samchain/econo-pairs-v1 huggingface dataset:
Banks’ exposure to reputation risk also changes since problems in another, non-banking part of the conglomerate may influence and damage the bank’s reputation. In terms of financial stability, it may nonetheless be an advantage that bank conglomerates spread their revenue base. This is particularly true if earnings from new activities do not fluctuate in step with earnings from traditional banking activities. However, this is not entirely certain since most sources of bank revenues failed during the banking crisis at the beginning of the 1990s. Risk diversification through the securities market Credit that is channelled directly through the securities market diversifies risk and thereby eases the burden on the banking system. Developments in the securities market have made it easier for banks to vary their financing. In addition, the emergence of a number of new credit sources and new instruments has made it possible for banks to engage in risk trading. Therefore, it has also become easier for banks to diversify risk. The structure of the financial system varies considerably across countries. This is illustrated by the different ways enterprises finance their activities. Norwegian enterprises have a fairly low level of borrowing in the bond and short-term paper market, representing as little as 8 per cent of total financing. Different financing structures mean that the risk associated with extending credit and providing other financial services varies across countries. It is an advantage for enterprises and other operators in the financial market to have several financing sources to draw on.

Changing risks and the search for yield on Solvency II capital Speech given by David Rule, Executive Director of Insurance Supervision  Association of British Insurers, London 6 July 2017  1  All speeches are available online at www.bankofengland.co.uk/speeches  Regulatory change has dominated our insurance supervision agenda for the past few years. Today I want to talk mainly about risks. Our supervisory work is similarly shifting gear. As Solvency II becomes business as usual, we will spend more of our time understanding the risks that insurers are taking and, where necessary, responding to them. I do though want to make a couple of initial points about Solvency II. First, we are making good progress, working with the ABI, in identifying improvements to our implementation of it. This follows up the commitment made by Sam Woods to the Treasury Select Committee in February. Amongst the areas we are working on are our processes around model changes and the matching adjustment; and regulatory reporting. We are working within the bounds of the EU legislation and I do not anticipate any headlinegrabbing initiatives. But I am confident that we will identify a number of practical changes that will make a difference to insurers and supervisors on the ground. Second, we will continue to update our approach in the light of new information. For example, it does appear 1  that the rate of improvement in life expectancy of older people has slowed in the United Kingdom .
It also omits factors such as widening credit spreads, the role of time-varying parameters and the risk of deflation, particularly between 2002 and 2004. See, for example, Bernanke (2010) and Kohn (2007). 7  Taylor (2009). 2  BIS central bankers’ speeches  Slide 4 illustrates the “supply shock” hypothesis. Here, the crux of the argument is that monetary policy was too expansionary because the impact of supply shocks on prices was underestimated. This, in turn, prompted miscalculations of the output gap. As one can see, in the United Kingdom and in Switzerland, the prices of those goods which were most influenced by imports increased far more slowly than those of services, which were less import-dependent. One plausible explanation for this is that the availability of cheap imports from Asia (or Eastern Europe) acted as a positive supply shock, thus reducing the relative price of imports. If the supply shock had been temporary, it would have provoked lower transitory inflation and the optimal monetary policy response would have been to do nothing, except to let the economic forces at play re-establish an equilibrium and normal inflation levels.8 In recent decades, however, the pressures associated with globalization have borne greater resemblance to a permanent series of shocks. As these shocks were interpreted as temporary, they were disregarded from a policy perspective, which, it is argued, caused monetary policies to be excessively expansionary.

