime in place, the borrowing requirements of the sovereign, the degree of financial market development, the extent of the official safety nets, to differences in attitudes toward risk and expectations about the future. The interactions of these forces are complex and vary over time. And this limits our capacity to judge the sustainable level of imbalances. On its face, the increase in the size of the U.S. current account deficit suggests that the United States has been the principal beneficiary of the increased availability of global savings and the greater apparent willingness of the world’s savers to invest outside their home countries. At the same time, however, it is not difficult to see that if the deficit continues to run at a level close to 7 percent of GDP—and most forecasts assume it will for some time—the net international investment position of the United States will deteriorate sharply, U.S. net obligations to the rest of the world will rise to a very substantial share of GDP, and a growing share of U.S. income will have to go to service those obligations.

BIS Review 3/2006  1  How much of the reduction in real forward rates is attributable to a drop in expected real returns and how much is a reduction in the real risk premium is still an open question. The low level of long-term real rates seems likely to reflect in part a general rise in the supply of global saving relative to demand for investment, and some have suggested this phenomenon may reflect concern about prospects for future returns on investment. However, there is also evidence from other financial market indicators that the required compensation for bearing real risk has fallen, raising the possibility that the declines in real rates are due not to pessimism (or at least not entirely), but instead to an increased appetite for, or a decreased perception of, real risk. Against this backdrop of a favorable but so far uneven productivity shock, lower inflation expectations and risk premia, greater economic and financial integration, and divergent saving and investment patterns, what are the implications of the imbalances that are the subject of this conference? It is important to note that the greater dispersion in external imbalances is the inevitable result of a fundamentally healthy change in the world economy.
These loans are also secured by preferential rights in bankruptcy proceedings and, in addition, by a federal guarantee - that is to say, they are guaranteed with taxpayers' money (hence 'public' in public liquidity backstop). The interest rate on both types of loan is higher than that charged on the established liquidity assistance facilities. 3/4  BIS - Central bankers' speeches  The dramatic situation and enormous time pressure required the use of emergency law. In granting ELA+, we are going to the limits of what is feasible for the SNB, because with this loan preferential rights in bankruptcy proceedings are the sole security. We provided this liquidity only because rapid action was critical to restoring counterparties' confidence in Credit Suisse and stopping the outflow of client funds. Without the SNB's willingness to provide further liquidity via ELA+, a global financial and economic crisis could easily have been set in motion. In our view, this would have been irresponsible. Thoughts for the future Since the dramatic days of mid-March, the situation has stabilised. Let me now look ahead and share three thoughts with you regarding the future. My first thought is self-evident: Banking regulation and supervision will have to be reviewed in light of recent events. This will require in-depth analysis. Quick fixes must be avoided. However, from the SNB's perspective, there is one important point that needs to be emphasised right now.

In the future, regulations will have to compel banks to hold sufficient assets which they can pledge or transfer at any time without restriction, and which they can thus deliver as collateral to existing liquidity facilities. This way, even in extreme situations, we would be able to provide the necessary liquidity via the LSFF or ELA without the need for emergency law. My second thought is also self-evident: UBS's takeover of Credit Suisse fundamentally changes the structure of the Swiss banking sector. It is important that Swiss households and businesses continue to benefit from a broad range of efficiently priced banking services. This requires competition and diversity. We are optimistic that our domestically focused banks, but also the foreign banks operating in Switzerland, will adjust their product ranges accordingly. We are also convinced that UBS will carry out its task of providing Swiss households and the wider economy with banking services responsibly. This brings me to my third point, on which I would like to close. Healthy competition in the banking sector is not only in the interest of Swiss households and businesses, but also very much in the interest of the SNB. For our monetary policy to transmit to the entire economy, interest rates on bank deposits and bank loans must respond swiftly, and strongly enough, to changes in our policy rate. The greater the competition among the banks, the more likely it is that this will occur.
It is in this part that he argued the case for a central bank for the country in preference to a currency board. Part II is a draft bill for the establishment of the Central Bank of Ceylon with explanatory comments. These comments have helped to guide generations of central bankers, in the past, what was exactly meant by each section or clause of the bill. It will continue to do so in the future as well. The commentaries presented were succinct, precise and to the point. They testify to the vast knowledge which Exter had about the functioning of an economy, his reading of the status and the direction of the country’s economy, the functioning of a monetary system both in domestic and global economies and how a central bank should be organized and operated. Hence, to understand Exter Philosophy of Central Banking, there is no better document than the Exter Report. Nearly six decades after John Exter completed the Exter Report, it would be useful to re-visit the report and assess his philosophy of central banking in the context of the body of knowledge of central banking today and identify its relevance to central bankers as guidance. This paper is an attempt at this exercise. The choice between a central bank and a currency board Prior to the establishment of a central bank, Sri Lanka was operating under a currency board system in which the country’s currency had been backed by 100 percent in foreign reserves maintained with the Reserve Bank of India.

