samchain/econo-pairs-v1 huggingface dataset:
Since the financial markets operate across national borders, the Riksbank works together closely with foreign central banks on these issues. For example, the Riksbank participates in several ECB committees related to stability issues and takes an active part in the ongoing work to reform the capital adequacy regulations. It is also stipulated in law that one of the primary functions of the Riksbank is to promote a stable and efficient payment system. In order to fulfil this task, the Riksbank must closely follow developments in those financial institutions that are of central importance to the payment system, i.e. primarily the four major banks, which are each sufficiently large to cause problems for financial stability if they fail. The analysis focuses on three main areas. The first area concerns general developments in the banking sector - how the competitiveness and long-term profitability of the banks are developing. The second area examines credit risks related to the banks’ lending to households and non-financial companies. 1  BIS Review 50/2000  The third area that is analysed is counterparty and settlement risks that arise in connection with the banks’ trading and taking positions in the financial markets. The analysis is undertaken on an ongoing basis and is presented in the Financial Stability Report, which is issued twice a year. I will mainly focus on the analysis of the banks’ credit risks associated with lending to households and companies. This is a subject that has attracted growing attention as lending, especially to the household sector, has risen significantly.

Lars Nyberg: Are the risks growing in the banking system? Speech given by Mr Lars Nyberg, Deputy Governor of the Sveriges Riksbank, at an analyst meeting at Enskilda Securities, held in Stockholm, on 14 June 2000. *  *  *  I would like to thank you for inviting me to today’s analyst meeting and giving me the opportunity to discuss financial stability issues with such a qualified audience. I would like to start by briefly explaining the Riksbank’s analysis of financial stability. In addition to the inflation target, the Riksbank has another primary task, namely that of being responsible for financial stability. These two important functions are closely linked. A stable financial system is important for price stability since financial imbalances can threaten the inflation target. Likewise, an inflation target policy contributes to stability in the financial system, as it has a levelling effect on cyclical fluctuations. The Riksbank’s analysis of financial stability can be interesting for analysts of bank and property shares, since we closely monitor the banking sector and property market within the scope of this analysis. Our perspective is somewhat different, however, since we are mainly interested in risks which can threaten the stability of the financial system and which often appear to be relatively improbable, while stock analysts attempt to assess the most likely developments in the market. However, the information about the markets is largely the same and analysts also need to consider the risks in the companies which they are covering.
If one of the riskier tranches is affected by a default, the value (and the rating) of the other tranches will also be affected by contagion, through the decrease in their subordination level. Of all asset classes, CDOs are those whose rating is the least stable over time. To give just one extreme example, a AAA-rated CPDO was recently downgraded by nine notches in one day. For investors, a AAA rating has traditionally been associated with a stable investment. It is now evident that there are stable AAAs and less stable AAAs, which considerably reduces the clarity of ratings. It would have been simpler to adopt a specific metric for structured products and, by doing so, many misunderstandings that were responsible for the current turmoil could have been avoided. Avenues for the future Hopefully these thoughts will open up some avenues for the future. I believe that there are two symmetrical pitfalls to be avoided. The first would be to continue as before, with a few minor changes to the existing system. The turmoil observed over the past three months, and its potential impact on the real economy, are too important. Furthermore, the rating process will inevitably play a key role in the implementation of Basel II. This will involve a more refined assessment of risk, in particular through the promotion of internal models, and greater use of external ratings. The second mistake would be to rush into the regulation of rating agencies. We cannot rule out that, at some stage, such regulation may become necessary.

It would not opt out of the region. Other investors may not have such a long history in Asia, but for you too, taking a long and informed view will be worth your while. 5  BIS Review 117/1999
Economists in central banking  “Never has central banking been more subjected to scientific analysis than during the last two decades. Increasingly, the economic profession has moulded the behaviour of the central banker into abstract economic models. This has made it possible to analyse how the central banker can be given incentives that will make him do the right thing: how he should set interest rates optimally; how he should be made accountable; and what his punishment should be if he fails to comply with the terms of his contract. Yet, after the scientific onslaught of the last decades, there is still the feeling that, after all, central banking is mainly an art, and that the success of a central banker depends on such intangibles as feeling the mood of the market.”5 - This quote from Paul De Grauwe tells us that central banking is a place where economists are particularly challenged. They have to excel as professional economists and, at the same time, they need to understand what drives the moods out there in the markets. “Scientific analysis must be combined with artistic feelings to produce a successful central banker.”6 Central bankers assume responsibility for price stability as well as for financial stability. This in some countries includes banking supervision and financial market oversight. At the same time, they take care of the side effects of their policy on economic growth, employment and international trade. In other words, theirs is the world of economics in a very comprehensive sense of the term.

