samchain/econo-pairs-v1 huggingface dataset:
Lessons of the financial market turmoil An economic recovery must not however be a reason for returning to “business as usual”. Lessons must be learnt from the financial market turbulence. This work is still under way. Many national, European and international institutions and bodies are discussing the conclusions to be drawn for the financial system. The global financial system must become  BIS Review 16/2009  5  more resilient in order to avoid such episodes in the future. I would like to name three key words, which point to the need for change: •  short-termism in the financial sector. A far too short time horizon for many actors in the financial system has contributed, among other things, to an excessive risk appetite. That’s why, for instance, the compensation systems and risk management of the banks need to be profoundly improved. •  The transparency of the financial markets. Full information on all institutions, instruments and markets of relevance to financial stability is of the essence. •  The pro-cyclicality of the financial system. In the financial system there is a tendency to accept excessive risks in good times. In a downturn, sharp movements occur in the opposite direction. Here, among other things, banks face the question of adequate capital requirements. Current developments and the euro’s role Against the background of the current developments, let me say a few words about the role of the euro.

I would like to come now to my second question: What is the role of the euro amid the current financial market turbulence? The question makes clear that the global environment in which we operate has completely changed in the past 18 months. Global financial market turbulence and the economic downturn We are currently in an extraordinary situation. It is marked by an intensification and broadening of the global financial market turbulence – in particular since September last year – and a sharp downturn in the world economy. The tensions have increasingly spilled over from the financial sector to the real economy. Their negative effects can be felt worldwide. Since the end of 2008 virtually all economies – both of the industrialised countries and the emerging markets – have been moving in the same direction. This considerably contributes to the scale of the present downturn. This economic downturn has also affected the euro area. Foreign demand for exports from the euro area has fallen. Very low confidence and tight financing conditions have adversely affected domestic demand. On the basis of our current analysis, we see persistent weakness in economic activity in the euro area over the coming quarters. The financial market tensions have a further impact on the global and domestic economy. The economic prospects are still marked by an exceptionally high degree of uncertainty. 4  BIS Review 16/2009  Reaction of the ECB and European governments The ECB reacted quickly and flexibly to the financial market turmoil.
For what concerns the ECB and the entire Eurosystem team, with Banco de España as a very active member of the team, our 330 million fellow citizens in the euro area ask that we continue to deliver price stability over the medium term, in line with our definition – less than 2% but close to 2%. Our determination to anchor solidly inflation expectations has served us well since the introduction of the euro, including in the recent period of crisis, by helping to avoid the materialisation of the risk of deflation. 6  BIS Review 150/2009  The euro area can count on us to continue to be a solid anchor of stability and confidence in these challenging times. Thank you for your attention. BIS Review 150/2009  7

The taxpayers of some of the most developed countries of the world have been called on to support global banks headquartered in their countries. Indeed, after the Lehman bankruptcy, it is fair to say that the entire global financial system was put at risk by the difficulties of some banks operating worldwide. It quickly became clear that an unprecedented and unacceptable level of systemic risk had built up over the “boom” years. And that a significant amount of taxpayer’s money had been put at risk as a result. This prompted a forceful, and understandable, reaction from all sides. The public, bank investors, regulators, supervisors and politicians alike all agreed that we needed a profound overhaul of the treatment of systemic risk. I believe that the reactions to this challenge from the G-20, at the highest political level, as well as from the Financial Stability Board (FSB) and the Basel Committee of Banking Supervisors (BCBS), have been proportionate to the size of the problems and risks we have encountered since the outbreak of the crisis. The costs have been huge and there is widespread agreement that we cannot allow this to happen again. Nevertheless, we should also recognize that a number of global banks have managed to navigate these rough and unchartered waters without capsizing, Indeed, if you allow me to extend the metaphor, some have even been able to help to calm the waters.
TED spread, basis points 500  500 Sweden  450 400  450  Euro area USA  400  United Kingdom  350  350 Coordinated policy rate cut Lending by central banks  300 250  300 250  Lehman Brothers 200  200  150  150  100  100  50  50  0 Jan-07  0 Jan-08  Jan-09  Sources: Reuters EcoWin and the Riksbank  Both in Sweden and in other countries the TED spread rose substantially when the crisis became acute in connection with Lehman Brothers filing for bankruptcy last autumn. Since then it has gradually fallen, although it is still above the levels that prevailed prior to the crisis. This indicates greater confidence between the banks. The total measures have probably had considerable significance. In particular, the large injections of liquidity that come from the central banks still lending large amounts to the banks should contribute to reducing the TED spread. Yes, although we are not yet on solid ground! For part of my professional life I have come to work with managing financial crises in different parts of the world, both here in Sweden and for the IMF. I know that it is difficult to say exactly where in the course of the crisis an economy is at a particular point in time and how fast the recovery will be.

