samchain/econo-pairs-v1 huggingface dataset:
Jean Monnet already recognised this in 1976, when he wrote in his memoirs: “Europe will be forged in crises and it will be the sum of the solutions adopted for those crises.” 19 As far as Switzerland is concerned, I am optimistic that it, too, will overcome the formidable challenges it faces. As with most countries, Switzerland benefited greatly from globalisation and from opening up its economy. Thanks to its flexibility and creativity, the Swiss economy is well placed to remain internationally competitive. But the Swiss people must recognise that the world does not stand still. In order to preserve and enhance our high standard of living, we must remain extremely flexible in every respect. This is where the real economy, in particular, faces a challenge: ongoing innovation and qualified human capital are of the utmost importance in a high-wage country such as Switzerland. Both of these factors will enable our companies to continue to bring successful new products onto the world market, many of which we aren’t even able to imagine today. Monetary policy can generate neither innovation nor growth. Nonetheless, the Swiss National Bank’s conduct of monetary policy is relevant for Switzerland as a business location. After all, the innovative capabilities of a country also rely on a favourable and stable business environment. The SNB remains firmly focused on maintaining price stability; a task, which is consistent neither with deflation nor with inflation.

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As I just mentioned, the impulse we will be getting from abroad in the next two years will be milder than the one of the last two. And as we have said in a number of Reports, we believe that the external risk balance is biased downward. However, we must also be clear that this external scenario finds the Chilean economy on the right foot. Our growth rates have substantially outperformed those of previous years, investment is the most dynamic component of expenditure and our country has been absorbing a significant increase in the workforce without a corresponding increase in unemployment, while wages continue to grow. Today’s lower level of inflation and its implications for the two-year convergence, not only allows adjusting the pace of monetary policy normalization, but also provides room to monitor and analyze the evolution of external conditions without the pressure of an imminent adjustment to the policy rate. Plus, there the traditional cushioning effect of the exchange rate float and a deep local capital market. Summing up, monetary policy is now in an expansionary position, with the policy rate that has remained low for quite a while. Although in our baseline scenario we believe that it will still be necessary to raise it in the next two years, we have also been clear about the convenience of taking a break in the coming months.

Looking at the size of the largest firm’s assets in relation to GDP across a spectrum of industries, finance is by far the largest (Chart 22). The extent of balance sheet growth was, if anything, understated by banks’ reported assets. Accounting and regulatory policies permitted banks to place certain exposures off-balance sheet, including special purpose vehicles and contingent credit commitments. Even disclosures of on-balance sheet positions on derivatives disguised some information about banks’ contingent exposures. This rapid expansion of the balance sheet of the banking system was not accompanied by a commensurate increase in its equity base. Over the same 130 year period, the capital ratios of banks in the US and UK fell from around 15–25% at the start of the 20th century to around 5% at its end (Chart 23). In other words, on this metric measures of balance sheet leverage rose from around 4-times equity capital in the early part of the previous century to around 20 times capital at the end. If anything, the pressure to raise leverage increased further moving into this century. Measures of gearing rose sharply between 2000 and 2008 among the major global banks, other than US commercial banks which were subject to a leverage ratio constraint (Chart 24). Once adjustments are made to on- and off-balance sheet assets and capital to give a more comprehensive cross-country picture, levels of gearing are even more striking.
34  This is an average of the total customer swaps initial margin for the largest five clearing members as reported to the CFTC at end May 2018. Because these are US figures only, they represent a lower bound on total customer initial margin for OTC derivatives at a large clearing member. 35 See Brooke et al (2015), ‘Measuring the macroeconomic costs and benefits of higher UK capital requirements’, Bank of England Financial Stability Paper No.35, https://www.bankofengland.co.uk/-/media/boe/files/financial-stability-paper/2015/measuring-themacroeconomic-costs-and-benefits-of.pdf?la=en&hash=9E3312E32D26EC1F02E25CB2F075356B484F0242. 16  All speeches are available online at www.bankofengland.co.uk/speeches  16  Chart 1: Major UK banks’ Tier 1 capital ratios 2008-17  (a)  Per cent  18 16  (b(c)(d)(e)  Basel III Tier 1  14 12 10 8 6 4 2 0 08  09  10  11  12  13  14  15  16  17  18  Source: PRA regulatory returns, published accounts and Bank calculations (a) This chart was in Box 2 of the June 2018 Financial Stability Report. (b) Weighted by risk-weighted assets. (c) From 2014, the ‘Basel III Tier 1 capital ratio’ is calculated as Tier 1 capital over risk-weighted assets. The CET1 element within Tier 1 and RWAs are according to the CRD IV definition as implemented in the United Kingdom. The additional Tier 1 element within Tier 1 excludes grandfathered instruments and other transitional adjustments. Prior to 2014, the chart shows Bank estimates; preference shares are used as a proxy for additional Tier 1 capital.

