samchain/econo-pairs-v1 huggingface dataset:
With respect to rule setting, for example, a project is underway to use advanced analytics to understand the complexity of the PRA rulebook.6 We hope to use the results to identify ways to simplify our rules to make them easier to comply with. The PRA Rulebook contains 638,000 words –77,000 words longer than War and Peace in English translation. The complexity of the language used can make the text difficult to read. Another layer of complexity is added because of cross-references and links between different parts of the Rulebook, requiring the reader to refer backwards and forwards, disrupting reader flow. Figure 2 is a visualisation of the Rulebook. Each node is a part the PRA Rulebook. Each line between the nodes is a cross-reference in the text. When parts of the rulebook are linked together, tweaking one part can have unintended consequences for others. We can quantify the interconnectedness of different parts of the rulebook using the PageRank algorithm, the same algorithm used by Google’s search engine. A higher score implies greater connectivity of a particular part to other parts. Happily, most parts of the rulebook are self-contained and ‘‘structurally simple’. ‘Looking further into the future, a bigger win might be to automate the rulebook entirely. Regulated banks are required to submit large quantities of data to regulators. The cost of collecting and reporting data to meet regulatory requirements is a significant burden to both regulators and regulated firms. Regulatory data collections also have significant time lag s, normally 4 to 6 weeks.

Hence advances in AI are often associated with Big Data and the recent huge advances in the volume and variety of data available (see Figure 1). As the sophistication of algorithms and volume of data rise, the uses of AI in every-day life are expanding. Finance is no exception. In this speech I want to explore the impact of AI and advanced analytics more broadly, on the safety and soundness of the firms we supervise at the PRA, and how we are starting to apply such technology to the supervision of firms. In particular, I want to explore the seeming tension between the PRA’s supervisory regime that is firmly centred on human judgment, and our increasing interest and investment in automation, machine learning and artificial intelligence. II. CHANGING THE NATURE OF THE RISKS WE SUPERVISE  Like many other firms, banks are looking to harness the power and speed of AI. If you were to take some parts of the media at face value you might be tempted to conclude that a revolution is underway. There are plenty of examples of innovation to point to – from the use of ML-driven financial-market trading algorithms; to the introduction of online banking platforms that generate alerts to customers on trends and irregularities in their spending habits; to new apps that suggest switching utility providers to the cheapest provider.1 On closer inspection, however, the situation seems rather less revolutionary and more evolutionary.
Mario Draghi pointed out the fundamental difference between a monetary policy institution and fiscal rules, which are exemplified by the track records of the ECB and SGP respectively. Third, there is room for an intermediate level of integration, which I would call “full coordination of national policies”, a presently missing link between integration, as we have for monetary policy decision-making, and rule-based surveillance such as is currently the case for national fiscal policies. To illustrate this, a matrix is obtained by comparing the 4 components of economic policy (monetary, financial, fiscal and structural) in columns with the 3 levels of integration in rows: namely the lowest level of “monitored national policies” (with recommendations), the intermediate level of “fully coordinated national policies” (with incentives) and the upper level of “integrated policy” (with common instruments). The four components of economic policy displayed here are quite distinct, but they all contribute to the same objective: to boost growth but also to smooth shocks. Their classification is organised more or less – from left to right – in terms of their effect on stabilisation vs. allocation, in other words of their cyclical vs. structural effects. I do not need to elaborate on monetary policy. As a complement to monetary union, economic union can be seen as the combination of three main policy instruments: (i) financial, (ii) fiscal and (iii) structural. All three policy dimensions indeed have a supply-side impact on resource allocation (to a growing extent going right).

