samchain/econo-pairs-v1 huggingface dataset:
Supervision is about how we use it in practice. For me, two critical elements of supervision are that it is forward-looking, and it requires the use of judgement. Sounds obvious, but sadly hasn’t been consistently done well in the past, with bad consequences. Supervision is therefore a skill – in fact it’s quite a few skills. The essence of the job is to understand risks in firms, and where necessary to step in and do a number of things: point out risks, or their significance when the firm seems to have failed to notice – through either lack of awareness or intent; or point out that while the firm may have identified the risk, it has failed to understand or calibrate its significance. This leads me to a couple of important points. First, our assessment of risks can differ from firms because our objective represents the public interest, and there is an externality in the risk in question which affects the public interest in ways that do not register with a definition of private interest. The causes of the financial crisis sadly remind us of this. It means that we have to be very clear and forthright on what is the public interest, and thus why we supervise. Second, risk is our business. This conference is about supervising large, complex financial institutions. I read too often the criticism of supervision that we cannot understand the risks of these institutions, and so we should give up all hope of doing so.

It’s an argument which seems to say, we can’t value the firm, we can’t supervise it, and we can’t resolve it, so therefore let’s ensure it has a very large amount of equity financing, what I call the “Big Equity” argument. Honestly, it’s a nonsense. Large amounts of equity financing will not be available for such firms, so the best we can say is that this is a route to a radically different financial system, but in that world the risk goes somewhere else, and we shall still be worried. But this is not an argument against having non-risk based tools like the leverage ratio in the supervisors’ toolbox. They are very important, because to understand risks well, we need more than one view of the firm. And the leverage ratio is an important other view. But I want to emphasise that understanding risk is at the heart of supervision. BIS central bankers’ speeches  1  But this, of course, begs a very important question. Why did supervision go wrong in the period before the financial crisis, and what do we learn from that bad experience? Let me offer a number of thoughts on that. First, supervision was never given sufficient prominence and attention. It’s a very real skill. In my experience it demands not just high levels of technical skill but also interpersonal skills – to get very strong egos to change their thinking and actions – do things that they had not intended – to recognise the public interest.
Sciences Po Paris – Paris, 18 September 2019 Inaugural lesson at the Paris School of International Affairs,  by François Villeroy de Galhau Governor of the Banque de France  What economic sovereignty for Europe? Facing the threats with lucidity, and boldly seizing an opportunity  Press contact: Mark Deen (mark.deen@banque-france.fr; 06 88 56 54 03). Page 1 of 10  Mr Director, Dean (dear Enrico), Ladies and gentlemen, teachers, dear students, It gives me great pleasure to speak before you today. I follow in the footsteps of several Ministers of Foreign Affairs, including Jean-Yves Le Drian and Nathalie Loiseau. Caro Enrico, thank you for your invitation, knowing this makes me feel all the more grateful and honoured! The decision to switch from diplomats to a central banker such as myself perhaps sends out three signals. First, rarely have geopolitics and economics been so closely intertwined. Faced with the rise in protectionist tensions and the verbal volleys, which unfortunately intensified again this summer, some even say that economic interdependence – the “sweet ties of commerce” praised by Montesquieu – is the only thing still shielding us from military conflict. Conversely, rarely has a global economic slowdown been so clearly attributable to political causes: nearly everywhere, public policy instability and uncertainty are on the rise and are damaging private sector confidence; I shall come back to this. Second signal: rarely have central banks been called upon to do so much.

The way of using privatization receipts should not only support the short-term economic growth objectives, but should also affect the economic operators’ expectations for stable economic growth in the future. The latter can be achieved by using additional revenues to reduce debt levels and support reforms for structural changes in the economy. Dear participants, Currently, we are of the opinion that the concept of long-term development strategies of a deeply national character is an important issue for the stable long-term growth in our region. Lacking a regional perspective does not favour the individual success of small economies in the global economy. The process of connectivity and integration of transport infrastructure should continue with the integration of development strategies, capital markets, the labour and primary commodities, and energy infrastructure. Our economies are vulnerable and contaminable  2  BIS central bankers’ speeches  from global developments because they are small economies in an economic region fragmented and dependent on foreign inflows in the form of investments, exports and remittances. Increase in the market share, ease in production factors mobility (capital, labour, and raw materials), integration of financial and payment systems, integration and coordination of scientific and educational curricula and addressing of challenges from a regional perspective would make the region an attractive and integrating economic place. This integration would identify the comparative regional advantages, enhancing at the same time the competitiveness of each of our economies.
It bears repeating that Congress did so after facing the terrifying realization that the lack of a credible 4/6  BIS central bankers' speeches  resolution mechanism for dealing with failing systemic firms left only bad choices, such as lending into a run, bailout, or the collapse of the financial system. Over the past several years, there have been efforts in Congress to repeal OLA and create a new, bespoke process for systemically important firms under the Bankruptcy Code. That process would largely mimic many of the features of the FDIC’s single point of entry strategy intended for use in an OLA proceeding. Those efforts have picked up steam this year with the passing of two different bills in the House of Representatives.13 From my perspective, there are attractive aspects to both OLA and the Bankruptcy Code. OLA is largely an administrative process that has the benefit of agility. It is administered by the FDIC, which will already have insight into the institution though the living will process. The FDIC also communicates with foreign regulators regarding systemically important firms. OLA has particular advantages in the context of a cross-border resolution, which means in this day and age the resolution of pretty much any systemically important institution. US regulators have established relationships with their foreign counterparts, and resolution processes similar to OLA now exist in many globally important financial centers.

