samchain/econo-pairs-v1 huggingface dataset:
Conclusion We are well advanced in the programme of regulatory reforms to manage systemic risk in the banking system. We are only now beginning to think about macroprudential risks from marketbased financing. This should not be surprising. With the exception of some types of market based financing activity, such as money market mutual funds, which have been addressed, asset managers and investment funds were not a source of instability in the financial crisis. But the past is not always a guide to the future. It is important to try to understand risks from market based financing and how they could materialise in a world in which market liquidity might be lower than before the crisis. And to return to where I started, it is important that we complete the implementation of the programme of reform of the banking system. Oscar Wilde also once said ‘When bankers get together for dinner, they discuss Art. When artists get together for dinner, they discuss Money’. I suspect over the last few years the dinner topic for members of the banking industry has been much more about regulation and the future of your industry and much less about art. I think it will be a long time before art is the only topic of conversation over dinner. There is a great amount of implementation work to be done. Risks have not gone away and we will need to consider them carefully as the financial cycle moves through a more normal phase.

Jon Cunliffe: Market liquidity and market-based financing Speech by Sir Jon Cunliffe, Deputy Governor for Financial Stability of the Bank of England, at the British Bankers Association International Banking Conference, London, 22 October 2015. *  *  *  According to Oscar Wilde, there is only one thing in life worse than being talked about and that is not being talked about. Wilde of course was not a banker. And although he retained his notoriety until well after his tragic and unjust end, even he probably never experienced the sustained and hostile public attention which bankers and the banking system worldwide have experienced over the past eight years. So it will probably come as a relief to those of you here at the BBA International Banking Conference that I do not today intend to talk – in the main – about banks and bankers. Rather, I want to talk about market not bank-based finance and about market liquidity. I hope you will not find that worse than being talked about. I will, however, make some important points at the outset about the reform of the regulation of the banking system. That is not just for any of you that would otherwise have withdrawal symptoms.
In my view, a consideration of the costs and benefits, and the opportunities and risks of a broad purchase programme of government bonds does not give a positive outcome at the current time. Concluding remarks Owing to my position, I have limited myself today to talking about innovations in monetary policy. At this point we should look first at the effect of our recent measures and of the asset quality review and the stress test on bank lending. Innovations in other political areas are also necessary, if not even more so. The reasons for weak growth and funding shortfalls primarily lie elsewhere, not in a lack of central bank liquidity, to say nothing of capital markets. Innovative political approaches are called for when it comes to increasing growth potential in the euro area, strengthening economic adjustment efforts and making budget consolidation compatible with growth and employment. But let me conclude by returning to the original question: how innovative may the ECB’s monetary policy be? As innovative as necessary and as effective as possible. This requires careful consideration. The risks and side effects must always be taken into account. For me, given the current situation, the hurdles for further measures are very high, especially for broad purchase programmes. The interest and spreads for many debt instruments are already very low: the risk of market distortions cannot be dismissed.

Due to the appreciation of the Swiss franc, export-geared companies are exposed to strong price competition. In manufacturing, in particular, margins are under very strong pressure in some cases. However, survey results still suggest that robust foreign demand allows for good utilisation of capacities and supports exports. The short-term outlook also remains good for domestic demand. Construction investment is benefiting from favourable financing conditions, while higher capacity utilisation should stimulate equipment investment. Demand for labour is likely to firm further. For 2011, the SNB is maintaining its forecast of real GDP growth amounting to around 2%. Monetary and financial conditions Monetary conditions were again characterised by the divergence between low interest rates and the Swiss franc, which appreciated significantly in the second quarter. Since the last monetary policy assessment, the three-month Libor has persisted in the lower part of the target range. With inflation expectations rising slightly, real interest rates have remained low and even, in the short-term range, negative. In general, although long-term interest rates have risen since their low point in August 2010, they are still at a low level. By contrast, the real export-weighted Swiss franc appreciated further in the second quarter and has reached an all-time high. By the beginning of May, the US dollar – mainly – had weakened significantly against the Swiss franc. Thereafter, renewed concerns about stability in the euro area also led to a depreciation of the euro. My colleague, Jean-Pierre Danthine, will speak about the situation on the international financial markets in more detail later on.
If the central bank feels obliged to “pre-announce” a policy path in advance this could compromise its ability to stabilise demand and inflation  Results from a simulation of a small macroeconomic model under alternative assumptions about monetary policy and the average distance to the lower bound. Macroeconomic volatility is measured using a simple “loss function” that weights the variance of inflation and the output gap. The y-axis shows the square root of the loss function, scaled to 1 for the case of commitment policy with an average distance to the lower bound of 5pp. Sources: See Appendix for further details. Conclusion It would be nice if interest rates were more predictable. In fact, it would be nice if everything was more predictable. But many things, including stuff that might otherwise disturb inflation over the medium term, are not. And because it’s the job of monetary policy to respond to such things, interest rates are also unpredictable. There are particular circumstances in which committing more unambiguously to a future path of interest rates can be an advantage. If there’s a risk of deflation but the policy rate is stuck at the lower bound, and QE is for some reason thought to be ineffective, a declaration that policy will remain accommodative, even in the event of more inflationary pressure in the future, can in principle stimulate demand today. But even when such a commitment is believed, the effects are probably smaller than simple economic models tend to assume.

