samchain/econo-pairs-v1 huggingface dataset:
Market perceptions of risk were falling at precisely the time risk in the system was building. There was also little market differentiation between the spreads of “crisis” and “no-crisis” banks: their average pre-crisis spread difference was a mere 8 basis points. The extent of risk mispricing is clear from the movements in CDS premia as the crisis broke. Average spreads rose by a factor of over 50 for “no crisis” banks. For crisis banks, they rose by a factor closer to 70. Adjustments on that scale are a decisive rejection of the debt disciplining hypothesis. Debtors were meant to act as a brake on risk-taking incentives. Instead they had served as an accelerator. Why? The answer again lies in incentives – the incentives of bank managers and policy authorities. These incentives matter most at crisis time. Then, it may no longer be in the interests of either bank management or the authorities to have debtors bear risk. Doing so may run the risk of making a bad crisis situation worse. As much as bank management and the authorities may pre-commit to debtor’s bearing risk ex-ante, they may be tempted to capitulate ex-post. Economists call this a time-consistency problem. Agents cannot credibly commit to stick to their guns in the midst of war. Private contracts for bank debt and public policies towards bank debt suffer from a severe case of this time-inconsistency problem. Having debtors assume pain is fine on paper. But crisis wars are not waged on paper.

Although they are second in the risk-bearing queue, debt-holders as well as equity-holders would be expected to shoulder, and hence price, this balance sheet risk. This could be done either by raising its cost or by restricting its quantity. Either way, debt would then serve as a restraining device on riskhungry, rent-seeking shareholders. In theory, this debtor discipline mechanism ought to work like a dream. Under the assumptions of Modigliani and Miller (1963) (MM), the pricing of risk by debt-holders ought to neutralise fully any effect of increased leverage on the value of the firm. Provided  12  Anglo-Continental Guano Works v Bell (Surveyor of Taxes) (1894) 3 TC 239. 13  Farmer (Surveyor of Taxes) v Scottish North American Trust, Ltd (1912), AC 118. 14  For example, the introduction of a separate corporate tax schedule in the UK in 1965 led for a time to the double taxation of equity. 15  These investors account for perhaps half of the US equity market and two-thirds of the UK equity market. 6  BIS central bankers’ speeches  shareholders maximise firm value, and the world behaves according to MM, debtor discipline ought to defuse completely incentives to gear-up. Figure 3 illustrates the point diagrammatically, showing payoffs to debt and equity. They are a mirror-image. The downside risk avoided by equity is assumed by debt and vice-versa for upside returns. In principle, then, combining debt and equity would lead to offsetting payoffs, neutralising risk-taking incentives.
By now all persons, goods, services and capital can move freely from one country to another. This is the case for France and Germany. Trade is a good example of this integration. The share of French imports coming from Germany is currently about 19%, while the share of German imports coming from France is about 15%. Each country is the other's first trading partner. Beyond these gross figures, it is interesting to note that this trade is largely made of complementary goods as opposed to substitutable goods, thus increasing interdependence. This interdependence is not only commercial, it is more generally macroeconomic. Econometric work has indeed shown that French and German GDPs are closely correlated. This means that national economic policies cannot deviate excessively from each other. These foundations progressively convinced France and Germany that they needed a common monetary destiny As I said earlier, the collapse of the Bretton Woods system led European Governements to organize monetary relations between each other. France and Germany were among the most prominent actors in this strategy. I personally see two main elements in this common destiny: the creation of the European monetary system (EMS) in 1979 and the emergence of a conceptual convergence between our two countries as regards monetary issues. The creation of the European Monetary System in March 1979 highlights best the cooperation between France and Germany.