The better central bankers understand real and monetary macroeconomics, microeconomics, financial market economics, labour economics, industrial economics, international trade, public finance and public choice, the better equipped they are for their task. The favourite intermediary targets or policy instruments of central banks are short-term interest rates. When attempting to influence the rate of inflation by changing interest rates one needs reliable economic models. In the Swiss National Bank, we start with a definition of price stability. There is price stability as long as the annual increase in the consumer price index does not exceed 2%. We then use an inflation forecast over a period of three years. The three years correspond to the known range of  3  Casson, John J., “The Role of Business Economists in Business Planning”, http://www.findarticles.com/p/articles/ mi_m1094/is_n3_v31/ai_18481623. 4  Hirschman, Albert O., Exit, Voice and Loyalty, Cambridge Mass., 1970. 5  De Grauwe, Paul, “Central Banking as Art or Science? - Lessons from the Fed and the ECB”, in: International Finance, 5:1, 2002, p. 129. 6  Loc.cit., p. 130. BIS Review 62/2004  5  monetary policy lags. To forecast inflation, we have developed a number of state-of-the-art econometric models. The results of these models are translated in what we call ‘consensus forecast’. It shows different inflation paths as a function of alternative short-term target rates of interest. The Governing Board has to select the preferred target rate of interest (3M-CHF-LIBOR), which is implemented through daily money market operations.
As noted above, however, in the process of moving from EU accession to ERM II the euro would progressively gain in importance as the reference currency in the currency basket until it finally ceases to function as a foreign currency on joining the EMU. In addition, upon EU accession the Central Bank will be expected to transfer an amount of external reserves, other than the euro and a number of other specified currencies, to the ECB. In order of time, therefore,  the composition of the external reserves of the Central Bank would change to reflect, first, the move towards a 100 per cent peg to the euro, then the transfer of a portion of the non-euro reserves to the ECB, and lastly the adoption of the euro as the national currency. The Bank is currently studying how the necessary adjustments could take place without increasing its exposure to exchange rate risk. Given the implications which the simultaneous move out of euro assets by all acceding countries could have for the international value of the euro, moreover, the Bank - in common with the central banks of the other acceding countries - would co-ordinate these adjustments with the ECB. Operational framework for open market operations and reserve management Upon joining EMU, the Central Bank would act as agent for the ECB in the management of the ECB’s foreign reserve assets and in the implementation of monetary policy.

Michael C Bonello: Single currency issues – a central bank perspective Speech by Mr Michael C Bonello, Governor of the Central Bank of Malta, at the conference “The Euro - the impact on business”, organised by the Malta Federation of Industry, 16 January 2003. *  *  *  By way of introduction, it is important to stress that Economic and Monetary Union (EMU) and the euro are key aspects of the Treaty on European Union. They are a logical consequence of the process of European integration, and in particular of the economic rationale of increased trade as the driving force for the further integration of citizens, institutions and markets. Indeed, the arguments for more closely integrated markets, namely that greater trade and financial integration will increase economic efficiency and improve welfare, can equally be made for a single currency. In the case of the EU, the advantages of a single market postulated by economic theory appear to have been amply realised. Since internal borders were removed ten years ago, it is estimated that the Single Market has helped to create 2.5 million extra jobs; the EU’s combined GDP in 2002 was 1.8%, or euro 164.5 billion, higher than it would have been; and each household was on average 5,700 euro 1 better off. Market opening is, therefore, not only good economics but also very good social policy. Further benefits can be expected to flow from the introduction of the single currency.
And third, the expansion of that work into the current international effort to develop and implement a single global code of conduct for the foreign exchange market and to enhance adherence to that code among all market participants. Work of the Financial Stability Board’s Foreign Exchange Benchmarks Group (FXBG) Given the global nature of the FX market, as well as the number of jurisdictions in which wrongdoing has been uncovered, efforts to strengthen the market must be global in nature as well. Recognizing this imperative, the Financial Stability Board (FSB), an international body that monitors and makes recommendations about the global financial system, established the Foreign Exchange Benchmarks Group (FXBG) in early 2014. The purpose of the FXBG was to review FX benchmarks and associated market practices, including potential misaligned incentives, and make recommendations for change. The FXBG, which consisted of representatives from more than twenty countries, engaged with a range of market participants to analyze the market structures and incentives as they related to trading around benchmark fixings. The group produced a series of recommendations to enhance the structures and behaviors around FX benchmark trading. I would like to focus on two particular aspects of these recommendations – first, changes to the WM/Reuters calculation 10 and second, changes aimed at strengthening market conduct. The FXBG report highlighted the dominant use of the WM/Reuters (WMR) 4 p.m. London fixings by many different sets of market participants, including some not otherwise active in the foreign exchange market.