2  2 http://www.snb.ch/en/ifor/finmkt/fnmkt_benchm/id/finmkt_reformrates  Page 4/7  Berne, 15 December 2016 Andréa M. Maechler  News conference  Slides  Page 5/7  Berne, 15 December 2016 Andréa M. Maechler  News conference  Page 6/7  Berne, 15 December 2016 Andréa M. Maechler  News conference  Page 7/7
But as I mentioned earlier, my view is that given the down-turn in economic activity that is now becoming apparent it is difficult to see how the companies would be able to pass on increased costs. At our latest meeting, the price of oil had fallen from its peak level in July, and it has fallen further since then. Let me say a few words about developments on the financial markets. We are now seeing a new wave of unrest sweep across the international financial markets. This is nothing new but something we have had to live with for over a year now. From time to time it has appeared that things may have calmed down somewhat, only for the unrest to return in other forms. Over the last few days, major American investment banks and a number of other players have experienced acute problems. It is difficult to say at the moment where all this will end. We are of course following developments closely. So far, we can note that financial stability in Sweden is satisfactory. Swedish banks are only marginally involved as their exposure to the US market is limited. Nevertheless, the Swedish market is significantly affected by events on the international stage. The costs of borrowing are increasing and some financial markets are working less efficiently than normal. Yesterday, the National Debt Office, in consultation with the Riksbank, took steps to facilitate the functioning of the market. The National Debt Office will now issue short-term treasury bills in a number of extra auctions.

Different measures paint slightly different pictures, but all of the measures are above the inflation target. Thirdly, cost pressures have  1  For a review of current research see, for example, Blinder, A., ”Making Monetary Policy by Committee”, an essay presented at the conference ”International Experience with the Conduct of Monetary Policy Under Inflation Targeting”, 22-23 July, 2008, Bank of Canada. 2  See, for example, Blinder, A. and J. Morgan, ”Are Two Heads Better than One? An Experimental Analysis of Group versus Individual Decision Making”, Journal of Money, Credit and Banking 37, 2005, 789-811. 2  BIS Review 113/2008  increased. This is largely related to the fact that growth in productivity has been surprisingly weak for some time. The assessment made by the majority was that an increase was needed to prevent price rises for energy and food from spreading to other areas – to prevent the high level of inflation from becoming entrenched. The increase is expected to help bring inflation back to a level close to the target within a couple of years. Resource utilisation is also expected to fall but to be roughly normal at the end of the forecast period. At the same time as the repo rate was increased, the repo rate path for the period ahead was adjusted downwards compared to the decision taken in July. This is partly because growth has slowed down more than expected in Sweden and abroad and partly because the price of oil and the prices of other commodities have fallen.
While raising interest rates is often portrayed as a difficult task for central bankers, in fact, given the events since the onset of the financial crisis, it would be a development to be truly excited about. Raising interest rates would signal that the U.S. economy is finally getting healthier, and that the Fed is getting closer to achieving its dual mandate objectives of maximum employment and price stability. That would be very good news, even if it were to cause a bump or two in financial markets. Global implications of U.S. monetary policy normalization Let me now turn to the implication of U.S. policy normalization for foreign economies. Like other central banks, our monetary policy mandate has a domestic focus. Our monetary policy actions, though, often have global implications that feed back into the U.S. economy and financial markets, and we need to always keep this in mind. For most of us, the market volatility that we saw in the spring and summer of 2013 during the so-called “taper tantrum” still remains fresh in our minds. EME financial markets were hit the hardest, with declines in equity prices, a widening in sovereign debt spreads and a sharp increase in foreign exchange rate volatility. In the U.S., we saw a spike in Treasury yields, with the 10-year rate rising by more than 100 basis points from early May before peaking in early September.