The today initiative is a significant event, to sustain the growth of financing for this vital part of the economy and it will help to soften the negative impacts of the world economy slowdown. I encourage the banking system and the other players of the market to undertake similar initiatives in order to not impede the financing of small projects, which owns the possibility to be transformed into profitable enterprises. At the same time to maintain a stable and long-term progress of the country, in line with its European aspirations, the banking system should go on the way toward the perfection of service versus the clients, the intensification of communication and public education. Bank of Albania believes that the sources of the stable growth for the mid-term and long-term period consist not only on the encouragement of the work productivity increase or of the investments in industry and construction, but also in other strategic sectors. For the Albanian economy as a developing economy, domestic investments and foreign direct investments in strategic sectors as tourism and infrastructure shall be a real foundation to the economic growth. The positive chain effects are expected to be reflected on the preservation of the steady growth rhythms. Hence, the overall macroeconomic stability will be seen as a precondition in promoting the further intensification of the domestic and foreign investments.
In addition, only 12% thought that the willingness of banks to provide a loan had deteriorated, while the number of those replying that banks were actually more willing to extend credit was among the highest in the EU. At the same time, however, the demand for bank loans by domestic small enterprises last year was weak. Only 10% of respondents applied for bank loans compared to 22% in the EU. The indication of a subdued demand for loans is confirmed by information derived from the Bank Lending Survey and from other intelligence collected by the Central Bank of Malta. One possible explanation could be the fact that small businesses in Malta rely on a mix of internal and external finance to a greater extent than their European counterparts. Another is  5  Flash Euro Barometer No. 271. BIS Review 50/2010  3  the reported postponement of investment plans in the light of the slowdown in both domestic and external demand. Albeit to a lesser extent, supply side factors also seem to have been present. For example, according to the joint EC/ECB survey more than half of the small businesses in Malta considered the interest rate as the most limiting factor for obtaining a bank loan, a higher proportion than in any other country surveyed. And about one fifth reported that they had actually refused the loan offered because they considered the interest rate as too high.

The restricted flow of credit in the euro area does not, however, appear to have been replicated in Malta, whose banking sector emerged from the financial turmoil with high capital and liquidity ratios. Domestic credit to the private sector continued to expand at steady, though slower, rates in 2009. The annual rate of increase in bank loans to the private sector declined from around 10% in 2008 to 8.3% last year, and the latest figures for February suggest that total credit is still expanding by over 6%. Lending to NFCs, meanwhile, is growing at an annual rate of 3.9%. With regard to the recent experience of domestic small enterprises, our estimates suggest that bank lending to them expanded by around 6.6% per annum between 2005 and 2009. This impression of a sustained credit flow is confirmed by a joint survey carried out by the European Commission (EC) and the ECB during 2009. 5 The results for Malta are based on a sample of 100 enterprises, of which 94% were categorized as micro enterprises in the services sector with an average annual turnover of less than EUR 2 million in 2008. One of the most significant results was that small enterprises in Malta did not consider access to finance a main concern. Only 8% of respondents cited it as their most pressing problem, compared to 16% in the EU.
The risks he discusses are mainly linked to central banks that buy assets other than government bonds. The more the central bank involves itself in risk and capital allocation in the economy, the greater the risk of it being exposed to political pressure with respect to how it should conduct its policy. And more generally, the larger the central bank’s balance sheet, the greater the risk of politicians wishing to utilise the resources in a specific way. Plosser’s arguments are important, but they are not particularly applicable to the Riksbank’s current situation. The Riksbank has only purchased government bonds, and we have spread our purchases fairly evenly on the outstanding bond stock in order to affect the general level of interest rates rather than specific bond prices. And despite the Riksbank’s balance sheet having grown rapidly in recent years, it is significantly smaller in relation to GDP than in many other countries. As far as the Riksbank is concerned, I consider the financial risks to be more problematic. The large bond portfolio means that the interest rate risk on the balance sheet has increased. The bonds we have purchased have an average maturity of 5 years, but are funded with Riksbank certificates with a maturity of one week. If the interest rate rises, the funding costs will therefore increase while the return on the bonds already purchases remains unchanged. In addition, the expected return on the Riksbank’s bond portfolio is low.

Since 2013, and in addition, naturally, to our contribution to the preparatory work, we have been working hard at the Banco de España in two directions: a)  first, to adapt our structure to the new needs; and  b)  second, to encourage the presence of experts from the Banco de España at the ECB. A few weeks ago a reform of the Directorate General Banking Supervision was approved, designed to create a structure that mirrors that of the ECB, to facilitate interaction between the two authorities and achieve efficient management of resources. The new organisation replicates the arrangements envisaged by the ECB: two departments will be responsible for ongoing supervision of the significant banks, a third will be responsible for the less significant banks, and a fourth will perform the so-called “horizontal” tasks, in addition to on-site inspections of the significant banks. To underpin the position of the Banco de España’s representatives on the SSM’s governing bodies, a new SSM Coordination Service was created in February , which will be responsible for analysing and monitoring non-Spanish significant banks. Regarding the Spanish presence in the SSM, our experts have been very successful in the ECB selection processes, both at senior management and junior analyst levels, which testifies to their excellent qualifications and vast experience.
First, consistent with the September statement, the FOMC began a new purchase program of $ billion long-dated Treasuries per month. Second, the FOMC shifted to economic thresholds from calendar-based rate guidance. The FOMC committed to keep the federal funds rate at its current level of zero to 25 basis points at least as long as unemployment remains above 6.5 percent, projected inflation on a one to two year horizon is below 2.5 percent and inflation expectations stay well anchored. Both elements of the policy stance were reaffirmed at last week’s FOMC meeting. So why did we make these changes? The additional asset purchases provide further monetary stimulus. This is appropriate given that we were falling short of our objectives.6 Moving to an outcome-based purchase program also has other advantages. In particular, expectations of the ultimate amount of purchases should change as the economic outlook evolves. This acts as an automatic stabilizing mechanism. In particular, the FOMC’s statement that purchases will continue until the labor market outlook improves substantially provides additional support for the recovery by reducing downside tail risk. The shift to rate guidance based on economic thresholds was not intended to provide additional accommodation at the time it was implemented.7 But, the adoption of thresholds does support the recovery by changing the risk profile in a different way. The thresholds  4  In addition to reinvestment of maturing MBS.