Purchase of foreign currency The aim of our buying foreign currency is to prevent an appreciation of the Swiss franc against the euro. This is the key component of our unconventional monetary policy. It is important to emphasise that we do not engage in foreign exchange interventions in order to  BIS Review 77/2009  1  bring about a depreciation of the Swiss franc, but to prevent any further appreciation of the franc in its role as a safe haven currency. Therefore, the reproach we occasionally hear that the SNB’s policy is encouraging an international depreciation race is unjustified. A look at exchange rate movements shows a clear appreciation of the Swiss franc during the course of the financial market crisis (cf. chart 1). So there can be no question of the SNB conducting a beggar-thy-neighbour policy. We give ourselves a great deal of latitude with regard to our foreign exchange interventions. There is no fixed threshold beyond which we become active; we simply decide in accordance with the situation at hand. And markets should not become used to a certain level of intervention. We feel that this approach promises the highest possible impact, which in turn will allow us to phase out the strategy more easily when the time comes. Furthermore, we do not comment on the volume of our foreign currency purchases. The purchases of foreign currency have fulfilled their purpose – and with these I am referring to our first unilateral interventions in the foreign exchange market since 1992.
One consequence of this important change is a reduction of around one-third in the capital charges on loans to many small and medium-sized businesses, relative to what the Committee had proposed in January 2001. Greater recognition of collateral A second change, announced in November, is to expand the range of acceptable collateral to let banks that qualify for the internal-ratings based approach recognize physical collateral and trade receivables as a way of reducing their capital requirements. The Committee is aware that small and medium-sized enterprises, such as the “Einzelkaufleute” and “GmbH,” tend to pledge these forms of non-financial collateral when they apply for credit. By treating collateral in this way, the Committee estimates that IRB capital requirements on loans to smaller companies may fall by another 10 percent relative to the first change I mentioned. We face a challenge in determining which forms of collateral or trade receivables offer the greatest level of protection to banks compared to other forms. This is not an easy task because each type of collateral has a unique historical record in reducing loss, records that also vary according to country. Moreover, banks in different countries manage collateral and trade receivables in very different manners. Because of these differences, we believe that national supervisors are best suited to determine which sorts of collateral to accept in their respective markets. Rather than having the Basel Committee draw up a comprehensive list of permissible instruments, we are developing a set of minimum criteria for national supervisors to implement.

Ida Wolden Bache: Norges Bank’s management of the Government Pension Fund Global Introductory statement by Ms Ida Wolden Bache, Governor of Norges Bank (Central Bank of Norway), at the hearing of the Standing Committee on Finance and Economic Affairs of the Storting (Norwegian parliament), 3 May 2022. * * * I would like to thank the Committee for its invitation. Norges Bank manages the GPFG with the objective of achieving the highest possible return over time within the limits of the investment mandate defined by the Ministry of Finance. The objective of the highest possible return is to be achieved within an adequate control and risk management framework, in a responsible and cost-efficient manner with a high degree of transparency. The investment mandate is extensive. Around 70 percent of the over NOK 11 000 billion in the GPFG is invested in equities, which means we are one of the world’s largest shareholders. We a minority shareholder in around 9000 companies in 70 countries. In addition, we have a broad portfolio of fixed income investments. Some of the GPFG is invested in unlisted real estate, and in 2021, we also invested for the first time in unlisted renewable energy infrastructure. The GPFG is managed to track the benchmark index fairly closely, so that the return largely tracks the return on the benchmark index. The benchmark index is defined by the Ministry of Finance and endorsed by the Storting.
And its calibration is subject to uncertainty which, combined with its size and the quantity and importance of the services that it underpins – retirement income and long-term investments – mean that we have to maintain a very high confidence that its calibration is suitably prudent. 4/5  BIS central bankers' speeches  The increasing role played by illiquid assets – whilst wholly consistent with the advantage that insurers have as investors in this space – is a growing source of uncertainty and makes it essential that the calibration be set at a level appropriate to the assets that firms actually hold. I am sympathetic to calls to look again at breadth of eligibility and process improvements for the MA to remove barriers to investment – in infrastructure for example. But we should be cautious about calls for the MA to be made any more generous, both for prudential reasons and because the very existence and current level of the MA may already crowd out investment by insurers in anything that is not eligible. Another important area is the role of internal models in the regime. My colleague Charlotte Gerken has spoken recently about our concerns over excessive reliance on internal models and some potential responses to it.