The inherent flexibility of a managed float regime such as the one pursued by the NBR does, however, have its clear limitations, which should not be overlooked – this does not imply, by any means, that the central bank acts in a discretionary manner, taking the exchange rate wherever it wants. The abuse of flexibility can be as harmful to the proper functioning of the economy as the abuse of rigidity. In fact, the inflation-targeting regime implemented by the NBR is a mix of rules and discretion with the aim of formulating a coherent and effective monetary policy. As regards the current differences in the countries’ approaches to euro adoption, for some it might seem odd that Bulgaria, which lags behind in terms of real convergence, is considering joining the euro area sooner than Romania. It is only natural for our neighbour to contemplate euro adoption as the only sound exit from the present currency board. By contrast, in Romania, as well as in other countries pursuing a floating exchange rate regime, the approach is different, since euro adoption is more complex. This is by no means to say that Romania does not envisage joining the euro area, but merely that a comprehensive preparation is of the essence to cope with the related challenges. The Latin dictum festina lente is, in my opinion, quite suitable in the case of euro adoption as well. With respect to real convergence, many have been asking themselves “How fast is fast enough?”.
Thus, as is the case in other developed 4  BIS central bankers’ speeches  countries, commercial banking business margins remain at low levels in what is a stillunfavourable setting marked by the contraction in lending and the low level of interest rates. I shall make some brief comments later on the challenge of profitability. 5. What are the challenges that lie ahead? In recent years the environment in which the banks operate has undergone a significant transformation, owing to the changes in economic conditions and to the shift in attitudes provoked by the crisis, among investors, consumers of banking services and also the financial authorities themselves. As a result, banks are being required to make significant strategic adjustments. From among the numerous challenges facing the industry in the short term, I would like to highlight three: i) those resulting from the far-reaching changes in the regulatory and supervisory framework; ii) those arising from the lower business profitability; iii) and lastly, those associated with restoring banking customer confidence in the wake of the reputational damage suffered during the crisis. i)  Regulation  The first main challenge facing banks is the need to adapt to the new European regulatory and supervisory framework. As I have said, Spanish banks have successfully adapted to the new capital requirements, comfortably meeting the new limits established in the prudential regulations deriving from Basel III which have now been incorporated into Spanish law and are to be gradually phased in.

It is true, as I indicated earlier, that in recent years most European bank income statements have reflected sluggish growth. This is largely a result of cyclical factors such as persistent macroeconomic weakness (despite the recent improvement), subdued credit demand amidst deleveraging by households and firms alike and low interest rates which exert considerable pressure on financial margins. Nevertheless, there would also appear to be structural factors that could keep banks’ returns on capital permanently below their pre-crisis levels. In particular, it is reasonable to assume that stricter prudential regulations will moderate banks’ profits, if for no other reason than the higher regulatory cost they impose on high-risk exposures which are usually also those that generate higher expected returns. More generally, as I mentioned earlier, one of the aims of the new legislation is to increase the participation of banks’ shareholders and creditors in the absorption of losses in the event of bank failure. This means reducing to a minimum the idea of an implicit state guarantee for banks’ liabilities, which will naturally have an impact on the industry’s financing costs and, therefore, on bank profitability. In addition, it should also be noted that medium-term trends in advanced economies – characterised by the need for deleveraging, moderate productivity growth and population ageing – exert downward pressure on potential growth and prompt excessive structural saving which will tend to keep interest rates low. As a result, we may see marked changes in the banking business.
In addition, we must of course maintain preparedness for managing crises, something which has become more complicated as integration has increased and which now requires greater efforts by central banks and financial supervisory authorities. Agents in the financial markets must also take responsibility. The risk management models in the financial institutions must be tested to a greater extent with regard to how they will function if market conditions change rapidly. VaR models need to be supplemented with stress tests that capture external events. Extensive price fluctuations and changes in pricing dynamics may mean that historical relationships no longer apply. 4/5  This is the financial system as we usually refer to it. However, perhaps the greatest difference that has occurred in the financial markets is that households have become a significant agent, even in Sweden. This applies first and foremost to households investing in mutual funds and pension companies. However, it applies to an increasing number of households, particularly through the new public pension system. Households as a group therefore bear more direct financial risk now. This also raises important questions. Are they prepared for this? What role do schools play in providing the necessary competence? Should other agents become involved? There is also a larger question in the background. How far should this development be pursued? Or, expressed another way: what can be done to help households wishing to minimise their financial risks, for instance, as they approach retirement age? These are large, but important, question that are raised by current developments.