A much more important issue with respect to policy normalization is moderating the risk of a sharp snapback in longer-term yields. But this has less to do with the size of the balance sheet specifically than the challenge of normalizing the current stance of monetary policy in all its dimensions. There is always a risk that market participants will foreshorten the Fed’s actions. Market participants could collapse an extended sequence of steps back to the date of the first move towards normalization resulting in an abrupt tightening of financial conditions. The move to economic thresholds-based guidance for the fed funds rate should help in this regard. While the thresholds are certainly not triggers, they should help market participants adjust expectations about the likely timing of liftoff in a relatively continuous manner and guard against these expectations being pulled further forward in time than is warranted by changes in the economic outlook. Nevertheless, we will need to communicate our broader intentions very clearly. Even when purchases cease, the enlarged balance sheet will provide substantial ongoing stimulus. It is important to recognize that the Fed could remain in this posture with policy “on hold” for a significant period. As the threshold framework should make clear, there is no fixed timeframe between completing purchases and raising short term rates. Long-term yields rose sharply in 1994 and 2004 when economic recoveries got underway in earnest after sustained periods of unusually low short-term rates.
But since 20 February the Eurogroup ministers have said that this discussion would only come in a second phase and that it was necessary first of all to decide on a credible reform programme. Greece has chosen to break off talks before the second part of the sequence. BIS central bankers’ speeches  1  Doesn’t that debt have to be restructured to make the Greek economy viable? First of all, it has been adjusted three times since 2012. Adding up the exchange and the buyback of private debt, coupled with the revision of the maturity and the interest rates on European loans, that represents more than 100% of GDP in terms of debt reduction that has been approved. The Greek debt burden represents 4% of GDP, less than in Italy or in Spain. The question is not therefore to know if restructuring the debt is necessary but whether restructuring it a fourth time would help Greece. The most important thing for the future of Greece is for it to return to growth. To achieve that, it’s necessary to remove the rigidities of the Greek economy, the tariff barriers and vested interests, all of which impede economic activity and weigh down on the purchasing power of employees, of whom much has been asked. The Greek executive has never made these questions the focal point of the talks and that has been a real disappointment from a government which everyone expected to be very committed to combating vested interests.

What about the funds earmarked under the second plan to support the Greek banks? That money, € billion, disappears with the stopping of the programme, on Tuesday evening, as does all assistance for Greece which was still available but conditional on the implementation of the programme. The ECB has maintained its emergency liquidity assistance (ELA) to the banks. Did the question of its withdrawal come up last weekend? The ECB acts within its regulatory framework. We can offer emergency liquidity assistance to the banks provided that they are solvent, the collateral submitted is of good quality, and that the ELA doesn’t interfere with the ECB’s monetary policy. Until Sunday these conditions were met. It was found at the same time that the creditworthiness of the Greek government was seriously degraded, particularly after the Eurogroup’s decision to withdraw the safety net granted to Greece. That led to us not authorising new drawdowns from the central bank, while maintaining the current level of liquidity. I regard this as a measured decision as it does not create an irreversible situation. Are you going to continue providing support to the banks until Sunday evening? We are going to continue the support until further notice. The situation is being constantly monitored by the Governing Council. What is the ECB’s exposure to Greece? On the one hand, there are the loans extended to Greek banks by the Eurosystem, with a total value of more than € billion.
•  We should harness technology to support the pooling of data in regional and global data centres. •  Data aggregation will help enhance consolidated risk management and ensure better protection of customer data. Insurance integration In insurance, ASEAN member states have agreed on an ASEAN Insurance Integration Framework. •  ASEAN members have agreed in-principle to liberalise the cross-border supply of Marine, Aviation and Goods in International Transit (MAT) insurance in the seventh package of financial sector commitments of the AFAS. •  When this agreement is signed and ratified in 2016, insurance companies will be able to offer MAT insurance across ASEAN’s borders. •  This move will help to lower the cost of insuring cross-border business risks and help to spur intra-ASEAN trade. The next key steps will be to liberalise the catastrophe insurance and reinsurance markets. •  ASEAN’s insurance penetration rate is barely half the global average, even as the incidence and severity of natural catastrophes in ASEAN continue to increase. •  This large and widening gap in insurance coverage leaves ASEAN countries vulnerable to economic loss and production disruptions from natural catastrophes. •  As risk exposures grow in scale, size and complexity, they will exceed the capacity of individual states to underwrite the risks confronting their communities and economies. Liberalising ASEAN’s insurance markets will reduce the cost of insurance protection to governments, to businesses as well as to consumers.