I was particularly interested to learn from our hosts today, in their press release of 23 February, that their preferred outcome of the review could free up £ billion of capital which could be returned to shareholders. You will not be surprised to hear that I have some doubts about a reform package which materially decapitalises the insurance sector. While it’s natural for the private sector to focus on private interests, it’s part of our job to keep an eye on the potential public costs of significant insurance failures. In our system, the highest standards are, rightly, applied to financial institutions that bring most risk to the system. Insurers are not at the top of that list – fortunately for this audience that position is reserved for your cousins in the banking sector. But insurance is absolutely essential for the functioning of the economy. For example, collectively insurers are responsible for paying over £ billion of annual retirement income, and a similar amount in motor claims. Imagine the costs to the wider economy of a disorderly failure of a single large insurer or of multiple failures thanks to a common vulnerability. Coming back to the matching adjustment, this makes a contribution of around £ billion to insurers’ capital base at the last count. The principle of the MA – that long-term investors that match assets closely to their long-term liabilities are exposed to fewer risks – is sound. But it does represent the bringing forward – and potentially paying away in dividends – of unrealised returns.
Restructuring and new technology may also have increased the long-term growth potential of the US economy. The marked turnaround that has now come shows that developments went too far. The technology stock bubble burst. The focus has now shifted towards heavily indebted households and businesses. Banks are expecting higher losses. The question may arise as to whether financial crises are an inherent feature of a market-based financial system. What can the authorities and the financial industry do to reduce the likelihood of future crises? 1  See Bank for International Settlements (2001). 71st Annual Report. Basel  BIS Review 86/2001  1  I will take a closer look at certain crisis periods that occurred before World War II and government responses in the form of legislation, regulation and the introduction of a financial safety net. In the decades prior to 1914, financial crises with a pronounced impact on banks were just as frequent as in 2 our time. During the interwar period, financial crises occurred even more frequently. In the period of extensive direct regulation of banks up to the 1970s, there was a virtual absence of banking crises. However, the system was not sustainable and was at the root of many of the problems that followed. With a succession of crises since the early 1980s, financial stability has again become an issue, both at home and abroad. Nevertheless, there is fairly broad consensus as to the merits of a market-based system and free cross-border capital movements.

Second, we have a number of rigidities in nominal wages. We have a number of rigidities in some prices, so that fuels automatically certain rises in core inflation normally, and for the time being we have not seen that change significantly. Third, when we look at long-term inflation expectations, until now they have remained well anchored to our definition of price stability. So these three reasons make me think is that what would normally happen is that after a trough inflation will come back to somewhere close to our definition of price stability. But of course we have to remain cautious and be ready to act, and certainly if we felt there had  BIS Review 29/2009  3  been a change in these various elements we should ask ourselves if other non-standard monetary policy actions might be necessary. FT: Classic quantitative easing? CN: For instance? FT: Buying government bonds? CN: Possibly. FT: Axel Weber has said 1 per cent would be the floor for the ECB main policy rate. Others have said zero could be possible. Where do you stand? CN: I’m pragmatic. We have certainly not decided in advance that there is a minimum level that would be our floor. But there are a couple of things that we need to take into account. First, it is a general rule that the more you cut rates and you approach zero, the less efficient are the moves in terms of transmission into the real economy.
Finally, I would like to draw your attention to another topic. It concerns the future, - the development of financial technologies - and it is a topic today beingdiscussed widely. The development of financial technologies has become a point of regular discussion in the partnership of financial institutions and banks with the regulator. We are aware that growth of such technologies allows banks and other financial institutions to improve their efficiency, enter new market segments, and develop customer products and services. However, there is another reason to take a closer look at fintech - for it is these technologies that may rapidly alter the banking environment and all of you need to take it into account that new technologies are developing very quickly and may impact on your business. We should be prepared for such an alteration. Otherwise new actors may oust conventional banks from the market. We are interested in developing financial technologies because they are convenient for people and for businesses, but at the same time we do not want the explosive growth in technologies to result in an increase in cyberattacks and cyberfraud. The Bank of Russia is focused on this issue. We have established both a centre for the development of financial technology and a centre for monitoring and response to cyberattacks in the financial sector.

Working closely with the Commercial Affairs Department and the Attorney-General’s Chambers, MAS undertook a rigorous probe of these transactions which were part of a large, complex, cross-border money laundering scheme. Last year, I said that the findings on the 1MDB-related transactions that flowed through here had made a dent in our reputation as a clean and trusted financial centre. I believe we have begun the process of restoring that reputation. We have taken tough and unprecedented enforcement actions and sent an unequivocal message that MAS will not tolerate the criminal abuse of Singapore’s financial system. Just last month, we announced the completion of an intensive two-year long review of banks connected to 1MDB-related transactions known to-date. All in, we have closed 2 merchant banks and fined 8 banks nearly $ million – the heaviest aggregate financial penalties to-date. We have also issued prohibition orders (POs) against 4 individuals and served notices of intention to issue POs against 3 others for various regulatory breaches. MAS also issued lifetime bans, for the first time, against 2 of these individuals. MAS’ regulatory actions so far are based on what we know to-date. Thanks to excellent co-operation we have had with overseas jurisdictions, Singapore authorities were able to obtain good intelligence and piece together most of the significant flows from end to end. We have found nothing new in the latest filing by the US Department of Justice that warrants further action by us.
Second, a set of resolutionrelated reforms are intended to limit the consequences to the financial sector if a failure by such an institution still were to occur. Given the limited time on this panel, I will not review in detail the post-crisis comprehensive capital and liquidity framework that the Federal Reserve has put in place. However, from the perspective of addressing too big to fail, it is important to highlight the Federal Reserve rule finalized this year that imposes risk-based capital surcharges on the handful of U.S. global systemically important banking organizations (GSIBs). Under this framework, a GSIB’s riskbased capital surcharge will reflect the degree to which its failure would impact the financial system. In effect, the risk-based capital surcharge confronts each U.S. GSIB with the choice to either reduce its systemic footprint or instead to hold more capital. The policy approach to too big to fail recognizes, of course, that we can reduce but cannot completely eliminate the possibility of a large financial institution’s failure. Therefore, a second aim of our post-crisis reforms has been to limit the adverse consequences that would result if a large financial institution were to fail. That is, large financial firms need to be capable of being successfully resolved without creating unacceptable collateral damage to the rest of the financial system and to the economy.

