samchain/econo-pairs-v1 huggingface dataset:
As I have noted, to the extent that these are sensible regulatory improvements in line with global norms intended to enable delegation and global business models to operate effectively and practically while managing risk, one would have little concern. To the extent, however, that they are motivated by Brexit and a desire to pull activity and risk back within jurisdictional boundaries,  22  contrary to current global practice, I do have a concern that they could act as the  harbinger of fragmentation to come. That would raise the cost and reduce the efficiency of market-based intermediation of savings in the EU and, if it led to wider effects, further afield. It would also slow, and perhaps frustrate, the development of market-based finance globally as a way of diversifying economic risks and benefits across jurisdictions and of dampening economic and financial shocks. And from a macroprudential perspective, for the reasons I have set out earlier this morning, that could be the biggest long-term loss. 22  The stated aims of the European Commission’s proposal are to ensure effectively supervision of outsourcing, delegation and risk transfer arrangements in third countries.

It also, as I have noted, amplifies market corrections as leveraged investors are forced to sell when credit dries up. I do not start from the view that leverage poses the same scale or nature of risks in the market-based finance world as it does in banking. But nor am I confident at present that it is without systemic risk. We do not have the tools to make that assessment yet. We need a better set of lenses through which to view leverage in this world in order to assess the risks that it might pose to the system as a whole – hence the work now underway in IOSCO and elsewhere. The use of financial leverage i.e. borrowing to gear up exposure to risk looks to be materially lower in market-based finance than in the banking world. 14  Bank of England (2014) Baranova et. al. (2017) 16 Recommendations for Liquidity Risk Management for Collective Investment Schemes, February 2018 17 As reported in Bank of England Financial Stability Report, November 2017. The in-depth assessment will seek to develop the FPC’s understanding of how non-banks use leverage, and what financial stability benefits and risks arise from leverage. It will examine measures of leverage and its distribution throughout the non-bank financial system. 15  7  All speeches are available online at www.bankofengland.co.uk/speeches  7  Retail investment funds in most jurisdictions are heavily constrained by regulation on the amount of borrowing they can do. In the UK, insurance companies are limited users of financial leverage.
The experience of continuing stability may have sowed the seeds of its own destruction. That idea has been explored recently in an interesting new book by Nassim Taleb. 18 He argues that the opposite of fragility is not resilience or robustness, but “antifragility”, that is a state in which people or institutions thrive on volatility, shocks to the system and risk. We go to the gym to stress our muscles in order to strengthen them; occasional seismic activity may prevent a more damaging earthquake. Frequent exposure to shocks and surprises may improve the way people learn about and manage risks. In a complex world, we are “better at doing than we are at thinking”, in Taleb’s words. Unless we train and practice at coping with bad outcomes we may fail to respond in the right way to adverse shocks when they come. “Antifragility” does not imply that it might be desirable to engineer small recessions in order to head off a deep depression. We know far too little about the economy to attempt any such strategy, and in a world of intrinsic uncertainty we rely on heuristics – simplified rules of thumb – to guide our behaviour. But it offers a warning of the dangers of believing that the role of monetary policy is to offset all shocks.