Unfortunately, one can see that the authorities in many countries have insufficient resources, independence and competence to match the often financially strong and rich in expertise financial institutions, whose owners can moreover all too easily gain the support of politicians against the supervisory authority’s demands for measures. This is of course a more serious weakness in a problem situation where a lack of measures, insufficient measures or delayed measures can aggravate the crisis. Another problem, although fortunately one we do not have in the Nordic countries, is harassment of the management and personnel within the public authorities for the purpose of reducing their ability and willingness to take supervisory measures against wrongdoing banks. In addition, it is important to establish clear roles and areas of responsibility between public authorities within the same country, between authorities in different countries and also between the authorities and the financial institutions. I have seen that in some countries it is unclear which authority makes the decisions, or which authority has the power to decide on a particular issue, because the law is unclear or because it is not followed in practice. This lack of clarity is accentuated in a crisis situation and hampers crisis management. This can be expressed in different ways, such as poor coordination between the authorities with regard to public statements and decisions or territorial conflicts arising and special interests being favoured over general solutions.
In particular, they need to ensure that the systems for processing payments, the back-up arrangements, and the internal governance structures are robust. A major operational failure in the payment system has the potential to cause severe disruption to the financial system and wider economy. At its worst, a major payment system failure would bring countless commercial transactions to an abrupt halt, impede the operation of business in virtually all parts of the economy and fundamentally undermine investor and business confidence. It is thus imperative that banks and other financial institutions as well as payment system operator maintain proper systems to enable them to identify, monitor and control risks. Sound corporate governance is the foundation for effective risk management. The recent financial crisis has shown that the presence of a well regulated financial sector and properly run corporate entities is key to the prosperity of any economy. In particular, the crisis was caused, in part, by excessive exposure concentration, poor credit policies and inadequate management of credit risk. These risk management failures reflect a breakdown in corporate governance. They reflect poor management of key banking risks, and poor oversight by boards of the mechanisms for managing their banks. In some cases, a lack of independent directors on the boards of banks was also a significant factor in weakening the effectiveness of boards with poor quality financial disclosures and ineffective external audit.

