samchain/econo-pairs-v1 huggingface dataset:
Should the general economic situation indeed deteriorate further, the solvency of borrowers would also worsen. This would result in losses in the big banks’ lending portfolios. The effect on banks with a domestic business focus would depend on the extent of the deterioration in the international environment. Entering into risk is a bank’s core business and, as such, is desirable. What is important is that these risks can be both calculated and carried. However, experience shows that is not always the case. In each of the three most recent international financial crises, a Swiss big bank was particularly hard hit. Each time a crisis occurred an increasing amount of equity was wiped out. This should serve as a warning. If the wheels are not set in motion now, the impact of the next crisis could be even more severe. Should a big bank collapse, the consequences for Switzerland would be dire. Therefore, measures need to be taken now in order to ensure that the Swiss big banks are sufficiently  BIS Review 80/2008  1  resilient in the future. The SNB and the Swiss Federal Banking Commission recognise a need for action in – basically – four areas: capital, liquidity, monitoring and crisis management. In our stability report we discuss measures in all four areas. Today I would like to focus on the most important measures in the area of capital. It is in the nature of the financial markets that there will always be crises.

As clearly outlined in our Financial Stability Report, leverage at the Swiss big banks is very high, and since the mid-1990s, average indebtedness at the two big banks has risen from 90% to over 97%. That means over CHF 97 of borrowed capital for every CHF 3 of equity. This ratio is also very high by international standards. In terms of return on equity, high leverage may appear attractive. In terms of financial stability, however, it is also a source of risk. Thus, in the current crisis, losses arose on Swiss big bank risk positions which are relatively small in comparison to total assets. However, because leverage was high, in the case of UBS these losses destroyed almost half the bank’s equity. The two measures mentioned above have a complementary effect. The risk-based requirements ensure the best possible risk-sensitivity for capital adequacy purposes. Alongside this, a leverage ratio would guarantee a minimum safety buffer which does not depend on complex models. Thus, the leverage ratio would be a protection against unexpected shocks that are not sufficiently covered by the risk-weighted requirements. This limitation set on the degree of indebtedness would mean that capital requirements would increase for activities based on large amounts of borrowed funds, such as proprietary trading. In the US, banks have long been subject to a leverage ratio. They have to comply with a capital-to-assets ratio of at least 5% in order to be considered as well capitalised.
Dato’ Ooi Sang Kuang: Malaysia – ready to face a new world Keynote address by Mr Dato’ Ooi Sang Kuang, Deputy Governor of the Central Bank of Malaysia, at the National Economic Outlook Conference 2010–2011, Kuala Lumpur, 1 December 2009. *  *  *  The global economic and financial environment of the past two years has been extremely challenging. Financial market events previously thought to be highly improbable, occurred to create a financial crisis on a global scale. The international financial system froze, wealth destruction not seen since the Great Depression took place, world trade collapsed, and many advanced and emerging economies entered into a deep synchronised recession. Several well-known global financial institutions disappeared overnight while many others were rescued by Government bailouts. The global financial crisis saw policy makers having to respond strongly and adopting a wide range of unorthodox policy measures. A prolonged recession was averted and now the global economy is recovering. What is uncertain is whether the current revival can be maintained and growth sustained. Risks remain that the current recovery could lose momentum. Arising from the worst global financial crisis since the last depression, the world’s economic order and the character of the global financial system will be undergoing a process of transformation that will be significantly different. In a transformed new world, Asia is set to emerge as one of the most vibrant regions, and will increasingly play a critical role in determining the shape of the future global economic landscape.