Twenty years ago today, on 9 October 1992, the newspapers reported that for the first time monetary policy in Britain would be based on an explicit target for inflation. Three weeks earlier, sterling had been forced out of the European Exchange Rate Mechanism (ERM). A new framework for monetary policy was needed. After keen debates within the Treasury and the Bank of England, the answer emerged – the inflation target. The essence of this new approach was the combination of a numerical target for inflation in the medium term and the flexibility to respond to shocks to the economy in the short run – and so the framework became known as flexible inflation targeting. It is time to reflect on twenty years’ experience of inflation targeting; fifteen years of stability and five years of turbulence – the Great Stability and the Great Recession, shown in Table 1 and Charts 1–3. Over that period, monetary policy around the world has changed radically. Inflation targeting has spread to more than 30 countries. And the results in terms of low and stable inflation have been impressive. There have been pronounced reductions in the mean, variance and persistence of inflation in Britain and elsewhere. During the past twenty years, annual consumer  BIS central bankers’ speeches  1  price inflation in this country has averaged 2.1%, remarkably close to the 2% target and well below the averages of over 12% a year in the 1970s and nearly 6% a year in the 1980s.
In the harshest scenario considered in this exercise (which includes the cumulative fall of 5.7% in Spain’s GDP from 2020 to 2022), the decline in the CET1 ratio totalled 3.9 pp for significant institutions with an international presence, 4.6 pp for other significant institutions and 1.3 pp for institutions under the direct supervision of the Banco de España. Although this impact is significant and heterogeneity across banks is high, the Spanish banking sector as a whole duly evidenced notable resilience. The first year of the crisis: the importance of economic policy measures Despite this better starting position, the economic shock is unprecedented. Specifically, the 11 pp decline in the Spanish economy’s GDP in 2020, which was already considered in our latest stress test, far exceeded in a single year that simulated for three years in the stress tests conducted pre-crisis. That the banking sector has proved very resilient in the first phase of the crisis has been due not only to this better starting position, but also to the forcefulness of economic policy measures. These have covered all dimensions (monetary, financial and fiscal; national, European and global) and have acted in a complementary fashion. The ECB’s monetary policy, especially through our pandemic emergency purchase programme, has managed to maintain very accommodative financing conditions and to head off episodes of financial fragmentation. This monetary policy action has, in turn, enabled fiscal policy to be very forceful in mitigating the impact of the crisis on households and firms.

The financial transactions are derived from real economic activities, and hence risks are understandable and manageable, with lending to domestic companies accounting for 70 percent of loan portfolio and the rest is mainly mortgage loan. The direct exposure of Thai banks to European countries is also very small. Investments and loans made by Thai banks to Europe are only 0.3 percent of total assets, while claims on Thai banks by European countries are even smaller at 0.03 percent of total liabilities. Nevertheless, we will be watchful of the second round impact of the EU crisis, particularly via impact on exports that could impact asset quality. Apart from the existing solid fundamentals outlined above, Thailand is currently striving to develop a more efficient financial system to anticipate increased regional integration. The key driver and rationale behind this momentum is clear. ASEAN economies aim to increase competitiveness from increased economy of scale and scope, and technology transfer, with link up of supply chain of ASEAN and ASEAN plus 3, in particular. This, in turn, will help strengthen our competitive position in the global market. Thus, the vision of financial sector is that it should seamlessly facilitate this process, whilst safeguarding financial stability. It should be emphasized that economic integration in ASEAN is not aimed to reach the same level of integration as EU, as the single currency and monetary union is not on the agenda.
Each party has to play a role: banks, supervisors and politicians. In line with our mandate, we supervisors have done and will continue to do what is necessary. Thank you for your attention. 2/2  BIS central bankers' speeches

Without prejudice to the answer, the crisis makes it legitimate to ask whether some separation or segmentation of financial activities between institutions with different legal status and abilities would be justified. While it is grossly exaggerated to argue that the abolition of Glass-Steagall is a cause of the present crisis, a case can be made for regulating activities that a same institution is allowed to engage into, thus limiting the potential interactions and feed back loops it can create or to which it would contribute . •  Finally, complexity can be limited through standardization of financial instruments. Such standardization would bring two benefits in: it would make products more transparent, hence their behavior more predictable and would reduce or eliminate uncertainty created by the loss of information. And, second, it would allow them to be traded and/or cleared in organized exchanges and clearing houses, thus reducing by a considerable scale the size and complexity of the network of bilateral counterparties. Current efforts to set up central counterparties and clearing houses for credit derivatives are clearly a major step in that direction. Obviously, there is a trade off since standardization could create obstacles to financial innovation. But it is also true that contemporary financial innovation, by creating enormous complexity in the financial system, all too often has contributed to conceal the true level of leverage and risk. It may be that, as in other economic activities, innovation in finance will inevitably entail increasing complexity.
And should we change the goal of monetary policy to include a wider range of objectives that include maintaining the stability of the banking sector? 2  BIS Review 100/2010  Why were banks so fragile? On the eve of the crisis we had come to be in a situation where the capital of UK banks, relative to their assets, was around half the level that was typical fifty years earlier and probably around one third the level that was usual one hundred years ago (Chart 2). In the US the decline in bank capital over the past one hundred years is quite probably even larger. Chart 2  Chart 3  Capital levels relative to total holdings for UK banks  Liquidity ratio of the UK banking sector  Per cent 45 40 35 30 25 20 15 10 5 0 1921 1931 1941 1951 1961 1971 1981 1991 2001  Sources: United Kingdom: Sheppard, D (1971), The growth and role of UK financial institutions 1880–1962, Methuen, London; Billings, M and Capie, F (2007), “Capital in British banking”, 1920–1970, Business History, Vol 49(2), pages 139–162; BBA, published accounts and Bank calculations. (a) US data show equity as a percentage of assets (ratio of aggregate dollar value of bank book equity to aggregate dollar value of bank book assets). (b) UK data on the capital ratio show equity and reserves over total assets on a time-varying sample of banks, representing the majority of the UK banking system, in terms of assets.