I am therefore delighted that the Institute of Directors has chosen this topic for discussion today. Perhaps it would be useful to begin by defining what corporate governance means. There is no single, accepted definition of what “corporate governance” means. The majority of the definitions employed by corporate practitioners relate corporate governance to “control” of the company. In this regard, corporate governance is defined as a set of processes, customs, policies, laws and institutions affecting the way a corporation is directed, administered or controlled. Corporate governance influences how the objectives of the company are set and achieved, how risk is monitored and assessed and how performance is optimised. Ladies and Gentlemen, corporate governance is of key importance to any financial system. In Zambia the financial sector is dominated by banks and these remain the main source of finance in the economy. The failure of corporate governance in banks may therefore pose serious consequences for the banking sector and the economy as a whole. It is also important to note that the health of the financial system largely depends on their capacity to identify measure, monitor and control their risks. Banks face a wide range of complex risks in their day to day operations, including risks relating to credit, liquidity, exposure concentration, market risks, settlement, and internal operations. The nature of banks’ business particularly the maturity mismatch between their assets and liabilities, their relatively high gearing and their reliance on creditor confidence creates particular vulnerabilities.
Currently, the ECB is also carrying out a stress test to assess the impact of climate-related risks 8 3/5  BIS central bankers' speeches  on the European banking sector over a 30-year horizon.8 We will map projections of climate patterns and expected climate developments to the location of firms’ physical assets and estimate the impact that severe climate events would have on those assets and, consequently, on banks’ portfolios. Together with other central banks, we are developing joint climate stress test scenarios. Besides allowing us to conduct an in-depth investigation into banks’ internal practices around climate risk stress testing for the first time ever, the stress test will help us catalogue the resilience of banks’ balance sheets to risks coming from climate change. Importantly, this exercise will push banks to strengthen the climate dimension of their risk management toolbox. Finally, the exercise will also dramatically increase the availability of data and shed light on our supervisory reporting needs around these types of risks. Given our current lack of data, this will greatly help us in charting the course forward. This year’s climate stress test exercise is being conducted centrally by ECB staff, relying on the aforementioned datasets and models. This approach differs from that taken for the supervisory climate stress test, which has already been announced for 2022. Next year’s climate stress test of individual banks will instead rely on the banks’ self-assessment of their exposure to climate change risk and their readiness to address it.

The International Energy Agency expects to see the second-biggest increase in carbon emissions in history this year, eradicating 80% of the 2020 reductions. 2 The good news is that 2021 may also provide just the kind of momentum we need to tackle climate change effectively. As the European Union and national governments start making large investments to pave the way for recovery, it is crucial that those funds are channelled towards activities that support our transition to a greener economy. I will now discuss ECB Banking Supervision’s latest initiatives to ensure that banks adequately manage climate-related risks. This is our mandate. As I said earlier, this will also have the positive knock-on effect of inducing banks, and thus companies and households, to factor in climate effects when allocating funds. And this will help accelerate the reduction of carbon emissions – all the way to zero by 2050 at the latest. How ECB Banking Supervision is tackling climate risk Climate risk can affect banks through different channels. As I am sure many of you already know, the main risk drivers for banks are physical risks and transition risks. Physical risks include all those resulting from a changing climate, from more frequent extreme weather events and gradual changes in climate, to environmental degradation, such as air, water and land pollution, water stress, biodiversity loss and deforestation.
Each bar stored abroad has a bar identification and remains the property of the SNB. The availability of our gold holdings is fully guaranteed at all times. As with many other central banks, the SNB has never made the storage locations public. The SNB reviews the geographic allocation of its gold reserves periodically and adjusts it if necessary. In addition to security considerations, avoiding public discussions when gold is being relocated was one of the reasons why storage locations have so far been treated confidentially among central banks. However, the SNB is aware that there has been a growing need for transparency in our population in the last few years. We have therefore decided to provide more detailed information in this matter. This is the only way for us to rectify the misinformation and misconceptions with regard to storage locations which have increasingly surfaced. 4  BIS central bankers’ speeches  Of our 1,040 tonnes of gold, more than 70% – and thereby the overwhelming proportion – is stored in Switzerland. The remaining 30% is distributed between two countries. Roughly 20% of the gold reserves are kept at the central bank of the United Kingdom, and approximately 10% at the central bank of Canada. The SNB has been storing gold exclusively in these countries for over ten years. A number of clearly defined criteria are used when selecting countries for gold storage. First, adequate regional diversification and good market access for the storage of gold must be ensured.