BIS Review 158/2009  3  As economic revival gathers pace, the immediate policy priority is to ensure that the domestic foundations for recovery are more firmly entrenched and the medium and longer term growth potential is established. The private sector will need to resume its primary role in driving economic activity. Of particular importance is the growth of private investment. Towards this end, the Central Bank will continue to ensure that access to financing across all segments remains in place. While it is critical for the public sector to play a counter-cyclical role, sustained fiscal stimulus that leads to excessive fiscal burden would be detrimental to longer-term economic prospects. Thus, the Government’s current commitment to fiscal consolidation and enhancing efficiency in public spending reflects a measured and sound approach in budgetary management. As for monetary policy, it is recognised that a prolonged period of low interest rate globally could lead to potential market distortions, particularly in an environment of ample liquidity. While consumer inflation is expected to remain low in the international environment, there is a need to be watchful of developments in asset markets and asset prices. Promoting monetary and financial stability is complicated by the frequency of very large short-term capital flows. Better prospects for recovery and expectation of a head start in the unwinding of policies in the Asian region compared to the rest of the world could lead to strong capital inflows.
Economic theory says that such goods will not be offered to a sufficient extent or sufficiently efficiently by the private market. Tobin (1987) 15 argued that this aspect of the monetary system means that central government should have a central role on the payment market and I am inclined to agree with him. The implementation of payments involves the exchange of a large amount of information, demanding large IT systems which are expensive to obtain but with 13 The banks’ possibilities for creating new loans are also limited, to a certain extent, by the requirement that they have a certain amount of equity in relation to the size of their balance sheets. There are also regulations for the composition of the balance sheet that are aimed at reducing the risks in the financial system. 14 Up to SEK 950,000 per person and institution is protected according to the deposit guarantee. See www.riksgalden.se/sv/Insattningsgarantin/Om_Insattningsgarantin/. 15 See Tobin, J. (1987) “A Case for Preserving Regulatory Distinctions.” Challenge 30 (5). 5 [15]  which the marginal cost for executing a further payment is small. In other words, there are economies of scale, which, in theory, leads to natural monopolies. This means that, if the market is left unregulated, the dominant company will have an incentive to supply too little of the product for too high a price. Monopolies can also create worsened conditions for innovation as these are often driven by competition. In addition, the system can be vulnerable when one company, and thus one technical platform, dominates.

Later on, payment instruments issued by the private banks took ever greater market shares and the use of cash has declined steadily since the 1950s as a proportion of GDP. During the 1990s, electronic alternatives such as card payments also gradually started to replace cash for purchases in shops. Money is now electronic and is created by banks When we talk about money, many people probably envisage a banknote in one currency or another. But in today’s digital society, cash forms a very small part of the total amount of money, only about 2 per cent. 11 The overwhelming majority is completely electronic. Neither is it the case that the Riksbank or other central banks are normally the ones who create new money these days. 12 Many of us have been taught that, when banks get new deposits, they can create new loans, but it actually works the other way around. At present, it is the banks that create new money when they issue new loans. If I approach my bank with a request for a new loan for a home and the bank grants me credit, I will receive a liability in my account with the bank. At the same time, the money I have borrowed is transferred to the seller of the property, who deposits the money in his or her bank account. So new loans  10 Eichengreen, B and Temin, P. (1997) ”The gold standard and the great depression”. NBER Working Paper 6060.
Fourth, the measure of risk-weighted assets – the denominator of the capital adequacy ratio – is constructed to better capture the risks that banks are taking in their activities. For example, the risks weights on trading account assets and for counterparty exposures have been increased substantially to reflect the lessons of the crisis. Note that due to better capture of the underlying risks, at least initially, aggregate risk-weighted assets in the system are likely to increase. This is not because the inherent riskiness of bank balance sheets has increased, but rather because that riskiness will be better captured. In addition to the 4.5 percent minimum common equity standard, there is also a new capital conservation buffer requirement equal to 2.5 percent of risk-weighted assets. If a bank were to incur losses and fall deeper and deeper into this buffer, increasingly tough limitations would come into play in terms of the bank’s ability to make capital distributions by paying dividends or buying back shares. This capital conservation buffer is designed to forestall the type of behavior that we saw during the crisis – banks continuing to dissipate capital by paying out dividends in order to demonstrate that they were strong. Instead, banks will have an incentive to raise additional equity to exit the buffer and its restrictions on distributions.

