samchain/econo-pairs-v1 huggingface dataset:
When the ECB Governing Council, in December last year, decided to also accept cash as collateral in our securities lending facility, we effectively increased the supply of bonds available in the repo market, thereby swiftly reducing the share of bonds trading special.7 The price effects of this decision can be seen on the next slide. Before we accepted cash as collateral, there was a strong positive relationship between the level of excess liquidity and repo rates, not only for trades backed by German collateral, but also for those involving French and, to a lesser extent, Italian securities. The moment we amended our securities lending facility in December last year, the relationship broke down, as you can see on the right-hand side. 4 / 10  BIS central bankers' speeches  Recent ECB analysis confirms the intimate relationship between cash and repo markets and the impact of supply and demand effects.8 The authors estimate that a 1% reduction in the effective supply may increase specialness, on average, by up to five basis points. Studies for the US market come to qualitatively similar conclusions.9 In other words, whether a bond trades special, and by how much, depends crucially on its effective supply, which is itself affected by factors such as the amount of investors that are willing to lend out securities in the repo market. These effects are also found to be persistent. You can see this on the same slide. The “scarcity” premium stabilised in spite of continuously increasing excess liquidity, but did not regress.

Regulation is forcing market participants to reexamine the extent of their engagement and make more efficient use of their balance sheets. This adjustment process coincides with central banks worldwide adopting a series of unconventional monetary policy measures that have also affected the nature and scope of repo market activity. Some of these effects will prove temporary, others more permanent. Their full impact can only be assessed in earnest once markets have fully transitioned to their new steady state. From a central bank perspective, it is important to ensure that our own measures do not adversely affect the intermediation capacity of repo markets. Our decision in December last year to also accept cash as collateral in our securities lending facility has proven very effective in this respect. It contributed to mitigating risks of extreme specialness, while preserving the effectiveness of our policy measures in the pursuit of our price stability objective. At the same time, a high degree of persistence in repo specialness lends support to the idea that the stock of securities already held by the ECB is likely to be a powerful channel through which our measures can help preserve accommodative financing conditions, even after the end of our net asset purchases. Thank you. 1 I would like to thank Riccardo Costantini for his contribution to this speech. I remain solely responsible for the  opinions contained herein. 2 See Gorton, G. (2012), “Securitized banking and the run on repo”, Journal of Financial Economics, Vol. 104(3),  pp. 425-451; and Holmstrom, B.
These loans are used to finance human capital investment projects with returns that are highly uncertain. It’s true that virtually every study finds that the returns on college degrees are high, on average, relative to their cost. But some people who take out student loans don’t end up with these high average returns. The net returns for some may, in fact, be negative. For example, many who have pursued vocational training may be less remunerated in the market. Similarly, some students attend certain for-profit universities with track records that indicate that their graduates have lower lifetime earnings than other types of educational institutions. While others drop out before receiving a degree – just 59 percent of the 2006 cohort had received their four-year degree by 2012. Of course, uncertain returns are a feature of most investments, but for other loan types this uncertainty is generally managed more effectively through credit underwriting, collateralization and risk-based interest rates. We are fairly confident in the aggregate statistics – over a trillion dollars in loan balances outstanding, 43 million borrowers and the highest delinquency rates of any form of household debt. But we know a lot less about the precise causes and consequences of the heterogeneity in the net returns to educational investments that I just described. What we know so far, based on very imperfect data, suggests that this heterogeneity is likely to be very important.