This includes seeing increased oversight by senior management and board of directors, more robust remedial measures and increased investments in strengthening compliance. We prefer if the industry can strengthen their defences against financial crimes pre-emptively, on their own. But Bank Negara will also not hesitate to use enforcement levers to deal with instances where there are persistent gaps and non-compliance with rules. Over the years, we have worked to enhance our enforcement framework to ensure that enforcement actions are just, proportionate and transparent. In order to uphold transparency of enforcement actions, we have started publishing actions taken against financial institutions for non-compliances of rules under our purview. The intention is to clarify our regulatory expectations and to expedite change in culture by knowing the incentives and consequences of non-compliance. In January, we lowered the daily Cash Threshold Report (CTR) from RM50,000 to RM25,000. Up to September, over five million CTR reports were received, representing about RM483 billion in cash transactions. It is still too early to draw any concrete conclusions, but what we have observed across the industry is the total value of cash transactions reported has increased marginally, while the number of CTR reports received have nearly doubled. The significant increase in CTR received since January provides us important data points that enable more rigorous monitoring of peculiarities in cash transactions and identification of ML/TF risk on newly 2/3  BIS central bankers' speeches  identified entities that have not been captured previously.
Nevertheless, there is not the remotest possibility of the sums involved being so large that the collateral held by the banks might impose limits on their borrowing from the Riksbank. In an earlier financial stability report, we outlined a highly hypothetical argument in which we followed the assumption that all households wanted to hold an extra SEK10,000 in cash. This would be equivalent to increased withdrawals totalling approximately SEK38 billion. A more reasonable assessment of the risk is that each household might withdraw an additional couple of thousand kronor; this would be equivalent to about SEK10 billion. I am therefore on firm ground when I say that the Swedish bank system is well equipped to cope with any rise in the demand for cash. Nevertheless, some central banks have announced special lending facilities for the banking system in preparation for the turn of the millennium. These central banks include the Federal Reserve and the Bank of Canada. However, both the structure of the banking market and the central banks’ systems for managing the supply of liquidity vary from country to country. In Sweden we have financially strong banks and the banking market is easily surveyed, since the number of banks is so small. Moreover, as a result of the rules that the Riksbank follows for collateral requirements and because of the structure of the Swedish securities market, a considerable stock of pledgeable securities exists. In supervising financial stability, the Riksbank also has other means at its disposal.

10 Board of Governors of the Federal Reserve System, FOMC transcript and presentation materials, January 29-30,  2002. 11 Board of Governors of the Federal Reserve System, FOMC transcript and presentation materials, June 24-25,  2003. 12 See, for example, Lars E. O. Svensson, The Zero Bound in an Open Economy: A Foolproof Way of Escaping  from a Liquidity Trap, Monetary and Economic Studies, Volume 19, Issue S1, pp. 277-312, February 2001; Günter Coenen, Athanasios Orphanides, and Volker Wieland; , Price Stability and Monetary Policy Effectiveness When Nominal Interest Rates Are Bounded at Zero, Advances in Macroeconomics, Volume 4, Issue 1, 2004; Ben S. Bernanke and Vincent R. Reinhart. 2004. Conducting Monetary Policy at Very Low Short-Term Interest Rates, American Economic Review, Volume 94, No. 2, pp. 85-90, May 2004; Klaus Adam and Roberto M. Billi, Optimal Monetary Policy under Commitment with a Zero Bound on Nominal Interest Rates, Journal of Money, Credit and Banking, Volume 38, No. 7, pp. 1877-1905, October 2006. 13 Reifschneider and Williams 2000; Board of Governors 2002. 14 Gauti B. Eggertsson and Michael Woodford, The Zero Bound on Interest Rates and Optimal Monetary Policy,  Brookings Papers on Economic Activity, Volume 34, No. 1, pp. 139-211, 2003; Reifschneider and Williams 2000. 15 Ben S. Bernanke, Vincent R. Reinhart, and Brian P. Sack, Monetary Policy Alternatives at the Zero Bound: An  Empirical Assessment, Brookings Papers on Economic Activity, The Brookings Institution, Volume 35, No. 2, pp. 1–100, 2004.
Some investors are apparently reluctant not because the economics of the program are unattractive, but because of worries about what participation might lead to. The TARP loans to banks led to intense scrutiny of bank compensation practices given that TALF loans are ultimately secured by TARP funds, investor anxiety about using the program has risen. My own view is that these fears are misplaced. The TARP funds in the TALF program only come in on the backend of the program when loans are put back to the Fed. The lending to investors on the front end is completely a Federal Reserve program and operation. That being said, I understand the reasons for the anxiety given the political discourse on this subject. I think it is worth emphasizing that actions that lead investors to shun taking risk, especially in this environment, are ultimately detrimental to the ability of households and businesses to secure credit at reasonable borrowing rates. The Federal Reserve’s liquidity facilities and asset purchase programs have led to a substantial expansion of the Federal Reserve’s balance sheet since September 2008. Currently, the Fed’s balance sheet totals about $ trillion, up from about $ billion last fall prior to Lehman’s failure. In thinking about this balance sheet expansion, I would make three broad points. First, in my mind, the goal is not the expansion of the balance sheet per se, but the objectives that I laid out earlier. In this respect, the expansion of the balance sheet differs considerably from Japan’s experience with quantitative easing.