This very bold construction, which has no worldwide equivalent in the world, will simultaneously permit through the decision-making process that has been decided in Dublin: - to ensure that we have a sound consolidated fiscal policy at the level of the euro area even without a federal budget, - and to ensure that each particular economy reloads the fiscal cannon in order to be able to cope with domestic or external shocks even without the automatic stabilizers of the transfers built into a federal budget. Ensuring a sound consolidated fiscal policy at the level of the Union and reloading the fiscal cannon at the level of national economies are the two major goals of the stability and growth pact monitored by the Stability Council and decided, in accordance with the Treaty, by the Council itself. As regards the costs associated with the transition towards the euro, which were the fourth major criticism, I will confine myself to two main remarks relating to the fiscal side as well as to the monetary side. From a European perspective, the strategies of fiscal retrenchment that have been decided within the European Union are to be implemented in any event, whether the Maastricht Treaty existed or not.
[6] It’s why we narrowed the gap between capital requirements for smaller banks using the Standardised Approach and larger banks using the Internal Ratings-Based Approach – in a way that reflects the risks they take and facilitates competition and healthier markets. [7] It’s why we established a New Bank Start-up Unit that, since 2013, has authorised thirty new banks to take on incumbents. [8] It’s why we are taking steps to streamline processes for authorizing some ventures in the wholesale insurance and reinsurance sector. [9] And it’s why we, along with the government, are considering a mobilisation regime for new insurers as part of the Solvency II review. [10] In these instances, our ‘regulatory T cells’ told us that we could takes steps to boost the health of markets while maintaining strong protection against risks from disorderly failure. Responsive regulation can be a helping hand boosting competition, not a dead hand stifling innovation. International competitiveness Effective competition is already a secondary objective for the PRA. But as I mentioned earlier, we will soon have another secondary objective to facilitate (subject to alignment with international standards) the international competitiveness of the UK economy, including in particular the UK’s financial services sector. This objective will also include facilitating medium to long term growth. I’m going to turn now to how we intend to use our new powers to pursue this new objective. This is going to be a very important change for us.

In recent years, extraordinary measures by many central banks have pushed down long-term rates. Over a longer time horizon, the factors behind the decline in interest rates are more structural in nature. The savings glut in 1/5  BIS central bankers' speeches  emerging economies, particularly China and oil exporting countries, has been one important factor. Savings have probably also increased in many countries as a result of demographic developments and a more uneven distribution of income. At the same time, investments in many advanced economies have been low, possibly reflecting prospects for low returns on investment in productive capital. In the wake of the financial crisis, conditions of a more cyclical nature have also contributed to the fall in interest rates. While deleveraging has pulled up savings, greater uncertainty may have dampened the willingness to invest. These developments have consequences for monetary policy. The level of the real interest rate that is consistent with balanced developments in the economy is usually referred to as the neutral interest rate. The difference between the actual real interest rate and the neutral real interest rate provides an indication of whether monetary policy is expansionary or contractionary. A real interest rate that is below the neutral rate stimulates economic growth, while a higher real interest rate dampens growth. The neutral interest rate is not directly observable. Central banks must nevertheless form a perception of how expansionary or contractionary monetary policy is.
More often than not, there will be a number of possible interest rate paths that might be said to provide a reasonable balance, in view of the uncertainty involved. The results of this trade-off are presented in the Inflation Report in the form of a chart that presents baseline scenarios for the interest rate, the exchange rate, inflation and capacity utilisation in the economy. The formulation of a precise inflation target, our projection for the interest rate 3 – 4 years ahead in time and our desire to achieve a balance between output stability and inflation may perhaps give an impression of excessive optimism with respect to managing the economy and invite a repeat of earlier attempts to fine-tune the economy. But it is important to bear in mind the lessons drawn from the 1970s and 1980s, i.e. high stabilisation policy ambitions may lead to wide fluctuations in the economy, with high and variable inflation. In our conduct of monetary policy, we must not underestimate the uncertainty surrounding the decisions taken. Even if the Bank publishes a forecast for the interest rate, this does not mean that the interest rate will follow the forecast throughout the projection period. Forecasts of inflation, output, the interest rate and other variables are based on an assessment of the current situation and a perception of how the economy functions. Disturbances to the economy may result in changes in the forecasts. Data revisions imply that the current economic situation is not fully known.