But we are not there yet. How shall we keep our balance in the future? In a financial crisis most of what is not built on stable foundations and does not have a robust structure is washed away. But when the situation has calmed, we have the chance to build up something new that will work better than that which failed the trials. We have this chance now. We must take part in the change work Keeping our balance once we have landed on our feet will require reforms with regard to legislation and supervision. Difficult and important challenges lie ahead of those of us who work with these issues – the central banks, the financial supervisory authorities and the legislators. Here Sweden must take on the challenge and play an active role in the international discussion. And it is necessary to act quickly. The reform work has already begun. Within the EU a new supervisory structure is being built up with regard to banks, insurance, securities and systemic risk. The new body, the European Systemic Risk Board, ESRB, will play an important role in this. Change is required in a number of different areas. The most recent crisis has demonstrated how a liquid market can very quickly dry up and become illiquid under certain conditions. Tougher rules are required regarding liquidity and the buffer that banks and credit institutions need to be able to withstand shocks. Further consideration is required here before we find a good solution.
But a more contentious debate has emerged over the potential use of our asset purchases to pursue climate-related goals. Our corporate sector purchase programme in particular has come in for criticism as it includes emission-intensive sectors, such as manufacturing and utilities.30 In this debate, it is important to recall that the ECB decides on and calibrates its monetary policy measures with a view to achieving its price stability objective under the Treaty. As a consequence, more than 80% of the € trillion of securities purchased under our Asset Purchase Programme were issued by governments or their agencies. The remaining share consists of purchases of covered bonds, corporate bonds and assetbacked securities. For these assets, the Governing Council concluded that the best way to achieve its monetary policy objective was to follow the principle of market neutrality.31 This principle does not preclude supporting environmental objectives, however. 32 The ECB has purchased “green bonds” both under its public sector and corporate sector purchase programmes. Under the former, we currently hold around 24% of the eligible “green” universe, estimated to amount to some € billion. Under the latter, we hold close to 20% of the eligible “green” corporate bond universe, which currently has an outstanding volume of € billion euros. Under both programmes, the share we hold in “green” eligible bonds mirrors, by and large, the share of our holdings of the entire eligible universe.

I can only add that combining these ingredients - the vision, the will and the power of knowledge - form the leader, regardless whether we talk about politics, managements, or science. Having in mind education and network you have gained  1/2  during the EMBA course you have the best assumptions to succeed. I wish you all the very best in your further professional carriers. 2/2
Cyclically-adjusted net lending Percentage of potential GDP 0  0  -1  -1  -2  -2  -3  -3  -4  -4  -5  -5 2010 2011  -6  -6 Euro area  Germany  Advanced economies  Source: The IMF  The links that exist between the levels of debt, interest rates and growth also suggest that a high level of public debt entails risks. For example, a high level of debt tends to lead to higher long-term interest rates, as shown in Figure 3.3 A high level of debt may also lead to lower growth due to increased vulnerability to future crises, or because taxes may have to be increased to finance the debt.4 The higher the level of debt, the more the country must set aside to make the interest payments on its debts. These are a couple of the reasons why  2  The term cyclically-adjusted deficits here refers to public net lending adjusted for cyclical effects. The group advanced economies includes the United States, the euro area, Japan, the United Kingdom, Canada, South Korea, Australia, Taiwan, Sweden, Switzerland, Hong Kong, Singapore, the Czech Republic, Norway, Israel, Denmark, New Zealand and Iceland. 3  See also Baldacci, Emanuele and Kumar, Manmohan S. (2010), Fiscal Deficits, Public Debt and Sovereign Bond Yields. Working Paper no. 10/184. IMF. 4  For more details see Fiscal Monitor Update, November 2010. IMF or Kumar, Manmohan S. and Woo, Jaejoon (2010), Public Debt and Growth. Working Paper no. 10/174. IMF.