Third, higher bank lending spreads almost certainly will push some activity into the capital markets, constraining the magnitude of the rise in total lending costs. Finally, banks may be forced via competitive pressures to lower their compensation levels. By cutting compensation costs, banks could have smaller lending margins and still earn sufficient profits to generate a level of returns necessary to attract capital. Given all the potential margins for adjustment, there are good reasons to expect that the increase in lending margins will actually turn out to be quite modest. Although any increase will be a real cost, this appears to be a necessary and appropriate price to pay for a much more resilient financial system. The cost represented by higher lending spreads has to be weighed against the benefits of a more robust and resilient banking system. Recent years have surely taught us that easy access to credit that is underpriced because it is not backed by sufficient capital is not a sustainable route to prosperity. Indeed, to the extent that tougher standards reduce the misallocation of resources in the real economy that often accompanies periods of financial excess, ensure more consistent access to finance over time and encourage investment by holding out the prospect of greater economic stability, the new standards could be consistent with a more rapid sustainable growth rate over the long run.
This was the path that most observers counted on last spring. It was, however, questioned by others, particularly outside the United States. In general, they foresaw a more protracted, U-shaped recovery. Time would be needed for the adjustment of the over-  2  BIS Review 86/2001  investments that excessive optimism had generated. There is a lag before measures of economic policy have tangible effects. In some quarters, finally, there is an even more pessimistic scenario, an L. This envisages that growth in the U.S. economy comes more or less to a halt as the imbalances undergo a painful correction and measures of economic policy have little effect. In my discussion with you last spring I believe I likened my version to a banana. This was because the Riksbank believed that in many respects the cyclical path would follow the normal pattern. An expansionary phase is usually followed by a period of slacker activity. The longer the upward trend has lasted, the more likely it is to take a pause. That made it difficult to believe in the V-shaped scenario that the financial markets were mainly counting on at that time. The path has been accentuated by the recoil from the excessive optimism that had attended the technological breakthrough and given rise to the notion of a new economy. With rising demand, the supply side of the American economy had been expanded on the basis of expectations that simply were not realistic.

With due respect for all the forecasting difficulties at present, the Riksbank counts on demand in the industrialised countries turning upwards during the second half of next year. GDP growth in the OECD area is calculated to be 1 per cent this year, followed by 1,5 per cent in 2002. Under present circumstances the uncertainty around our main scenario is, of course, considerable. BIS Review 86/2001  3  We count on GDP growth in Sweden in the coming years being lower than we assumed earlier. The combined economic effect of interest rates and the exchange rate is therefor stimulatory. As the Committee is no doubt well aware, in the years ahead both increased transfers and tax cuts will also contribute to a rapid increase in household disposable income. Given a gradual recovery in the rest of the world, this appreciable overall stimulus from economic policy will lead to a gradual upturn in Sweden’s economy. GDP growth is expected to be 1.3 per cent this year, followed in 2002 and 2003 by rates of 2.2 and 2.8 per cent, respectively. The lower GDP growth — particularly this year — compared with our earlier assessment implies lower resource utilisation. At the same time, the recovery towards the end of the forecast period means that resource utilisation will then be rising again. Monetary policy is currently formulated on the basis of an assessment of inflation excluding transitory effects from indirect taxes, subsidies and house mortgage interest expenditure (UND1X).
I understand that this is a very good participation rate when compared to similar exercises done in other jurisdictions. 19. Given the scale and breadth of the Focused Review, the exercise is expected to complete around early next year. After that, we plan to share with the industry the identified insights as well as practices that lead to good customer outcomes. Through this exercise, we also aim for better alignment of incentive systems whilst preventing potential misconduct behaviour. We trust this would advance bank culture development in Hong Kong to the next level. Accountability 20. While a proper incentive system will encourage desirable staff behavior, we should not lose sight of the other side of the coin, which is accountability framework. In the past few years, the HKMA has been making greater use of accountability reviews as a tool to identify those responsible for misconduct incidents. The idea is that those who have pursued undesirable behavior have to face the consequences of their own misconduct. Another aspect of accountability that banking supervisors in several jurisdictions have been trying to tackle is how can we effectively address the problem of “rolling bad apples”. 21. As this phrase literally means, “rolling bad apples” refer to individuals who have committed misconduct behaviour, but are able to obtain subsequent employment elsewhere without disclosing their earlier misconduct to the new employers. 22. When “bad apples” tried to “roll” from one institution to another, this cannot be easily dealt 3/4  BIS central bankers' speeches  with by individual banks working alone.