The inflation target may be formulated as an interval, for example 1-3 per cent, as in New Zealand or, as in Norway, as inflation of close to 2.5 per cent over time. Partly owing to various disturbances to the economy, inflation cannot be expected to remain at target constantly. Central banks have somewhat varying formulations as to how rapidly inflation should be brought back to the target. Some central banks state that inflation should be brought back to target within a “reasonable time horizon” or “over the medium term”. Others have quantified that the inflation target should normally be attained within two years, as in Sweden, or as in Norway, where the interest rate is set with a view to stabilising inflation at the target within a reasonable time horizon, normally 1 – 3 years. In practice, the monetary policy conducted by most central banks is nonetheless similar. They orient monetary policy towards maintaining low and stable inflation. All central banks will reduce their policy rate when there are prospects of low inflation in the medium to long run and raise it when there are prospects of high inflation. What distinguishes Norges Bank from other central banks? Monetary policy in Norway is in line with the monetary policy conducted by a number of central banks in the OECD area. One difference, however, is that Norges Bank is conducting monetary policy in an oil economy.
The Bank announced last year it will also make an adjustment to its approach to setting Pillar 2A add-ons to banks’ capital requirements in order to ensure the regulatory framework is proportionate to all lenders, thereby supporting effective competition, whilst not compromising on safety and soundness. 25  The adjustment allows supervisors to reduce Pillar 2A add-ons for banks which use the Standardised Approach for credit risk to reflect how risk weights under this approach tend to be higher than the risk weights determined using internal models at other banks for some types of assets. This is particularly the case for UK mortgages (Chart 7). Another part of the regulatory framework to which we have made adjustments is the Senior Managers and Certification Regime. We recognised following the implementation of the regime in 2016 that not all individuals that should be were in scope of the regime. In particular, the regime did not include a specific senior management function or responsibility related to areas such as operational continuity and operational resilience, including resilience to cyber risk. This omission was inconsistent with the Bank’s growing emphasis on these areas, as highlighted earlier. In response a new function – the Chief Operations function – has been added to the regime to ensure there is clear and appropriate accountability for operational continuity and resilience. 26  Identifying dynamic adjustments  We are doing two things to enable us to identify aspects of regulation that might need adjustment.

We cannot rely exclusively on controls or process to achieve desired outcomes. Not every situation can be anticipated. Not every decision can be automated. Controls can be out-maneuvered—sometimes unwittingly, but other times on purpose. For all these reasons, good processes are necessary but not sufficient. There will be situations in which your employees have to make choices. Ignoring the moral dimension of choices carries significant risk.8 If you want your organization to be well controlled with regard to its risk, you have to consider the quality of choices, not just the reliability of processes.9 An organization should therefore develop the capacity of its employees to make good choices, not just permissible choices. So, how do you practice moral reasoning? Bill Dudley has offered what I thought was a good starting point. Get rid of the notion that a separate morality applies at work than at home.10 Bankers—and, for that matter, lawyers—cannot check their morals at the door when they step onto a trading floor or into a courtroom. Here are some other ideas, courtesy of a 2016 report by the Financial Conduct Authority entitled “Behaviour and Compliance in Organizations.”11 The report argues, among other things, that ethical considerations need to remain salient in order to promote good choices.
15  See also Blume, M. (2000), The structure of the U.S. equity markets, Rodney L. White Center for Financial Research, paper 17-00, The Warton School, University of Pennsylvania. BIS Review 5/2002  7  conclusion at present could be that certain tendencies that were evident in the United States may also have been present in Sweden. How can households’ risks be reduced? Besides calling for more knowledge about what actually happened while the IT bubble was growing, the course of events raises what is perhaps the more important question of what can be done to provide more support in the future for long-term saving by households. It is essential for society in general that stock markets function properly. At the same time, households need an adequate return on their savings and should be in a position to identify and manage different types of risk. Basically, this is a matter of education. Over the years, the Swedish Share Promotion Association and the Swedish Shareholders Association have done much to improve people’s knowledge of these matters. Information that is prompt, up-to-date, correct and relevant is likewise crucial. The new technology is inundating us with information but more does not necessarily mean better. It follows that households must be helped to interpret the information and pick out what matters most. An import role in this respect is played by independent analysts and consultants, not to mention media. These agents can see through and criticise corporate managements that are unduly optimistic or provide information selectively.