I will focus on what is happening in the banking sector in response to the crisis, and also from a broader strategic perspective. The banks entered the current crisis well-prepared thanks to what has been done in recent years. I will only mention the unprecedented in their scale and depth asset quality review and stress tests conducted in the banks by the BNB and the European Central Bank. One of their main objectives was to get the banks prepared for the most adverse macroeconomic scenarios which many, at the time, considered to be impossible to materialise. Now that we are going through these ‘impossible’ scenarios, we see that the banks are responding adequately and they continue to be in good shape. This good preparation helped us, at the very beginning of the crisis, to take additional measures and reinforce the banks’ capital position and liquidity. Among the measures were the full capitalisation of all the profits in this sector, strong reduction in foreign exposures, and also cancellation of the planned additional capital requirements associated with cyclical risks. This package of measures ensured an additional resource of BGN 9.3 billion in the banking system. The package of measures has not been launched only and exclusively for banks. It has rather been designed to ensure that banks are able to take steps and cushion the effects of the crisis for businesses and households. The main tool that was used to this purpose and is still in place is the so-called ‘private moratorium’ on loan payments.
The kick-off meetings, which have been taking place since early summer between the current supervisors, the ECB and the banks, are simply a first step. In this connection, allow me to stress the inherent dangers in supervision not only of being too far removed, but also of being too close. Other viewpoints and new supervisory approaches and methods may sharpen our perception and mitigate the danger of accepting a bank’s unjustified customs merely because they have long been familiar to us. The comparisons and analyses I referred to earlier will also help to counter this danger. But that is not all. We will also address this issue in terms of our staffing policies. The head of a Joint Supervisory Team (JST) must come from a different country to the country in which the institution it is supervising is established. In concrete terms: the head supervisor for Deutsche Bank will be a French lady; BNP Paribas will be supervised by an Italian man. In addition, there will a rotation of staff members among the JSTs. All in all, this will not only enable us to reach more objective judgements about a bank, but will also foster the development of a common supervisory culture. Banking supervision in a central bank Allow me to say a few words about banking supervision in a central bank. Housing the SSM within the ECB will enable us to benefit from synergy effects.

However, I do not see this as a matter of balancing – expansion can only take place while maintaining stability. The Maastricht criteria will not change and this is in the interest of both the euro area as a whole and the individual candidate countries. Let me only add that 2009 January did not only see the 10th anniversary of the euro, but also the joining of the 16th member state, namely Slovakia, to the euro zone. If you consider that we started with 11 countries in 1999, this certainly demonstrates that the euro area is open to newcomers. BIS Review 18/2009  1  China Finance: How effective is monetary easing measures by the ECB in mitigating the economic recession in Europe? Do you see more room to maneuver in case the economic prospects continue to get worse? Trichet: First, let me remind you that we have, in all circumstances, to deliver price stability in line with our definition “less than, but close to, 2%”. Secondly, the present unlimited provision of liquidity at a fixed rate and with a one-week, one-month, three-month and sixmonth duration can certainly be described as a non standard measure. The extension of eligibility in our collateral framework is also another non standard measure, particularly as it was already very broad and flexible. In particular, as a result of these decisions we have also expanded our balance sheet on a scale that would have been unthinkable before the crisis: around 55% in the last 12 months.
The need for maturity transformation arises from the fact that the preferred habitat of borrowers tends toward longer-term maturities used to finance long-lived assets such as a house or a manufacturing plant, compared with the preferred habitat of investors, who generally have a preference to be able to access their funds quickly. Financial intermediaries act to span these preferences, earning profits by engaging in maturity transformation – borrowing shorter-term in order to finance longer-term lending. If a firm engages in maturity transformation so that its assets mature more slowly than its liabilities, it does not have the option of simply allowing its assets to mature when funding dries up. If the liabilities cannot be rolled over, liquidity buffers will soon be weakened. Maturity transformation means that if funding is not forthcoming, the firm will have to sell assets. Although this is easy if the assets are high-quality and liquid, it is hard if the assets  5  Moreover, certain classes of investors such as money market mutual funds do not take much comfort in collateral. Also, the headline risk of having exposure to a troubled participant could subject investors such as money market funds to liquidity pressures of their own. Investors could withdraw funds before losses are realized. BIS Review 143/2009  5  are lower quality.

