samchain/econo-pairs-v1 huggingface dataset:
To ensure we balance the risks and opportunities appropriately, the Bank of England is researching machine-learning deployment. Together with the UK’s Financial Conduct Authority (FCA), we surveyed firms across the financial sector to understand the current state of deployment. Our ‘Machine learning in UK financial services’ report, published earlier in October, is the first structured study of its kind, anywhere in the world.2 This work has generated many interesting, policy-relevant findings.   Two thirds of the financial services firms report they already use machine learning, live, in their business.   Most firms stated that they did not identify UK regulation as a major barrier to their deploying machine learning, focussing instead on challenges internal to their organisation.   The majority of users apply existing risk management frameworks. Several felt these frameworks might need to evolve as this technology becomes more sophisticated. Having this up-to-date picture of AI/ML deployment is crucial to informing our perspective, as we continue to explore how policy can support the safe deployment of machine learning. We are continuing our engagement with industry, building on the results of this survey, with a public-private AI working group, which will be jointly chaired by the Bank and FCA. This will be a forum to gain deeper insights into AI deployment, the needs of the private sector and the steps they are already taking to reduce risk. We also want to learn from and collaborate with international colleagues. 2  Available online at https://www.bankofengland.co.uk/-/media/boe/files/report/2019/machine-learning-in-uk-financial-services.pdf.

Elvira Nabiullina: Review of recent inflation developments in Russia and economic outlook Statement by Ms Elvira Nabiullina, Governor of the Bank of Russia, in the follow-up to the Board of Directors meeting, Moscow, 23 July 2021. * * * Good afternoon, We have made the decision to raise the key rate by 100 basis points to 6.50% per annum. Our today’s decision is based on the updated macroeconomic forecast that was significantly revised. The growth of the Russian economy sped up in the second quarter, and inflationary pressure turned out to be higher and more persistent than forecast. Some sectors are already demonstrating signs of overheating. Inflation expectations also continued to go up. Given the observed trends, we have revised our inflation forecast upwards by one point. This year, it will equal 5.7–6.2%. The important step in our policy, which we have made today, is needed to bring inflation back to the target. We expect inflation to slow down to 4.0–4.5% next year and stay close to 4% further on. Nonetheless, our policy will not contain the steady rates of economic growth. I would now dwell on the factors behind our today’s decision. I will start out with inflation. As of 19 July, inflation was 6.5% in annualised terms. This is considerably above the target and is close to five-year peaks. High growth rates are driven by both temporary and steady factors. According to our estimates, steady factors dominate at the moment.
That solution could take many forms, and these would affect the subsequent approach to lifting the controls. A revised liberalisation strategy would therefore look quite different depending on what route is chosen for the settlement of the failed banks’ estates. A solution to this problem must therefore come first. I won’t discuss these possibilities at greater length here, as a great deal of work lies ahead, and it would be unwise to show our hand at this point. Furthermore, it is necessary to have more than one option at hand, in case the one that seems best at the outset proves infeasible later on. It is possible, however, to make a few comments that will enhance the general understanding of what needs to happen. If a portion of the estates are settled through composition agreements, it is of key importance that the ISK asset recoveries add as little as possible (or nothing at all) to the stock of volatile ISK assets owned by non-residents. It is important to bear in mind that selling the banks at a relatively low price to foreign investors interested more in the short term and in handsome dividend payments does not solve the problem and could even exacerbate it. BIS central bankers’ speeches  5  It is the role of the estates to divest the assets and make payments to creditors. The question is, however, what is a realistic price for the assets, and at what exchange rate will they be converted into foreign currency.