However, as many have noted, the current bankruptcy laws were not designed to resolve systemically important financial institutions. Although firms have worked within the existing bankruptcy framework for purposes of resolution planning, revisions to bankruptcy law could be a means of facilitating the orderly bankruptcy resolution of a major financial institution. However, the devil is, of course, in the details. The bills that passed the House earlier this year include many helpful changes regarding current bankruptcy law. They may help facilitate the resolution strategies of most of the systemically important financial institutions. Notably, however, these proposals do not include a credible source of backstop liquidity. Congress recognized the importance of such a facility in the OLF. Any bankruptcy regime without one may lack the scale and speed needed to bolster market confidence and may not be as effective in preventing contagion, particularly with respect to a systemically important firm. Conclusion In conclusion, I believe the legislative and regulatory reforms to the financial system over the last 10 years have made the system more flexible and resilient. At the same time, it is entirely appropriate to revisit these reforms now and assess their efficacy. In doing so, though, let’s keep my aphorisms in mind and not risk history repeating itself. I say this because the American public 5/6  BIS central bankers' speeches  does not deserve to have history repeated. Improved resilience should permit financial institutions to weather another shock and, if needed, fail under the Bankruptcy Code as contemplated by the living will process.
As I will show, remunerating reserves lets us steer money market rates in an environment with a positive policy rate and a large stock of reserves. 8 However importantly, and in contrast to many other central banks that also pay interest on reserves, the SNB does not apply the same interest rate to all reserves. Instead, we employ reserve tiering. To illustrate how reserve tiering works, let us consider a highly stylised banking system, depicted on Slide 6. The SNB grants each bank that holds reserves a so-called ‘threshold’. This is marked on the slide by a red vertical bar. Each bank’s individual threshold is a function of its minimum  4 5 6 7 8  Berentsen et al. (2018) examine various approaches to implementing monetary policy based on the assumption of a large stock of reserves. Uncertainty about both the level and variability of the structural demand for reserves has also increased during this period. This uncertainty is partly due to new liquidity regulations that came into effect in the wake of the GFC. The stock of reserves could be reduced by selling some of the foreign currency acquired in previous years and by absorbing reserves via open market operations. In both cases, negative effects, such as a substantial appreciation of the Swiss franc, could not be ruled out. Libor, which had been the key reference rate for several decades, ceased to exist in many currencies at the end of 2021. SARON has fully replaced Swiss franc Libor.