We’ve made a point of passing along these insights to the public through our Quarterly Report on Household Debt and Credit, various blog posts and interactive online maps of mortgage delinquencies. It has required a substantial commitment of resources to obtain the data and extract the information from them, but I’m convinced that it’s been the right course of action. Which brings me to the subject of today’s workshop: student loans. As you know, student debt is an increasingly important form of credit both for households and for the economy. In 2010, aggregate outstanding student loan balances surpassed credit card indebtedness, and in 2013 eclipsed a trillion dollars. During the historic household deleveraging that took place between 2008 and 2013, student debt bucked the trend, and was the only form of household credit that continued to increase each year. BIS central bankers’ speeches  1  There are many reasons for this growth, some of which are well-documented – including increasing numbers of individuals who are pursuing post-secondary education, increasing durations in school and higher tuitions. A less well-known contributor to the growing student debt balances was highlighted recently by a team of New York Fed economists. 1 Using credit bureau data that track the quarterly balance and payment status of student loans, they have shown that the overall rate of repayment of outstanding student loans is very low, with many borrowers being delinquent on their loans. Now, it’s probably fair to say that each form of household debt has distinctive features.
Thanks to the work being carried out by CPMI-IOSCO on stress testing and margins, we are beginning to get a better picture of how risks are being managed across the whole CCP landscape. In my view, an important step for the future will be to put together CCP stress testing and the stress testing carried out by big global banks (one way of doing this could be to define common stress scenarios, and see how the entire system performs). Authorities, CCPs and market participants need to assess the extent to which banks will be able to absorb losses passed on to them by a CCP, and how a recovery or resolution process will affect the banking system.19 In this respect, authorities will need to pay particular attention to pro-cyclicality. As already mentioned, many of the proposed instruments to increase CCP loss absorption will have a significant cost for clearing members. We need to be aware that, very often, these costs will arise during a stressed market situation, when clearing members may already be facing significant liquidity pressure. Authorities responsible for CCPs and those responsible for banks should try and work towards a common understanding on pro-cyclicality, in order to ensure consistency in their regulatory actions. Lastly, I believe we also need to move towards a more systemic view of the interconnections between CCPs and clearing members, namely via the channel of indirect participation. The PFMI already require CCPs to identify, monitor and manage material risks arising from tiered participation arrangements.

Authorities could also conclude that the standards themselves are not sufficiently strict and that there is a need for CCPs to bolster the arrangements that may be used in a pre-recovery stage. This might require CCPs to cover their exposures beyond the “cover 2” standard currently set by the PFMI for systemically important CCPs. Bear in mind that prudent margins and an adequately sized default fund are the very foundations of a CCP’s risk management. If CCPs appropriately cover credit and market risks via their initial margins, and adequately stress test their exposures under extreme conditions, there will be only a residual chance that they will not be able to cover default losses.11 We should remember that cover 2 is already a very stringent criterion, which has never been observed in a real crisis. However, as I stated earlier, the unthinkable may happen. The next question is how this increase in resources should be funded. Recently, there have been some calls to increase the contributions made by CCPs themselves to the total amount of financial resources posted – the so-called “skin in the game”. In the European Union, CCPs already have to contribute 25% of their required regulatory capital to the default waterfall, which would be used before tapping the mutualised default fund. Should we go further, and demand a larger contribution from CCPs? 10  On the one hand, participants may be more willing to share losses if the CCP provides some form of compensation instrument proportionate to the size of the losses they incur.
Domestic demand should be further supported by our monetary policy measures and their favourable impact on financial conditions, as well as by the earlier progress made with fiscal consolidation and structural reforms. Moreover, the renewed fall in oil prices should provide additional support for households’ real disposable income and corporate profitability and, therefore, for private consumption and investment. In addition, the fiscal stance in the euro area is becoming slightly expansionary, reflecting in particular measures in support of refugees. However, the economic recovery in the euro area continues to be dampened by subdued growth prospects in emerging markets, volatile financial markets, the necessary balance sheet adjustments in a number of sectors and the sluggish pace of implementation of structural reforms. The risks to the euro area growth outlook remain on the downside and relate in particular to the heightened uncertainties regarding developments in the global economy, as well as to  BIS central bankers’ speeches  1  broader geopolitical risks. These risks have the potential to weigh on global growth and foreign demand for euro area exports and on confidence more widely. Euro area annual HICP inflation was 0.2% in December 2015, compared with 0.1% in November. The December outcome was lower than expected, mainly reflecting the renewed sharp decline in oil prices, as well as lower food price and services price inflation.