For instance, foreign direct investment does not usually jeopardise economic stability, while short-term movements and carry trade are riskier. It can be argued that Iceland had gone too far in financial integration in the years before the financial crisis. In part because of this, the Central Bank recommended, in its 2012 report entitled Prudential Rules Following Capital Controls, that before the capital controls are lifted, restrictions should be placed on financial firms’ foreign exchange risk and their ability to expand their foreign currency balance sheets with the associated maturity mismatches. Restrictions would also be placed on foreign-denominated borrowing by households, firms, and municipalities without income in the borrowed currencies. These ideas are being developed and honed, and some of them could be implemented with the entry into force of new liquidity and foreign exchange balance rules that the Central Bank intends to issue this year. It has been said that a reassessment of the monetary policy framework must take place before the capital controls can be lifted in full. This is perhaps not as critical as it might seem, however, as countries with unrestricted capital flows have various kinds of monetary policy framework. Nonetheless, it is necessary to review our monetary policy, and the Bank has published reports on this topic in the recent term, one entitled Monetary Policy After Capital Controls and the other entitled Iceland’s Currency and Exchange Rate Policy Options.
Let me stop the story of the past for a moment and draw out one message: when we hear people say things like, “credit isn’t back to pre-crisis growth rates”, “there is a gap in the stock of credit to the economy relative to the pre-crisis trend”, “the level of national output is this much lower than it would have been had the crisis not intervened”, “banks’ so-called market making in financial assets is much less than it was immediately pre-crisis”, just pause and consider that all of these statements imply that the pre-crisis years were sustainable. They were not. Let’s turn to the balance sheet of banks in a little more detail, starting with the liabilities side. In this respect, banks are different from other firms because they provide deposit contracts. A deposit is a very particular form of debt contract. For all of us the essential feature of a deposit contract is simple – we put our money (our asset) on deposit at a bank, and we expect all of it back, with whatever rate of return is agreed, and we expect to have access to it, in part or whole, in line with the terms of the contract. Some deposit contracts provide for more ready availability than others, and this affects the return on the deposit. Of course, there is also insurance on a deposit contract up to a well publicised level. Let’s contrast that with non-deposit debt (bonds) and equity contracts.

Countries entered the union with large diversities both in terms of economic development and competitiveness, and in the absence of fiscal, and banking union. On the whole, these countries were victims of their own success. The “reckless optimism” prior to both episodes of crisis had ultimately led the countries to face similar consequences of severe market stress and capital flight, albeit with different symptoms: for Asia, losses incurred in the private sector’s balance sheet, for Europe, public sector balance sheet was impaired. Ladies and gentlemen, Let’s now look at how Asia got out of the crisis and whether such conditions are available for Europe. At the onset of the Asian crisis, Indonesia, Korea, and Thailand built up large private short term external debt while high private credit growth fueled the bubble in the stock and property markets. Once the crisis hit, these countries faced sharp capital reversal of up to 10% and 12.5% 1 of GDP in 1998 for Korea and Thailand respectively and a massive devaluation of the currency soon followed. Some of us were forced to seek international assistance (IMF) or, in the case of Malaysia2, to undertake rigorous self-reform and an eventual unorthodox measure on exchange and capital flows. Notwithstanding the different approaches, these steps were all painful yet critical for economic recovery. By 1998, the current account balance of the four countries became positive, helping to improve the national account and restore consumer confidence. GDP growth subsequently returned to positive territory by the second quarter of 1999.
In particular, the acceptance of the principle of transnational mutualisation of financial risk in Europe, although implemented very gradually and limited to funds contributed by the industry, is essential to ensure the homogeneous treatment of banking risk throughout the EU. Above all, from a broader standpoint, the agreement means that a significant political obstacle to extending the risk-sharing framework has been overcome. This will very likely pave the way for more significant progress in European integration in the future. Let me finish by noting that in recent economic history it is difficult to find bouts of regulatory reform as intense as at present. Globally, the unprecedented costs of the banking crisis for citizens as a whole have spurred major regulatory changes designed, firstly, to tighten up prudential regulation so as to reduce the likelihood of fresh crises in the future; and, secondly, to develop new resolution regulations to lower and allocate more fairly the cost of maintaining financial stability. In Europe the application of the regulatory reform coincides in time with a far-reaching institutional change which has to lead to the creation of a banking union. And, in Spain, all these important regulatory and institutional changes are taking place against a background of deep reform of our financial sector which has involved the clean-up of balance sheets, the recapitalisation of vulnerable banks, progress towards greater consolidation of the industry and enhancement of regulations, particularly those governing savings banks.