As a consequence, the firm’s liquidity pool dropped by 83 percent in a two-day span.1 These liquidity dynamics were driven by two main factors. The first factor was the underlying stress on dealer balance sheets as the prices on complex collateralized debt obligations (CDOs), private label residential mortgage-backed securities (RMBS), and commercial real estate-related assets fell sharply and uncertainty about underlying asset values rose sharply. The uncertainty stemmed, in part, from the lack of transparency about what prices these assets could be sold for, which, in turn stemmed from the difficulty of valuing these extremely complex and heterogeneous securities. The stress on underlying asset prices and the uncertainty about the valuations of pools of illiquid assets caused investors to become concerned about the solvency of some of the weaker dealers.2 These concerns contributed to liquidity pressures, which, in turn, led to forced asset sales by dealers and others. These sales both further depressed asset prices and increased asset price volatility. The second factor contributing to the liquidity crisis was the dependence of dealers on shortterm funding to finance illiquid assets. This short-term funding came mainly from two sources, the tri-party repo system and customer balances in prime brokerage accounts. By relying on these sources of funding, dealers were much more vulnerable to runs than was generally appreciated. Consider first tri-party repo, a market in which money market funds, securities lending operations, and other institutions finance assets mainly on an overnight basis.
To me, Raeburn’s work provides a fitting visual metaphor for the ideal countenance of a central banker: The Reverend Walker skating forward confidently and with grace upon a notably uneven, rocky surface on an icy, dark, blustery day. An alternative depiction is Edvard Munch’s The Scream from Norway’s Gunderson Collection, now on temporary exhibit at the National Gallery. (There are four versions of this pastel, one of which recently sold for $ million at auction at Sotheby’s. If you haven’t been into Edinburgh to see the Gunderson version, I am sure you read about Sotheby’s record-setting auction.) 6  BIS central bankers’ speeches  In sharp contrast to Raeburn’s painting of composure, The Scream depicts a panicked form. In an autobiographical epigraph, Munch wrote that he conceived of the painting after a period of exhaustion and despair: “I stopped and leaned against the balustrade, almost dead with fatigue. Above the blue-black fjord hung the clouds, red as blood and tongues of fire. My friends had left me, and alone, trembling with anguish, I became aware of the vast, infinite cry of nature”.1  I am going to conclude by suggesting that the image that best behooves central bankers as guardians of financial stability and agents of economic potential is that of Henry Raeburn’s Reverend Walker. To be sure, central bankers everywhere are fatigued and exhausted and increasingly friendless.

And with the president’s health care legislation awaiting resolution in the Supreme Court, we also know that no business can budget its personnel costs until that case is decided. If job-creating businesses have no idea what their taxes will be, are clueless about how federal spending will impact their customers or their own businesses and cannot budget personnel costs – all on top of concerns about the risk to final demand posed by the imbroglio in Europe and slowing growth in emerging-market countries – how could additional monetary policy be stimulative? A good theoretical macroeconomist can acknowledge that a great deal of liquidity is, indeed, going unused at present. They might likely argue that further monetary accommodation would raise inflationary expectations by magnifying the fear that the Fed and other monetary authorities are hell-bent on expanding their balance sheets and, consequently, the money supply so dramatically that inflation will inevitably follow. The result, the good macroeconomist would deduce, would be salutary: It would scare money out of businesses’ pockets and into job expansion and would lead individuals to conclude they better spend their money today rather than have it depreciated by inflation tomorrow, thus pumping up consumption and final demand. I beg to differ. I would argue that this would represent a form of piling on the already enormous uncertainty and angst that businesses face with our reckless fiscal policy. To me, that would be the road to perdition for the Federal Reserve.