Developments in loans to enterprises continue to reflect the lagged relationship with the business cycle, credit risk and the ongoing adjustment of financial and non-financial sector balance sheets. The annual growth rate of loans to households (adjusted for loan sales and securitisation) increased to 1.4% in November, compared with 1.2% in October. The bank lending survey for the euro area for the fourth quarter of 2015 points to further improvements in demand for bank loans, supported by the low level of interest rates, financing needs for investment purposes and housing market prospects. Credit standards eased further on loans to enterprises, notably owing to increasing competitive pressures in retail banking, and reverted to a net easing on loans to households for house purchase. Overall, the monetary policy measures in place since June 2014 have clearly improved borrowing conditions for both firms and households, as well as credit flows across the euro area. To sum up, a cross-check of the outcome of the economic analysis with the signals coming from the monetary analysis confirmed the effectiveness of the monetary policy measures in place and the need to review and possibly reconsider our monetary policy stance at our next meeting in early March in order to secure a return of inflation rates towards levels below, but close to, 2%. Monetary policy is focused on maintaining price stability over the medium term and its accommodative stance supports economic activity. However, in order to reap the full benefits from our monetary policy measures, other policy areas must contribute decisively.
Despite that, inflation has been above the target more often than it has been below – in fact, it has been below the target in only one month so far since the MPC was set up. As the benign effects of those temporary external influences on inflation start to wear off, the challenges facing the MPC will become, if anything, even greater than those in its first two years. If the time lags in the monetary transmission process mean that it is too early to judge the MPC on its inflation track record, then what other criteria for assessing its performance might be relevant? One measure would be expectations of future inflation. Following Gordon Brown’s announcement of Bank independence on 6 May 1997, inflation expectations in financial markets fell sharply. Chart 2 shows the expected inflation rate at different horizons implied by yields on conventional and index-linked government bonds. These expectations fell by about 0.5 percentage points on the day of the announcement. Since then inflation expectations have fallen further. Chart 3 shows the way in which two particular measures of inflation expectations have evolved since May 1997. The first of these measures is the expectation of inflation ten years ahead implied by bond market yields. The second is a Consensus Economics average of the expectations of inflation five years ahead held by economic forecasters. Since 1997, inflation expectations on both measures have steadily fallen towards the target, and the economic forecasters’ expectation has now become firmly anchored on the target.

… On the evidence of the previous six months, the MPC bears a closer resemblance to a post-graduate seminar than to a forum for strategic decision-making. …To put [several] economists in the same room is to invite what one commentator has called paralysis by analysis. As a result the Committee’s conclusions are entirely unpredictable.” Since the beginning of 1998, the Committee has been unanimous at only one out of sixteen meetings. That was in July of last year when the Committee voted to hold interest rates constant at 7.5%. Disagreements have become the norm, and are much less remarked upon by the press than they were before. Moreover, disagreement is now more widely accepted as natural. It would be strange if the uncertainties facing the Committee were not reflected in small differences of opinion. And views of the appropriate level of rates have never differed by more than 0.5 percentage points. Nor have these technical disagreements led to “paralysis by analysis”. Indeed, the Committee has reduced interest rates by 23 percentage points since October of last year. It was precisely the analysis that led to the action. The willingness of the MPC to change interest rates either up or down in order to meet the symmetric inflation target has altered commentator’s perceptions of the Committee itself. Early in its history, commentators were unable to resist labelling members of the Committee as either “hawks” or “doves”.
If the central bank has cut the nominal policy rate to zero, one may find oneself in a situation where the real interest rate is too high to be able to stimulate the economy. The central bank must then bring up inflation expectations and thereby bring down the real interest rate. According to Lars, one means of creating expectations of higher inflation and escaping from this liquidity trap could be to introduce a temporary price level target, for instance in the form of an average inflation target where inflation must remain around the target over a five-year period. The central bank would then have the possibility to compensate for low inflation or deflation through a correspondingly higher inflation rate further ahead. The idea is that if the target is credible, inflation expectations will rise and the real interest rate will fall. My opinion is that we should not change the inflation target. We have invested so much in the credibility of the current inflation target and it has functioned very well. Inflation has on average been close to 2 per cent during the 14 years we have had an inflation target, and in the longer term inflation expectations are firmly anchored close to 2 per cent. Nor does Lars suggest that we should change the inflation target. He discusses a hypothetical situation where the policy rate is zero and inflation expectations are no longer firmly anchored around the inflation target, but are much lower.