Also envisaged is a resolution fund fed by contributions from the industry to meet any needs for capital which cannot be covered by burden-sharing exercises. Furthermore, last December the Council of the European Union reached an important consensus after several months of complex negotiations, which, taken together with the aforementioned Directive, amounts in practice to the creation of a single resolution mechanism. Further to this consensus, a bank resolution board will be set up whose scope of action will be the same as that of the single supervisory mechanism. It will have considerable freedom to act urgently in cases of restructuring or winding-up. It was also decided to set up a single resolution fund which will be progressively endowed with financial resources. The bank resolution board will be entrusted with applying resolution rules uniformly, approving restructuring and resolution plans for banks supervised directly by the ECB and determining how the resolution fund is to be used. The details of the single resolution fund are to be set forth in an intergovernmental agreement of the participating countries before March. However, the consensus reached stipulates that the fund will be financed through contributions from the European financial services industry, although the resources contributed by the banks in each jurisdiction will not be fully merged until ten years have passed. During these ten years the fund will have separate compartments funded by contributions from the banks of each country, which will be progressively mutualised year by year.
Due to the growing dependence of the provision of payment services on the provision of outsourced ancillary services by subcontractors that are currently non-regulated entities, some of these services and their providers may possibly be included in the scope of the Directive and become subject of supervision; - In addition to the review of PSD2, a review will also be carried out of the Settlement Finality Directive4, and assessment will be made if payment institutions and electronic money institutions should be eligible for direct participation in designated payments systems, subject to certain conditions and risk mitigating measures. 2. General trends in payment digitalisation Amendments to the legislation are an important prerequisite for the quick take-up of innovations in the market, but no less contribution to it have the standardisation activities pursued by the industry itself. Main developments, trends and technologies in the payment area, as well as the required regulatory activities, will cover: - Standardisation and achievement of interoperability between end-user applications used for payment transactions, including standardisation of the QR codes used in Europe; - Expanding the access to the necessary technical infrastructure for payment execution – e.g.

Sud Ouest: France has taken over the presidency of the G-20 group of leading nations. And, on this occasion, Nicolas Sarkozy would like to pave the way towards a reform of the international monetary system that would reduce the dollar's role. Do you see this as a possibility? BIS central bankers’ speeches  1  Christian Noyer: The aim is not to reduce the role of the dollar. Even though it has already partially lost its sole reserve currency status, the dollar will continue to play a major role in trade. France is approaching this presidency with an open mind, but there is no doubt that the international monetary system is no longer suited to today's world. Designed in the 1940s and reformed in the 1970s, this system bears the hallmark of an era when international trade played a much smaller role, and when emerging countries such as China, India and Brazil were much less significant players in the global economy. This new configuration must be taken into account. Today, we must hold discussions and debates, measure the magnitude of capital flows that could have very destabilising effects on some countries and strive in a united manner to correct the major imbalances that are dampening world growth. 2  BIS central bankers’ speeches
Above all, the monetary policy models used must better capture the roles in the economy of credit markets and asset prices, so that the consequences of financial imbalances can be analysed. Not only the price, but also the availability of credit has been discovered to be relevant. However, these assertions do not mean that the present models need to be scrapped. They serve us well in periods in which financial imbalances are not a major problem and intensive work is currently under way around the world to develop these models to better incorporate financial factors. Neither can it be required that the models capture serious financial crises. This would probably require the development of special analytical tools and models. The role of monetary policy must be developed and clarified. Even if improved supervision and regulation enable us to reduce the risk of serious financial imbalances accumulating, monetary policy will still face difficult dilemmas. The financial markets have a remarkable capacity to develop continually and to find ways past regulation. Consequently, we cannot rely on supervision and regulation always succeeding in preventing financial imbalances from arising. In the future, we will certainly continue to see various forms of bubbles, in which asset prices increase in a manner that is not sustainable over the long term, together with a rapid growth in credit. In such cases, the central banks must take a position regarding whether and to which extent monetary policy should consider this phenomenon.