Marzunisham Omar: Transforming organisational learning in challenging times Keynote address by Mr Marzunisham Omar, Deputy Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the Chief Learning Officers Forum 2021 “Transforming Organisational Learning in Challenging Times”, 10 June 2021. * * * It is my great pleasure to welcome you to the inaugural Chief Learning Officers’ Forum – a gathering of minds among the learning and development community. Let me also take this opportunity to thank the teams from PETRONAS and Bank Negara Malaysia for jointly organising this Forum. We are indeed living in challenging times. The COVID-19 pandemic has significantly affected the way we live and work, forcing us to make the necessary adjustments to protect life and livelihood. While the pandemic would InsyaAllah be over, its effects on work arrangements will, I have no doubt, be long lasting. The pandemic is taking place at a time when the world is going through rapid changes. The economic and financial landscape is evolving, defined by on one hand, increasing dependencies among economies and firms, while on the other hand, heightened competition. A key factor driving the changes is the exponential speed of technological advancements in recent years. These advancements have been boosted by major breakthroughs in artificial intelligence, machine learning, big data analytics and cloud computing. Closer to our discussion today, digitisation and automation have disrupted organisations, their business models, talent management and the very nature of work itself.
The first session will start at 1:00 pm and will host the Central Bank authorities and specialists as well as authorities from the Undersecretariat of Treasury. In this session, the related bodies of the Central Bank will present their reports on evaluations about economic developments and inflation outlook to the Monetary Policy Committee. At the same time, the authorities from the Undersecretariat of Treasury will present their evaluations on the developments in debt management and fiscal policy to the Committee. In the second session, the Committee members will make the final evaluations about the outlook and the decision will be put to a vote. After making a decision, members of the Committee will prepare a brief report explaining the rationale of the decision. The decision and its rationale will be announced by the Central Bank in a press release before 7:00 pm on the same day, and it will also be posted on the website of the Bank. A significant change in the upcoming period is that the Turkish version and the English translation of the decision will be published on the same day. Other policy statements and important dates The Central Bank will continue to publish main policy statements regularly in 2007 as well. Within this framework: •  The Inflation Report will continue to be published quarterly. •  The Financial Stability Report will be published twice a year on previously announced dates.

In the first year of the inflation-targeting regime, some supply-side shocks were experienced, which caused inflation to materialize above the path consistent with the target. The Central Bank explained the reasons of this deviation through open letters written to the Government, took the necessary measures to put inflation back on track consistent with the target and shared its evaluations pertaining to the timing of convergence to the target with the public in a transparent manner. These implementations not only strengthened the communication framework of monetary policy, but also played an important role in shaping the expectations. Although the inflation rate has stabilized at around 10 percent-level for a long time due to the supply-side shocks experienced in 2006, the fact that the inflation expectations for the next 24 months is around 5.5 percent as of today is a clear evidence of the success achieved in the inflation-targeting. However, being ultimately focused on price stability, the Central Bank cannot be content with what has been achieved until medium-term expectations are consistent with the target. As a result, important steps were taken in 2006 on the way to transparency, accountability and predictability, which are the main principles of the inflation-targeting regime. This press release aims to review the strategic as well as the operational framework of monetary policy in light of the first year’s experience and to lay down the principles for 2007.
In his survey of the range of research results, Joe Gagnon finds roughly similar median results for studies focusing on programs in the United States, United Kingdom, and euro area—citing a 4 / 13  BIS central bankers' speeches  median effect of about a 50-basis-point reduction in 10-year yields for a purchase equal to 10 percent of GDP.22 Regarding costs, in a recent exploration of strategies for defeating the zero lower bound, former Federal Reserve Chairman Bernanke dispels some of the common critiques of balance sheet programs (which he calls quantitative easing).23 He points to unrealized worries about an upsurge in inflation, collapse of the dollar, currency war, and rise in household leverage, and he questions the effects in promoting asset bubbles and inequality. He notes that fiscal risks associated with quantitative easing must be balanced against benefits of tools that enhance policymakers’ ability to meet their policy objectives in the face of a serious economic downturn or disinflation. Lesson 2: The Fed could control interest rates even with a large balance sheet An additional concern—that the Fed would not be able to control interest rates with a large balance sheet—proved to be surmountable. As I described earlier, the Fed successfully introduced new tools and counterparty relationships into a new operating regime that delivers interest rate control irrespective of the level of reserve balances in the banking system.

The removal of policy accommodation associated with the Fed’s securities portfolio reductions should over time be expected to put some upward pressure on longer-term interest rates.12 However, the relatively muted increase in term premiums seen so far may in part reflect the non-zero probability that market participants assign to the FOMC deploying the balance sheet again if future economic conditions were to warrant more monetary easing than could be achieved solely through reductions in the federal funds rate, consistent with the FOMC’s normalization plan guidance.13  … but where is it headed? The FOMC has started the process of normalizing the Fed’s balance sheet and has provided some general guideposts. The Policy Normalization Principles and Plans state that the Committee intends for the Federal Reserve, in the longer run, to hold no more securities than necessary to implement monetary policy “efficiently and effectively,” and that it will hold primarily Treasury securities.