And it will focus on improving how we communicate, both internally and externally. We want all our colleagues to feel empowered to raise issues promptly, to challenge and to voice any concerns they have. These initiatives will help us build the trust that is crucial to delivering our mission. And they will help us merit that trust by making us more effective. The Bank will learn the lessons of these unfortunate events and apply those lessons to reinforce what’s best in banking and the Bank of England. 14  For details of recent Court reports see: http://www.bankofengland.co.uk/about/Pages/ieo/default.aspx. Additionally, see Grabiner, “Bank of England Foreign Exchange Market Investigation”, 2014, at: www.bankofengland.co.uk/publications/Documents/news/2014/grabiner.pdf 8  All speeches are available online at www.bankofengland.co.uk/speeches  8
Market Functioning Speech given by Chris Salmon, Executive Director, Markets, Bank of England  OMFIF City Lecture, London Tuesday 24 January 2017  I am grateful to Charlotte Barton, Nick Butt, Liam Crowley-Reidy, Nick Govier, Tom Horn, Rebecca Jackson, Sarah John and Nick Mclaren for their assistance in preparing this speech. 1  All speeches are available online at www.bankofengland.co.uk/speeches  Introduction  It is a pleasure to be here this evening. The economic and political events of the past twelve months raise many questions. From my vantage point as the head of the Bank of England’s Markets Directorate, they reemphasise the need for central banks to understand the structure and functioning of core financial markets. That matters both for our role as guardians of financial stability, and to ensure the effectiveness of our own operations to implement monetary policy. Let me illustrate this with reference to developments in two very different markets. i)  The first – the sterling FX market – a large, global, highly liquid, and almost continuously traded, market, with a constantly evolving structure. Here, the challenge is to understand how those developments affect the functioning of the market. My focus will be on the lessons about market functioning from two particular episodes last year: the period immediately following the EU referendum and its ‘flash crash’ a few months later. ii)  The second market – the sterling corporate bond market – is small, local, and thinly traded, with heterogeneous underlying assets.

Whilst it is true that this event was over in less time than it would have taken me to buy my regular morning latte, and as the BIS report noted, no systemic financial institutions appear to have incurred material losses, the reality is that our ability to describe how the flash unfolded doesn’t mean we can explain why it happened on 7 October. The events immediately after the referendum and on 7 October paint sharply different pictures about market functioning. As I noted above, the FX market functioned very effectively during the first episode, enabling the sterling exchange rate to act as an important initial shock absorber to the referendum news. But functioning in the second event was poor, with as large a move in sterling but without a fundamental trigger, creating a dearth of liquidity and for a short period of time the absence of a functioning two-way market for sterling. 3 4 5  And by 9% on a trade-weighted basis. The Amihud measure of price impact calculates the ratio between price moves and volumes traded. http://www.bis.org/publ/mktc09.htm 3  All speeches are available online at www.bankofengland.co.uk/speeches  3  The proximity of these events points to a nuanced conclusion about market functioning. Modern, highly electronic markets can facilitate a rapid and orderly reaction to significant news, but resilience might depend importantly on preparation. Moreover, the events of 7 October also highlight the vulnerability of such markets to seemingly unprompted flash price movements.
Similarly, at our last meeting, I felt that the benefit of stating that the FOMC anticipates economic conditions were likely to warrant holding the base rate at “exceptionally low levels … at least through mid-2013” was outweighed by the risk that such an action would be viewed as a commitment. The majority of the FOMC felt that anchoring the fed funds rate where it is for two years would assure markets and incent business activity. I felt doing so would, instead, give job-creating companies, particularly small- and medium-sized businesses, an incentive to further delay  1  “The Sluggish Recovery from the Great Recession: Why There Is No ‘V’ Rebound This Time,” by Mark Wynne, Federal Reserve Bank of Dallas Economic Letter, vol. 6, no. 9, 2011. 4  BIS central bankers’ speeches  borrowing for expansion, given that they feel stymied both by anemic demand and discomfort with how they are taxed and regulated. It seemed to me that signaling that money would likely remain cheap for two years or more would hardly induce those with access to credit to borrow to expand and add to payrolls now. This discomfort was compounded for me by the confusion and disorienting uncertainty arising from the debacle of the debt ceiling negotiations that took place shortly before the FOMC meeting – an uncertainty that has yet to be resolved.