And for much of the period since rates fell to the floor, policy has been actively changed – asset purchases have built up to now stand at around £ billion. Chart 1 Bank rate from 1694  % 18 16 14 12 10 8 6 4 2 0 1700  1800  1900  2000  So it is the level to which interest rates have fallen that is unprecedented. I believe it has been right to loosen aggressively the stance of monetary policy because of the scale of the deflationary and recessionary forces unleashed by the remarkably rapid downturn that followed the crisis in the banking sector. This crisis intensified dramatically in the autumn of 2008 when the banking system came close to total collapse. That would have been an outcome comparable in its impact to the failure of the system for electricity supply. Many now argue that monetary policy should be set in a different way so as to reduce the chances of this sort of banking crisis. That is one of the issues I want to discuss today. The argument that the aims of monetary policy need to be broadened beyond a focus on inflation is one  BIS Review 100/2010  1  that deserves to be taken seriously because the damage done by extreme financial instability is great. If there were no tools better suited to help preserve financial stability than varying interest rates then the case for broadening the goals of monetary policy would be strong.
Consequences for Swedish monetary policy When determining Swedish monetary policy, there are several reasons why we should pay particular attention to the conduct of fiscal policy in Sweden and abroad over the next few years. Firstly, the large deficits in public finances around the world will dampen the growth of GDP. Fiscal policy will be tightened sooner or later, which will also dampen GDP in the short term. The fact that nearly all countries will need to strengthen their public finances at more or less  4  See Blanchard (2010). 5  See Leeper (2009). 6  BIS Review 56/2010  the same time means that we can assume that growth impulses from abroad will be weaker then normal. There is also a risk that the major public deficits will drive up long-term interest rates for government bonds, which will have an additional dampening effect on growth. Secondly, there is a risk that developments will be more dramatic than we expect. Greece is not the only country with serious problems. Several countries in southern Europe also have major problems with their public finances. The deficits in the United States and the United Kingdom are very substantial, too. What we call sovereign risk has recently become the main risk to the financial system. When risk premiums for countries increase, banks in these countries may also experience financing problems, and these problems can spread to banks in other countries. Thirdly, monetary policy will be affected by fiscal policy in Sweden.