It is said that a central bank must have foresight, so that it can take action in time and contribute to the stability of the economy. Foresight on a different level was demonstrated by Nicolai Rygg long before the invasion of Norway. Two years earlier, in 1938, Rygg had assigned a secret mission to the 21-year old Ivar Borg. Every morning for several months, the young man was locked into the Bank’s vault to pack up the gold reserves. When German troops were approaching Oslo, the gold was ready to be quickly loaded onto pre-requisitioned lorries and, after a dramatic escape, was safely shipped out of the country. The gold reserves gave the government-in-exile in London the financial freedom to pursue its activities. A central bank safeguards value. Norges Bank no longer guards the nation’s gold. The gold was sold long ago. Today, the Bank manages the nation’s income from the black gold beneath our seas. This will provide financial freedom of action for future generations. A well-functioning monetary system with stability in the value of money is still at the core of Norges Bank’s public mission, as it has been for the past two hundred years. Inadequate access to reliable means of payment affects trade in goods and services and can cause the economy to stall – now, as then. At the same time, the role of the central bank has evolved over time, requiring it to adapt to a constantly changing stage.
Moreover, a flexible regime has the additional benefit of yielding exchange rates that reflect market forces and economic fundamentals, enabling the authorities to gauge the proper level of the equilibrium exchange rate as the date of entry of ERM II draws closer. A more thorough examination of the facts, however, suggests otherwise. Malta likely to maintain a fixed exchange rate regime Whereas the liberalisation of capital flows could indeed lead to upward pressures on the exchange rate in some countries, such pressures are unlikely to be overwhelming in the case of Malta, not least because a functioning market economy already exists. Econometric evidence in fact suggests that because of its openness, the Maltese economy has already been exposed to significant capital flows, such that the impact of full capital account liberalisation is likely to be significantly smaller than that in some other accession countries . To some extent, the Bank’s external reserves, which have always remained well above 60 per cent of its liabilities as required by law, can also act as a cushion against external shocks. In addition, the structure of the Maltese economy is already very similar to that of its main trading partner, the EU, which makes a fixed peg arrangement more appropriate in the event of a symmetric shock. Empirical evidence also shows that the fixed exchange rate has been a valuable nominal anchor in restraining price and wage increases. Inflation has in fact remained below 3% during the past five years.

As is the case with any exchange rate strategy, the sustainability of the central rate and, with that, the fulfilment of the Maastricht criteria, will hinge on whether that rate is compatible with economic fundamentals. Fulfilling this criterion requires an unconditional willingness to defend the external value of the currency. For policy makers that means a commitment to abstain from practices that could be in conflict with the objectives of exchange rate policy. For participants in foreign exchange markets, including the central bank, it implies the need to intervene in the market without hesitation. Within this context, the importance which the acquis assigns to the independence of central banks is understandable. Whereas the Central Bank of Malta has been formulating monetary policy independently since 1994, there is no doubt that the recent amendments to the Central Bank of Malta Act have put the Bank in a better position to defend the peg. The amended Act, in fact, not only establishes price stability as the primary objective of the Bank, but it also protects the Bank from any external interference and provides it with the operating flexibility necessary for effective and prompt intervention in foreign exchange markets. With the coming into force of these amendments, Malta has achieved a high degree of compliance with Chapter 11 of the acquis on EMU. Another crucial precondition for maintaining the exchange rate peg and ensuring a smooth transition to the single currency is financial sector stability.