Maechler and Moser (2022) discuss the transition from Libor to SARON. We also remunerated reserves from January 2015 to September 2022. During this period, we paid negative interest on banks’ reserve holdings at the SNB. To reduce the burden for banks, we exempted reserves up to a bank-specific threshold from negative interest. Maechler and Moser (2020) discuss the SNB’s monetary policy implementation in the negative rate environment. Page 4/10  reserve requirement, so that the threshold generally does not match its reserve holdings. 9 As a result, there are two types of banks: those whose reserves exceed their thresholds, shown in the upper half, and those whose reserves are below their thresholds, shown in the lower half. The SNB now remunerates reserves up to the threshold, shown in dark blue, at the SNB policy rate, which is currently 0.5%. In contrast, the SNB remunerates reserve holdings that exceed the threshold, shown in light blue, at the SNB policy rate minus a discount. Currently, the interest rate on reserves above the threshold is 0%. For the remainder of this speech, we will refer to reserves above the threshold as ‘excess reserves’. Let us examine the banks with excess reserves more closely. As we just noted, part of their total reserves would be remunerated at 0%. These banks therefore have a strong incentive to lend some of their excess reserves to other banks, at an interest rate above 0%.
•  Business line diversification: A third strategy pursued by many financial institutions in the run-up to crisis was diversification of their business lines. For banks individually, this made sense. It helped reduce the idiosyncratic risk from individual business lines. Pre-crisis, this strategy seemed the epitomy of sound banking. In fact, it epitomised Keynes’ description of a sound banker: “one who, when he is ruined, is ruined in a conventional and orthodox way with his fellows, so that no-one can really blame him”. 14 Because, for risk across the system as a whole, this strategy has systemically dangerous consequences. By increasing the similarity of banks’ asset portfolios, it increases the system’s sensitivity to aggregate fluctuations. Although diversification may purge idiosyncratic risk, it simultaneously reduces diversity and thereby increases systemic risk. 15 It, too, increases the risk of adversity being socialised and prosperity privatised. •  High default assets: A fourth strategy for exploiting the asymmetry of equity payoffs is to originate assets which themselves have asymmetric returns. High risk loans are one example. These assets yield a high fixed payoff in good states of the world, but in bad states default generating large losses. Because losses are bunched in the tail, the result is that more of the gain is privatised and more of the loss socialised (Figure 3). This was the strategy pursued by US banks in the run-up to crisis. Unlike banks in Europe, US banks were effectively constrained from expanding their balance sheet by a regulatory leverage ratio.

The FSB’s recommendation to develop alternative reference rates alongside LIBOR recognises that there are, broadly speaking, two main applications for benchmark interest rates: (i) as reference rates in credit products, including bank loans, thereby helping banks to hedge their unsecured funding costs; and (ii) as reference rates in derivatives contracts, whose users are likely to be seeking to hedge exposure to the general level of interest rates, or to hedge secured funding costs. LIBOR originated as a reference rate for bank loans, and became the dominant reference rate in interest rate swap contracts because it was already the major established reference rate at the time the swap market developed. However market participants’ input to the FSB report suggested that many users of derivatives would prefer not to have exposure to banks’ term funding costs through LIBOR swaps, and would instead prefer those contracts to reference a near risk-free rate. This change will not happen spontaneously – liquidity in long-dated swaps is firmly concentrated in contracts referencing LIBOR and no individual player can change that situation. What is required is a collective effort to change market practice. That is why we have initiated the Working Group on Sterling Risk-Free Reference Rates. It will be tasked with identifying a suitable near risk-free reference rate for sterling markets, and formulating a transition plan to catalyse a change in market practice so that a significant portion of derivatives contracts reference the new RFR rather than LIBOR.
Related to all this, the EU must ensure that requirements to clear through CCPs apply also to exchange-traded derivatives and to vital cash markets, not just to “standardized” OTC derivatives. Whatever anyone says, there is really no excuse for where things currently stand on this in Europe. The MIFID II package provides an opportunity to correct it next year. 1  Thanks for comments to Andy Haldane, Edwin Schooling-Latter, Anne Wetherilt, Graham Young and David Lawton (FSA). BIS central bankers’ speeches  1  Those who argue that the gap in the EU’s framework should persist are serious about private gain but, sadly, not about stability. The crisis that threatens to engulf us all illustrates why we should give no room to such sentiments. 3. CCP default and resolution  There is a big gap in the regimes for CCPs – what happens if they go bust? I can tell you the simple answer: mayhem. As bad as, conceivably worse than, the failure of large and complex banks2. We therefore need effective resolution regimes for CCPs (and other financial market infrastructure). The Financial Stability Board will drive this forward as part of our work on the resolution of SIFIs. (A comprehensive package on the resolution of banks and dealers will go to the G20 Leaders Summit shortly. If endorsed, and Finance Ministers have already given their endorsement, it will become a Standard to which countries/jurisdictions pledge to abide.) The EU’s own work on resolution regimes has been a hugely positive input to this global process.