5  situation because, in many cases, the level of profits in 2020 is not representative of expected future profits. The increase in debt and the decline in revenues affect some firms’ debt repayment capacity. But the extension of maturities and the lower interest rates on new loans granted during the crisis compared with pre-existing loans are substantial mitigating factors, contributing to lessening the financial burden on firms. Looking ahead, debt repayment capacity will depend mainly on the scale of the economic recovery. Economic policies to address future challenges Currently, the economy is experiencing a recovery that is incomplete, uneven and subject to a high degree of uncertainty, caused mainly by pandemic-related developments. This means that the risks to the business sector will continue to be significant until the pandemic is under control, especially for the firms most affected by the shock. Allow me now to summarise the courses of action which, in my view, should be followed in the current macroeconomic environment. First, economic policies should continue providing support to the economy. In particular, we should avoid a premature withdrawal of the support measures and economic policymakers should monitor risks and stand ready to introduce further stimuli if the macroeconomic outlook continues to worsen. In the specific case of micro- and macroprudential policies, and as the Basel Committee on Banking Supervision has reiterated, banks should use during this crisis the capital and liquidity buffers introduced by Basel III.
Unconstrained by a diagnosis of who was to blame – and considering the mounting downside risks – the speed and scale of the policy response was free to match the dimensions of the unfolding shock. I won’t review all of the actions that the Fed has taken over the past month – they are well documented elsewhere – but I would like to note of the breadth of activity to stabilize the financial 1/4  BIS central bankers' speeches  system and to support the flow of credit, both within and outside banking system. To that end, I’ll describe a few of the lending and credit facilities that the New York Fed is charged with standing up to supply credit for households, businesses, and state and local governments: Commercial Paper Funding Facility By the middle of March, unusually high funding needs and pullbacks by key lenders of short-term funds led to surging rates in the market for commercial paper, or short-term IOUs issued by businesses and municipalities. Interest rates on longer-term commercial paper, in particular, rose to levels not seen since the financial crisis of 2008. Many issuers were reportedly unable to place commercial paper with a term of longer than a week, leading to increased risk that companies would not be able to fund basic operational needs, such as meeting payrolls or financing inventories.

We look forward to engaging with our oversight bodies and those appointed under the CARES Act to ensure that the American people understand the steps we are taking on their behalf as faithful stewards of the public trust. 4/4  BIS central bankers' speeches
If there were a benign, enlightened regulatory planner, able to co-ordinate the actions of traders on a lower-velocity equilibrium, the Flash Crash might have been forestalled. Unfortunately, there was not. ************ The pre-crisis quest for return has, over the past few years, been replaced by a quest for safety. Return on capital is no longer investors’ priority. Return of capital is. That risk-aversion is manifest in high risk premia on a wide range of risky assets and abnormally low yields on a range of risk-free assets. It is also evident in investors’ desire for financial instruments which are secured on high-quality collateral. Investors are taking literally the notion of a security. That desire for security has had a particularly pronounced impact on banks, which are refinancing large legacy asset portfolios. The cost of refinancing those portfolios has increased dramatically since the crisis, particularly for instruments lower-down the creditor hierarchy. The cost of unsecured borrowing by European banks has increased roughly 27-fold since 2007, while the cost of borrowing against high quality assets has risen “only” 16-fold. These relative price effects have shaped importantly banks’ financing choices. A large and rising fraction of global banks’ refinancing has taken place on secured terms. In 2007, the majority of term refinancing of European banks’ debt was on an unsecured basis. By 2011, secured and unsecured refinancing were roughly balanced. In 2012, secured financing is likely to take the lead (Chart 6).

That spiral defined the pre-crisis arms race in financial returns. It generated an equilibrium of synchronously high returns and pay, as banks unilaterally militarised as defence against their competitors. But as in military arms races, the resulting outcome was a sub-optimally risky one. High equity returns came through risky leverage. And high pay, especially in equity-based forms, further encouraged risk-taking.17 The resulting high-leverage equilibrium sowed the seeds of the financial crisis. With hindsight, it was easy to spot this market failure, the co-ordination problem. Banks and the financial system as a whole would have been better off had there been a benign, enlightened regulatory planner, able to co-ordinate banks on a lower return equilibrium. Unfortunately, there was not. ************ Over the past decade, trading in financial markets has undergone a technological revolution.18 The frontier of this revolution is defined by speed. A decade ago, trade execution times were measured in seconds. A few years ago, they were measured in milliseconds. Today, they are measured in microseconds. Tomorrow, it will be nano-seconds or pico-seconds. For technologists, this is a “race to zero” – the promised land of zero  12  Haldane (2011a). 13  Haldane (2011a). 14  Gabaix and Landier (2008). 15  Aikman, Haldane and Nelson (2010) provide a formal, multiple equilibrium model of this phenomenon. 16  McLean and Nocera (2010). 17  Cheng et al (2010), Fahlenbrach and Stulz (2009). 18  See, for example, Foresight (2011).