•  Banks in the region could face higher non-performing loans. They could also face reduced US Dollar funding if there are large capital outflows from ASEAN. •  But their liquidity and capital positions are generally sound and they should be able to weather this. ASEAN growth story still good Over the medium to long term, ASEAN is expected to remain among the fastest growing regions in the world. Last year, the combined GDP of ASEAN was close to $ trillion – larger than India. •  The ASEAN-4 – Indonesia, Malaysia, Thailand and the Philippines – are projected to grow by at least 4% per annum on average over the next five years. •  It could be as high as 6% if ASEAN becomes more integrated and these countries successfully implement structural reforms to raise productivity and competitiveness. For banks in ASEAN, it is not just the size and growth of the economies that matter. It is the composition of that growth and demand. Rising incomes and the agglomeration effects of urbanisation will significantly expand the ranks of the middle class in ASEAN. •  In 2010, ASEAN had a population of 600 million, with around a quarter making up the middle class. BIS central bankers’ speeches  1  •  In 2030, ASEAN will have a population of 700 million, with about two-thirds attaining middle class status. •  In other words, the size of the middle class will swell by as much as three times over two decades.
Non-performing assets Private-sector non-performing assets continued to rise in 2013. This increase and the aforementioned decrease in credit explain the growth in the non-performing assets ratio. Also playing a role in this increase was the reclassification of refinanced loan portfolios required by the Banco de España in 2012. In any event, banks’ non-performing loans have a clearly cyclical component. In this respect, in line with the onset of the recovery of the economy, the latest data, which relate to early 2014, show a slight fall in non-performing assets in month-on-month terms. This trend can be expected to firm as the recovery of economic activity gathers steam. Results The banking sector in 2013 reported consolidated profit of € billion in 2013, following heavy losses in 2012, basically due to the sizeable provisions made by banks. Although provisions continued to eat up a considerable portion of profit, their relative significance in 2013 was appreciably less than in 2012. Margins and efficiency The more moderate provisions noted above helped to offset the lower margins in the 2013 income statement compared with 2012. Thus, against the background of a smaller volume of  4  BIS central bankers’ speeches  activity and of lower interest rates, net interest income (the difference between accrued interest revenue and costs) dropped by nearly 10% year-on-year in 2013.

Contributing to this lesser momentum, on one hand, has been the change to a more moderate growth model in China; owing to lower Chinese demand for commodities and the interrelated effect on global production chains, this has been instrumental in the lower growth in the other emerging economies. Further, the expectations that global financial conditions will normalise have led to fewer capital flows towards certain emerging economies, exposing their vulnerabilities linked to their dependence on external funding. In any event, exchange rate flexibility or sizeable volumes of reserves have enabled them to withstand, in better conditions than in past periods, this episode of reversed capital flows. In sum, this new outlook reveals greater certainty about the recovery of the global economy and a shift in the central points of uncertainty from the developed economies – and in particular from the euro area countries – to the emerging economies. As regards price developments, the current phase of recovery is marked by the absence of inflationary pressures in the main advanced economies, with the exception of Japan, with inflation rates significantly below the targets set by central banks being recorded. Contributing factors here were the persisting slack in labour markets, the low levels of capacity utilisation and the moderation of commodities prices, in particular of oil. The absence of inflationary pressures has been conducive to an accommodative monetary policy stance being maintained globally, with official interest rates anchored at levels very close to zero and extraordinary liquidity provision measures still in force.