Both the financial crisis and the recession which followed it were global economic events. No major economy in the world was unaffected by the financial turbulence and the dramatic downturn in world economic activity in late 2008 and early 2009. And on the inflation front, we have seen major global forces operating too, with the inflation rate in the UK and other countries being significantly affected by large price swings in global energy and commodity markets. The global economy is now much more integrated and interdependent than at any time in the history of the world. Four main forces have come together in the past two decades to create the “New Global Economy” of the 21st Century. First, new technologies have had a major impact, notably the development of global information technology, media and communications networks. Second, barriers to trade have been reduced, with most of the world’s nations now participating in a liberal and open trading system. The World Trade Organisation now has 153 members, covering 97% of the world’s population. Third, political change has extended the global market economy to large parts of the world which were previously closed to international trade and investment – including China, India and the former Soviet Union economies. And fourth, there has been a tide of deregulation of markets – including financial markets – in many countries, and as markets have been deregulated, they have also been opened up to international competition.
Liquidity can be compared to the ability to pay one’s bills as they fall due. Even if you have large capital, you may not have good liquidity. This is particularly important for the banks. While they receive money from depositors and borrow on the market at fairly short horizons, their lending is usually long term – perhaps 30 years or more for a mortgage. This ability to transform short-term saving into long-term loans is the banks’ main function in society. It enables companies to invest and households to buy their homes. Normally, a shortage of liquidity does not present a problem. Withdrawals from bank accounts follow normal patterns and the banks are able to monitor this. If special needs arise, the banks can manage the situation by selling assets and thus acquire cash. Normally the banks have also been able to manage their short-term borrowing without problems. But during the crisis problems arose on many markets. In some cases there were quite simply no buyers at all and market funding ceased functioning. And as the banks had become dependent on short-term borrowing, there was little they could do when their financiers decided it was safest to demand their money back. Money the banks could not get hold of. In these situations there is not much a bank can do. The usual remedy is liquidity assistance from the central bank. But most central bank make tough demands regarding collateral for lending money to banks with liquidity shortages.

The internationalization of the Chilean peso can enhance financial stability, by alleviating liquidity concerns during stress episodes and reducing counterparty risks, among other effects. All of these changes must be accompanied with more robust and developed financial infrastructures. Also, the wider cross-border usage of the Chilean peso improves our position as a financial center. Regarding concrete measures towards accomplishing these goals, the CBC is reviewing its FX regulation, in order to modernize and simplify it. In addition, a larger and more developed FX market should benefit from having access to more robust financial market infrastructures. Page 12 of 20  Central Bank of Chile September 2019  In order to do so, the CBC issued regulation and is implementing a Trade Repository for OTC derivatives, relying on its current faculties and in coordination with the Financial Market Commission. Additionally, the CBC is working on an initiative that will allow its Real Time Gross Settlement (RTGS) payment system to settle US dollars large-value interbank transactions. These measures add to the future inclusion of the Chilean Peso as the first CLS-eligible currency in South America. This is a priority for the CBC, therefore we are working closely with the CLS Bank to materialize this in the next three years.
For example, by December 2008 nearly all our respondents were sure the U.S. economy was in a recession; thus, the 70 percent probability of being in a recession in six months can be interpreted as a 30 percent probability of an expansion in June 2009. The NBER subsequently declared July 2009 as the turning point into an expansion. Another approach to predicting recessions, which is a form of the wisdom of the crowd, is to use financial market asset prices. The well-known argument is that because large amounts of money are on the line, this different form of aggregation of diverse views will tend to be more accurate. Of course, asset prices also include compensation for risk, and much of modern asset price theory is focused on how fluctuations in this compensation drive much of the asset market volatility we observe. In the technical language of modern asset price theory, the probabilities from our surveys are physical ones, whereas those that use asset prices without adjustment for risk aversion are risk neutral probabilities. The classic variable to use here is the term spread, the difference between a long-term interest rate and short-term interest rate. The seminal paper showing the power of the term spread to predict recessions, measured as the 10-year Treasury rate less the three-month rate is by Arturo Estrella and Rick Mishkin.

A small number of these participants quickly separated themselves from the pack and consistently maintained their exceptional performance. Tetlock dubbed these individuals "superforecasters" and subsequently focused his team on aggregating the forecasts of these standout performers—a strategy that draws from the "wisdom of the crowd." As you well know, this strategy relies on some degree of independence in the information, approaches, and insights producing the forecasts. We often think of independence in a very statistical sense, but Superforecasting conveys a useful framing of independence as how one assembles diverse teams and how team dynamics can be established to maintain this diversity. 4 This approach won the IARPA tournament by a substantial margin with the use of one subtle but important tweak. Tetlock extremized the aggregated prediction probabilities—so, for example, a probability of 70 percent became 85 percent. 1/6  BIS central bankers' speeches  So what can we learn from these non-technical superforecasters who outperformed the intelligence community? Tetlock lists a number of characteristics that generate individual diversity and maintain that diversity in a team dynamic. My quick summary of these lessons is to be humble, always question, listen to alternative views, and—very comfortingly for Bayesians like me—always express your forecast as a distribution rather than a point forecast, and crucially update that forecast when new information arrives. Further, constantly assess why forecasts worked and didn't work.