Conclusion I have to admit that these five New Year’s resolutions are quite demanding. But I believe they are essential for the SEPA project. If all of us continue to work on SEPA with the same level of dedication as this year, we can accomplish all of them. 4  BIS Review 159/2010
The result was therefore greater volatility in financial markets, and a dramatic increase in the vulnerability of economies to financial shocks. This contraction in credit supply was thus a powerful channel through which the financial sector hit economies. The result was the largest contraction in real economic activity since the Great Depression. In the better times, securitisation and the shadow banking system appeared to have reduced the sensitivity of the aggregate supply of lending and thus the sensitivity of the real economy to transitions in bank funding conditions. But they did not do so at the point it would have been most valuable, during the global crisis. As Stanley Fischer has recently put it: “when non-banks pulled back, other parts of the system suffered. When non-banks failed other parts of the system failed.” (Fischer (2015)). The originate to distribute model created tradeable assets – the securities in securitisation. The success of the model depended on there being liquid secondary markets for these securities. In its broadest sense, market liquidity refers to the ease with which one asset can be traded for another, and thus different markets can be more or less liquid. The level of liquidity in financial markets depends on among other things the amount of arbitrage or market making capacity and whether specialised dealers (market makers) will step in as buyers or sellers in response to temporary imbalances in supply and demand (Fender and Lewrick 2015).

I hope I will be able to show that while many of the problems we face and the tools we have are familiar, the development of macroprudential policy and the FPC since the crisis is not just old wine in new bottles. There is new and important wine here also. The Bank and financial stability The Bank of England is not, of course, a newcomer to this scene. In the centuries following the Bank’s creation in 1694, the British financial system mushroomed as the industrial revolution took hold and the empire grew. As the financial system grew, so did the incidence of crises and panics that required the Bank – often reluctantly – to intervene. In the financial crisis of 1825 – a crisis attributed by many to low interest rates, abundant liquidity and a  BIS central bankers’ speeches  1  search for yield that drove investors into emerging market bonds – England was said by one observer to be “within 24 hours of a state of barter”. To get liquidity into the system and restore confidence, the Bank according to one of its directors “lent money by every possible means and in modes we had never adopted before”. Again, much of this sounds eerily familiar. The Bank since its inception has been at the centre of the response to every financial crisis in the UK.
However, the low level of transactions and heavy reliance on expert judgement does impact its robustness and sustainability. These are rates which directly impact the cash flows and values of an estimated $ of financial products globally. While most of this relates to derivative market activity, this is not an issue limited to professional investors – it impacts every company and household with a Libor linked product. The necessity for change  So the paradox of Libor is that if we are looking for a robust way to create transparency on bank funding costs, Libor is not that rate. Because the market it measures is a small to disappearing part of overall bank funding, it can no longer claim to accurately reflect the marginal cost of funds for banks, nor to provide end users with confidence their interest payments are directly linked to those costs. It is a common human trait to state proudly ‘I’m sticking to what I know’, as though familiarity can itself outweigh the benefits of change or hide the weaknesses of the status quo. However, the market volatility we saw during March and April only served to underscore the long-standing weaknesses of the Libor  Libor submissions are classified in three levels. Level 1 is ‘transaction-based’ submissions — an average of transactions in unsecured deposits and primary issuances of commercial paper and certificates of deposit. Level 2 is ‘transaction-derived’ data, including information from historical transactions.

There is no one size fits all approach, and while there is a common view across jurisdictions that liquidity should move to overnight near risk-free rates where appropriate, this is not to exclude the use of other robust benchmarks. There is a workstream under the US working group – the ARRC6 – that is currently looking at the potential to develop alternative dollar reference rates that include a credit-sensitive spread element, perhaps as an alternative or add-on to the new near risk-free rate across a subset of products. But market demand for credit-sensitive rates that seek to reflect changes in bank funding costs and directly pass these on to borrowers cannot come at the expense of ensuring those rates are sufficiently robust. Introducing new approaches that simply replicate the inherent weaknesses of Libor would be a failure. Would-be producers of such rates face the challenge of doing so in markets where liquidity may be thin or variable. Those choosing to use such rates would need to understand the exposure they were taking on to the liquidity conditions in those markets, and the volatility in the benchmark rate this could cause. We will continue to work domestically and internationally to prevent financial markets being materially exposed to risks from fragile benchmarks in terms of both the integrity of those rates and ensuring continuity of provision. 6  The Alternative Reference Rate Committee is a group of private market participants convened by the Federal Reserve Board and New York fed to help ensure transition from U.S. dollar Libor.