If the asset managers are lucky, they will manage to predict the period with a positive yield and the rare loss will not become a reality during the period they are being evaluated. This appears more likely the shorter the evaluation period is. Willingness to take risks can increase in a low interest rate environment. Agents may then wish to take more interest rate risk and perhaps come further out on the yield curve, thus becoming more sensitive to rapid interest rate fluctuations. They may also look for new types of investment. The fact that they are evaluated in comparison with others in the market may also lead to asset managers adopting herd behaviour, even if they have a different opinion of the current developments in the financial markets. It is better to lose in good company than to stand alone with an investment that might provide a good return in the long-run, but which results in short-term losses. The word might is central here, as no one can predict market developments and it is therefore difficult to go against a trend. Herd mentality can thus lead to asset prices deviating from fundamental economic conditions during a relatively long period of time. The contagion effects can also increase when the view of the world changes. Herd behaviour among market agents does not only involve investing in the same assets. There are signs that this also includes researching information.
Since asset prices, as I have already mentioned, affect aggregate demand in the economy, interest rates will be raised when asset prices rise and vice versa. Although we know from experience that there are no guarantees, this is likely for various reasons to have a stabilising effect on asset markets. For one thing, macroeconomic stability in itself has a stabilising effect on financial markets. For another, there is less likelihood of over-reaction, since participants in the financial markets will expect central banks to pursue a policy dictated by their inflation targets. Thirdly, lowering interest rates helps to mitigate the imbalances that may occur as a result of rapid falls in asset prices. In addition, a credible inflation target allows monetary policy more room for manoeuvre when it comes to preventing a financial crisis. However, a monetary policy strategy that waits until the market collapses before responding to changes in asset prices may, at least hypothetically, pose a dilemma. The fact is that we still do not know very much about how the incentives of players in asset markets are affected by such “asymmetrical” action on the part of a central bank, i.e. being largely passive while asset prices are rising and then acting forcefully when they fall. Perhaps the devaluation policy that was pursued in Sweden in the 1970s and 1980s is a relevant parallel in this context. During that period expectations about the rate of inflation were determined by an economic policy which responded to excessive rises in prices and wages by devaluing the krona.

The fact that low inflation is not sufficient to achieve a moderate price trend in asset markets is illustrated by the development of the American stock market in the last few years. Naturally, this represents something of a dilemma. What should central banks do? Does this mean, then, that monetary policy should, to a greater extent than hitherto, be used to take firm action in response to rapid price increases in asset markets? There is no easy answer to this question, but the predominant view nowadays is that the answer is no. Nevertheless, as a decision-maker I must keep my options open on this one. Situations may arise in the future that we cannot predict today in which monetary policy might have a role to play. BIS Review 128/1999  4  Perhaps the main reason why it is normally not advisable to try to influence asset prices is that it is extremely difficult, if not impossible, to be sure when a bubble has formed and when rising prices are due to improvements in underlying economic factors. The appropriate monetary policy must be determined by the fundamental causes of the rise in asset prices. Let us assume, for example, that a rise in share prices reflects better prospects of higher future corporate profits as a result of faster underlying growth in productivity. In that case, the rise in prices is the result of an improvement in fundamental economic factors, which means that it is based on “real”, rather than psychological, causes.
Thus, growing banking disintermediation might diminish the general effectiveness of such instruments, if other participants in the financial system, to which these tools were not applicable, were to engage in activities similar to those of banks. 5/7  To mitigate this risk, the forthcoming creation of a Spanish Macroprudential Authority will provide the appropriate forum in which all financial system supervisors may share their analysis of risks and coordinate the most suitable response, without leaving “gaps” that might restrict effectiveness Private risk mitigation measures in the Economic and Monetary Union In any event we should be mindful that, to ensure greater stability in European financial systems, it does not suffice to adopt measures at the national level; it is also necessary to push through a greater level of development and integration of European capital markets so that, in conjunction with the Banking Union, the risk-sharing and mitigation mechanisms at the level of the euro area as a whole are strengthened. In this connection, allow me to dwell on the importance of private risk mitigation measures. The crisis highlighted the scant power of these channels in the Economic and Monetary Union, compared with other monetary unions. It also became evident that these channels diminish, or even disappear, precisely when they are most needed. It is estimated that in the United States the cross-border ownership of capital across states enables 40% of the asymmetric shocks affecting a State to be diluted among the rest through private capital markets.

4/7  On the other hand, the development of non-bank funding sources may also contribute to providing readier financing for specific investment projects; for instance, those undertaken by innovative or newly created firms, for which the availability of bank lending may be more limited. It should be borne in mind that the launch of some of these projects may have a positive impact on firms’ productivity growth. Naturally, these advantages for those demanding funds may have positive effects for society as a whole, insofar as they result in higher and more stable economic growth. From the standpoint of fund suppliers, the existence of alternative means of investing their saving may result in more attractive return/risk combinations for various savers, depending on their needs and preferences. So that households and firms may benefit fully from all the advantages of banking disintermediation, they will need to have sufficient financial knowledge. This is something that the Banco de España, along with other bodies such as the CNMV, is firmly committed to through financial education programmes such as “Finance for all”. Evidently, disintermediation poses substantial challenges for banks. Greater competition from non-bank intermediaries may affect both banks’ business volumes and net interest income. This potential loss of income is significant at the current juncture, at which banks are posting modest levels of profitability, the economy is slowing and private-sector demand for funding remains sluggish.