As trading position can be transformed swiftly through the use of derivatives and hence may not be reliable, regulatory focus has shifted to assess internal risk models, rather than the instruments held at a point in time. In addition to external regulation, the Group of Thirty in its 1993 study of derivatives made recommendations at strengthening risk-management techniques and procedures. Another industry initiative was JP Morgan’s decision to release its own proprietary risk-management model for general use. In addition, changing consumer behaviour resulting from aging population, for example, calls for new and sophisticated products like pension funds and long-term debt instruments. Also, consumers’ expectations are likely to be higher as they now have access to more choices from more diversified markets. Finally, de-regulation has occurred because old regulations have not prevented the massive losses incurred by worldwide bank failures. In many countries, the losses caused by bank failures have been as high as 15% of GDP, with bank losses in Japan and France at an estimated 8% of GDP. In the light of these heavy costs, governments around the world have begun to look seriously at the cost of regulation. The latest initiative include the Japanese Big Bang, which would be complete by 2000. Should the Central Bank also act as the Supervisor? There are several arguments in support of the assumption of the supervisory role by the central bank. The first is efficiency consideration.
This is after: Deducting $ billion of expenses from domestic money market and other operations; and Contributing $ billion to the Government’s Consolidated Fund, as payment in lieu of corporate income tax. This year, MAS will return half of its profits – $ billion – to the Government while the remainder will be added to MAS’ reserves. CONCLUSION Let me sum up. The economic situation remains dire. We are not at the beginning of the end, but rather at the end of the beginning. Growth rates will pick up – as you would expect coming from a very low base; but the level of activity will remain below pre-crisis levels for quite a while. The recovery is likely to be slow and uneven, weighed down by renewed outbreaks of infection here or abroad. Unemployment and corporate bankruptcies are likely to increase in the months ahead. We will enter 2021 with higher levels of debt, in both the corporate and household sectors, which will act as a further drag on growth and could become a source of vulnerability. MAS’ priorities will be to ensure monetary and financial stability. We will keep the exchange rate stable, to provide an anchor of confidence. We will keep the funding markets liquid, to ensure credit remains available to the economy. We will ensure the financial system remains sound and resilient. We will ensure that our systemically important financial institutions continue to have healthy buffers to absorb any unexpected losses.

MAS also set up a $ billion US Dollar Facility that is available to all banks, on the back of the swap arrangement with the US Federal Reserve. This Facility has helped to stabilise US Dollar funding conditions in Singapore, and enabled US Dollar lending to businesses in Singapore and in the region. About $ billion has been provided through this Facility. FINANCIAL STABILITY  The COVID-19 shock has also increased the risks to global financial stability. The world entered the current crisis with one strong card and one weak card. The strong card is the banking sector. Globally, banks are generally in good shape, with healthy capital and liquidity buffers. The weak card is the corporate sector. In many parts of the world, corporate debt levels were already high pre-COVID, and will increase further through the course of this crisis. With tight cash flows, over-leveraged entities could face financial distress, leading in turn to ratings downgrades and corporate defaults. Mounting corporate defaults will strain banks’ profitability and capital positions. The strong card could become progressively weaker. If this happens, banks will be less able to sustain credit to the real economy. Worse still, if funding conditions also tighten and confidence is shaken, some banks could run into trouble, possibly triggering a financial crisis. MAS is determined that the financial system in Singapore remains robust and resilient. Our banks have built up strong capital and liquidity buffers, and are well-placed to weather these risks even as they continue to extend credit.