It is, however, my firm opinion that confidence is being significantly undermined by at least two sources of uncertainty. One is domestic. It arises from the fiscal and regulatory authorities. Congress and the president must put together a program that will encourage growth in final demand as soon as possible by incentivizing private businesses to do what they do best to make growth in final demand possible: Expand investment, hire workers and go about the business of lifting the income and net worth of the American people. Yet, they must do so without running afoul of the need to reverse the downward spiral of the nation’s finances. To this end, I am encouraged that the president and the Congress are going at it hammer and tong, searching to find the right balance between goosing up the economy short term and reining in the longterm fiscal imbalances that are imperiling our nation’s future. The second source of uncertainty has largely emanated from the European debt crisis, which intensified in the spring of 2010. At that time, risk spreads jumped, and both securities prices and confidence retreated. This helped derail the momentum that the economy had built up in late 2009 and early 2010. The sovereign debt crisis has reintensified, as you are all aware, and risk premiums in bond and stock markets are rising once again. Another global factor that undermined the pace of recovery this year, of course, was the disruptive earthquake in Japan and the economic aftershock from this tragedy.
Money market reform has made the prime money market mutual fund industry smaller and safer. The elimination of the net asset value convention for institutional prime money market mutual funds has made these funds smaller and less prone to runs during times of crisis.3 The tri-party repo system has been made more stable as intraday 4 4/7  BIS central bankers' speeches  exposures of the large clearing banks have been dramatically reduced.4 This means that they have less reason to back away from a firm if it were to become troubled. And, firms are much less reliant on short-term wholesale funding. We have also reduced the amount of risk in the system by requiring that most standardized OTC derivatives be cleared through CCPs, where multilateral netting occurs.5 In a centrally cleared regime, major intermediaries have net exposures to individual CCPs that replace much larger bilateral exposures to other financial intermediaries. Of course, this means putting more eggs in the CCP basket. So, it is particularly important now to closely watch that basket.6 Greater oversight of CCPs is necessary to ensure that they have good governance, sound risk management, robust technological infrastructures, and adequate liquidity support. In addition, we have made considerable progress in developing a viable resolution regime for large, systemically important banks and securities firms. More work is still needed Yet, we should not be complacent, as there are important areas where our work is not complete.7 Relative to other countries, the United States has limited ability to implement effective macroprudential tools.

Economic research can contribute significantly to this, and in this context, some fundamental questions need to be addressed. – First, what is the macroeconomic impact of financial regulations? A greater understanding of how financial regulations act at the aggregate level is needed, both in containing systemic risk and in affecting the growth potential of economies. This would enable us to make more informed policy recommendations. – Second, how should systemic risk for banks, non-bank financial institutions and markets be identified and measured? Economists have proposed several methods of measuring systemic risk. But more research is needed in order to understand systemic risk arising from banks and non-bank financial institutions and their interaction. – Third, how should monetary policy be conducted in the context of macroprudential policy? And there are many more questions, some of which will be discussed during this workshop. We are eager to learn from the expertise and the experience of other countries. Norges Bank is committed to investing in research and supporting cooperation with other central bankers and foreign academics. This workshop is one product of this commitment. We are fortunate to have such prominent speakers contributing to the program. I wish you fruitful and stimulating discussions, and I hope you enjoy your stay in Oslo. Fortunately, the weather is on our side, motivating us to stay focused on our work. It would have been more difficult on a sunny day in June. 2  BIS central bankers’ speeches
Financial and synthetic leverage does exist in the world of market-based finance, and I will return to this later on. But, unlike in banking, for most firms involved in market-based finance leverage is not at the core of the business model. And leverage, or the lack of it, affects liquidity risk as well as solvency risk. In a crisis, when credit is constrained, the unwinding of leverage and the threat of insolvency drives fire-sales of assets which amplify financial stress. Unleveraged investors may of course still run if asset prices fall, but they are not forced to do so by the withdrawal of credit. Historically, when faced with deteriorating financial asset markets, investors in retail funds, insurance companies and pension funds have on the whole tended to stick fast and run their losses. Peak outflows from European investment funds investing in investment grade corporate bonds in the crisis were no more than 5% in a month. 6  Large scale losses to investment funds, insurance companies and pension funds can present very difficult issues and strain the financial system, especially through their knock on effects on other parts of the system. But in and of themselves, they have been less likely to lead to systemic failure compared to major stress in the banking system that provides not just credit but the means of transaction – i.e. the money itself – in our economies. 4  Empirical work supports this.

Because your industry has taken a lead in learning from the past, in leading the changes needed and in having a sense of your responsibility to the wider economy. Yours is a model of engagement for others to emulate. And I look forward to continuing to work together. Thank you. BIS central bankers’ speeches  5