That is because the balance sheet size is being driven by a large number of different actions. Is a dollar of TAF lending equivalent to a dollar extended through the CPFF or to a dollar of Treasury purchases? How important is the PDCF? It backstops lots of lending, but outstanding amounts are very low. The differences between the various programs and activities mean that the balance sheet size should be interpreted in light of the impact on market function and financial market conditions, not by the impact on the size of the balance sheet. The size of the balance sheet is also not a good standard because the use of the different facilities depends on the degree of impairment in market function. If market conditions were to deteriorate, I would expect that usage of the Fed’s facilities would increase and the balance sheet would grow in size. This would be appropriate. The Fed’s balance sheet would act as a shock absorber, cushioning the impact of the shift in market conditions. In such  4  BIS Review 48/2009  circumstances, the balance sheet would act as a counter-cyclical dampening mechanism. I would view that as a desirable outcome. In contrast, if the Fed were committed to a particular balance sheet trajectory, then, as market conditions improved and financial conditions eased and usage of the Fed’s liquidity facilities diminished, the Fed would have to offset this by increasing the scope of its liquidity facilities or by expanding its asset purchase programs.
This seems due, in part, to important fundamental improvements in policy credibility and economic performance. It may also reflect confidence that governments will ultimately act effectively to deal with these challenges. And it may reflect the inherent difficulty of assessing the risk in what may seem like low probability but very adverse outcomes. A number of fundamental changes in the U.S. financial system over the past 25 years appear to have rendered it able to withstand the stress of a broader array of shocks than was the case in the past. The core institutions hold more capital against risk. Risk management systems are more sophisticated and the internal control regimes around those systems are more robust. The earnings of many financial institutions are stronger and more diversified. Payments systems are stronger. Innovation continues at a remarkable pace, providing new ways to allocate and manage risk. Confidence in the overall resilience of the financial system needs to be tempered by the realization that there is much we still do not know about the likely sources and consequences of future stress to the system. Uncertainty is inherent in any process of change, but uncertainty is greater because much of the recent innovation has occurred against the backdrop of general economic stability and a sustained period of low credit losses, low risk premia and low implied volatility across many asset classes. This means that some aspects of the financial system today have not yet been subjected to the more exacting tests of macroeconomic or financial stress.

The prices of other goods and services, on the other hand, have been posting quite modest growth rates. Therefore, the inflation expectations of entrepreneurs and consumers have remained close to the historical average. If the price hike of commodities stops, the increase in the euro area’s prices could remain below 2% already next year. However, looking at the data from another angle, we can find proof to arguments which insist that the current euro-area interest rate level is not suitable for guaranteeing the low inflation rate that corresponds to the price stability goal. Although the general public focuses on the debt crisis of certain European countries, the developments of the economy itself have, on the whole, exceeded expectations. Economic growth has remained above average and the utilisation of production capacity no longer resembles a crisis situation. Though unemployment is still high, it is decreasing and the indicators of the industrial and service sectors are posting quite high results from the historical perspective. If we add here the fact that global price rise pressures have been annoyingly enduring and do not show any signs of abatement, the risk of a persistently higher inflation rate in the euro area has increased. Therefore, at the press conference after the most recent meeting of the Governing Council of the European Central Bank it was pointed out that, to withstand this threat, the Eurosystem might increase the price of money in the markets earlier than expected, maybe already in April.