chart 3), we can see that, historically, periods of Swiss franc strength have alternated with periods of weakness. The fact that the current Swiss franc strength is proving particularly burdensome for the Swiss economy is due partly to the rapidity of the appreciation, but also to the uncertain economic climate. BIS Review 173/2010  1  Diversification of foreign exchange reserves As you will be aware, our foreign exchange interventions since March 2009 have resulted in the SNB’s foreign exchange reserves expanding to over CHF 200 billion. As we were primarily buying euros, euro holdings accounted for 70% of foreign exchange reserves at one point. In the meantime, we have reduced the euro’s share in the foreign exchange reserves substantially, to 55%. Moreover, we have diversified foreign currency risk further by investing for the first time in Australian and Singapore dollars, as well as Swedish kronor and Danish kroner. Together, these currencies make up 3% of the foreign exchange reserves. The majority of non-euro holdings continues to be in US dollars (25%), Japanese yen (10%), Canadian dollars and pounds sterling. Finally, we have increased the proportion of the foreign exchange reserves that is made up of equities, from 4% back to 10%. This comprehensive repositioning was carried out gradually, and the market had no problem in absorbing it. We were thus able to considerably reduce the risk concentrations in the foreign exchange holdings. An examination of further diversification measures forms part of our annual investment strategy formulation process.
This is quite understandable. And there is no reason to soft-pedal the fact that the capital controls are harmful to the Icelandic economy. It is difficult to make a sufficiently accurate estimate of the magnitude of the negative effects, and I am not sure that the assessments made thus far would all stand up to close examination. One thing we do know, however: the detrimental effects escalate as time passes. But we must understand the nature and scope of the problem if we are to make a reasonably fair assessment of the time that has passed and of how quickly the controls can be lifted. In this context, I have found it helpful to explain to foreign observers that the collective collapse of Iceland’s three large banks is thought be the third-largest bankruptcy in history. The Lehman bankruptcy was larger, and its settlement is not complete. Our own settlement is taking place in one of the smallest countries in the world and is associated with a severe balance of payments problem, whereas in the case of Lehman, balance of payments problems have relatively little relevance. Another point that I make is that if all of the estates’ króna-denominated assets were added to the current stock of offshore krónur, the combined stock would increase to about half of GDP. Of course, we will not let that happen, but if it did, the new “overhang” would be much larger in proportional terms than the UK’s post-war sterling overhang, which totalled nearly a third of its GDP.

As insurance regulators, these emerging trends place new demands on our skill sets, expertise and competencies. We have seen the need to become more agile, pragmatic and experimental. We also need to be more open to new ways of formulating developmental policies and regulation. In this respect, we can learn from each other the evolving practices, environment and developments that we face in our respective markets. As a group, I believe ASEAN regulators will continue to work closely towards achieving a consistent approach in driving the development of a holistic insurance ecosystem and infrastructure in the region. Regular dialogues and exchange of information among and between 3/4  BIS central bankers' speeches  regulators and the industry will continue with new areas for collaboration, particularly in the management of risks and developments brought about by innovation. These include consumer data protection issues, rise of cybercrime, potential job loss or disruption, and rapid and unexpected climate change and natural disasters. Closing This week’s ASEAN events continues our commitment towards promoting continued development in the insurance sector. The challenge herein lies with ensuring that the ASEAN insurance market has the capacity to reinforce the economic growth momentum and stand wellprepared against the evolving trends and risks. In doing so, we should never forget to uphold the highest standards of integrity, professionalism and ethics. 4/4  BIS central bankers' speeches
In the labour markets, reforms which have made possible greater labour flexibility, and competitive pressures which have stimulated firms to adapt more quickly to changes in their business environment, may underlie the more benign performance of real earnings growth. More widely, the greater stability the economy has enjoyed in recent years from the medium-term framework that governs both fiscal and monetary decisions may, by stabilising inflationary expectations at a low level, have made it less attractive, and more risky, to try to raise prices even when demand is strong, and may also have enabled industry and commerce to plan their business activities on a sounder and more forward-looking basis. There is plenty of evidence that all these factors are, in varying degrees, at work in the UK; and they offer the prospect of genuine improvements in the functioning of the economy. But the question is - on what scale, and are the improvements temporary or here to stay? We take considerable care to try to factor these developments into our decisions on interest rates, but the difficult judgment is to assess how much faster the economy can grow as a result without jeopardising our inflation target. My own view is that supply-side improvements are delivering benefits, but the process is a gradual and progressive one, rather than any sudden leap forward. Miracles in the real world are pedestrian affairs, arriving step by step.

We have a representative democracy. The people elected by the people – the Government – of course have sovereignty reposed in them. However, the Monetary Law Act sets about some very specific responsibilities for the Central Bank. And it is up to us to fulfill those responsibilities in a very technocratic, objective and free way. That is not to say that we should be criticizing the Government of the day. That is not our business. But there are channels through which we can give independent advice to the Government discretely. I am very keen and I have spoken to our leaders too about this, that the Central Bank does its work independently and in a technical way and discretely advices the Government about what we think is the best way forward for those segments of policy and practice for which the Central Bank has responsibility. So, I need your cooperation. Thank you, thank you very much. 2  BIS central bankers’ speeches