In terms of financial stability – my own focus – it is vital that the risk manager in the CCP, which means the heart of the CCP, should have a clear and independent line to the group board, so that they cannot be lent on by the affiliated exchange to reduce or shade initial margin requirements or collateral terms or portfolio investment policies in order to generate more turnover. This will matter more than ever during a period in which there is likely to be more than one CCP clearing some markets. In the same spirit, the core risk management functions of CCPs should not be outsourced. Regulators have been slow to embrace this. But I am glad to say that it does get some recognition in the EMIR text, perhaps not as unambiguously as is warranted in my view. 2. Global CCPs and access  The efficiencies and risk management advantages of multilateral netting across a variety of products make it likely that the world will have a few global CCPs. There must be broad access to these CCPs, provided always that that can be made consistent with maintaining the integrity of risk management (including default procedures). The benefits of putting over the counter (OTC) derivatives trading through CCPs cannot be confined to a few currencies or markets. That is not what the G20 mandated; and, in any case, it would not be in the interests of global stability.
The banking industry itself is required to carry out a process of re-assessment of its development objectives and models for the future, so as to ensure consistent and stable profits. In this regard, the managing structures of the banks are expected to undertake a  BIS Review 139/2009  5  process with the purpose of: a) re-assessing the development priorities; b) establishing a better balance regarding income sources and focus on cost control; c) enabling a higher specialization of their business and identify competitive priorities; d) achieving a better balance regarding the composition of their assets and liabilities according to the currency, maturity structure, etc. ; e) implementing more active policies to approach and maintain the public (customers) close to the institution; f) strengthening the internal audit structure and risks management and research capacities. Bank of Albania is now working with the goal that, within the needed time frame and after properly consulting with the financial industry, to support this process through the introduction of changes in the regulatory and supervisory framework. With this in mind, we shall aim at strengthening the internal mechanisms of the banking activity that incentivize its more controlled and balanced expansion, with adequate characteristics of liquidity and capitalization. At the same time, Bank of Albania shall assess the need for a new supervisory approach for the banks with systematic importance. The transparency of banking activity in its relationships with customers and public in general, shall remain at the centre of our supervisory activity.

And the real pessimists argue that the longer the fall is delayed the more dramatic it will be. Now it is certainly true that if these risks were to materialise then we would indeed be hard pressed to keep the economy moving forward. But such risks need to be kept in proper perspective. The question is - are these possible developments a necessary - or even the most likely - outcome? I don't think that they are. It's entirely understandable - in the light of the global industrial slowdown and generally weak export markets, and after a third year in a row of sharply falling equity prices, that business and financial market confidence should remain subdued. And people seem sometimes surprised to be told that, on the macro-economic data, we passed the trough a year or more ago. The US economy, in particular, on which so much of the rest of the world depends actually expanded by just over 3% in the year to the third quarter of last year - which is well above its long-term annual average rate until the surge in the later 1990s. The Eurozone also grew - though only by around 1% over the same period, and there was even positive growth in Japan. Now that's not exactly a strong recovery after the slowdown, but it follows only a relatively mild recession. More recent data certainly have been somewhat mixed - perhaps reflecting Alan Greenspan's predicted "soft-patch" through the winter; and we're in the shadow of uncertainty over Iraq.
A strategy is evaluated using a financial risk calculation that is based on how much an asset portfolio can increase in value in relation to the risk that it will fall in value. This approach can also be applied to the world of central banking, although instead of being about an asset portfolio it is then about monitoring risks relating to the development of the economy and to the central bank’s target variables, for example inflation.4 As in the case of an asset manager, the time horizon on which the strategy is based is important. Translated to the current situation in the Swedish economy, this risk-reward approach could be expressed by saying that better target attainment in the short term must be weighed against increased risks in the longer term. In other words, using a more expansionary policy to boost a part of the economy that is already relatively strong, that is the households, to counteract weak demand in the export sector – which in the main is due to factors beyond the reach of Swedish monetary policy – risks leading to imbalances in the long term in my opinion. Of course it is true that a more expansionary monetary policy could weaken the exchange rate, which would benefit the export sector, but in the monetary policy trade-off I cannot ignore the risks associated with the high level of household debt.

The economy is expected to gather momentum and return to its potential from the second half of this year onwards. This positive outlook is attributable to a number of key fundamental strengths in the Thai economy. First, corporate sector balance sheets remain healthy, thanks to robust savings and profitability. Net profit of Thai listed firms in 2011 was forecasted to continue rising strongly despite damages inflicted by the floods. This will enable firms to rebuild and invest. Second, our banking sector is sound with a strong capital base. This reflects sustained profitability, good risk management and rigorous supervision. Latest information from our loan officer survey indicates banks’ continued willingness to lend. This will greatly facilitate a quick recovery in economic activity. Third, Thailand’s human resources and know-how provides a solid foundation for businesses to flourish and expand. A strong human capital base constitutes one of Thailand’s main comparative advantages. And this remains fully intact. Finally, a key element of the nation’s fundamental strengths that I would like to underscore is Thailand’s geographic advantage to benefit from the promising growth in Asia. The rise of China and the ASEAN Economic Community or AEC provide enormous opportunities for businesses operating in Thailand to expand and prosper as the regional markets and productions become more integrated. The complex supply network and infrastructure that have long been established in Thailand, especially in the automotive and electronics industries, serves as a unique platform for international investors to obtain a critical foothold in the region.