samchain/econo-pairs-v1 huggingface dataset:
Aiyar et al (2014, 2016) find that shifts in required capital had large negative effects on UK banks’ lending decisions. De-Ramon et al (2016) report a similar finding, noting that this has, if anything, increased since the crisis. Bahaj et al (2016) find that, in times of credit expansion, higher required capital has only a minimal effect on lending. But when credit growth is weak, higher required capital can result in a large reduction in lending. This echoes previous research which has found that banks reduce lending in response to negative capital shocks (Peek and Rosengren (1995)). Lower lending was one cost of higher equity considered in the LEI study. A second potential cost, not considered by the LEI study, was the potential for falls in market liquidity in core financial markets - for example, securities financing markets such as repo. This could potentially raise the cost of capital for users of these markets. Market commentary in recent years has often laid the blame at the leverage ratio. This, it is argued, has led some dealer-banks to reduce their inventory holdings and market-making capacity, thereby reducing secondary market liquidity in some markets. 14  All speeches are available online at www.bankofengland.co.uk/speeches  14  There are of course a variety of other reasons why banks’ willingness to make markets, and why market liquidity more generally, might have been affected by the crisis – for example, reduced risk appetite and increased counterparty risk.

And we have seen how volatile their values can be and how badly hurt retail investors who buy them can be. Asset tokenisation has transformative potential, not unlike securitisation 50 years ago. One, it allows high value financial and real economy assets to be fractionalised and exchanged over the internet on a peer-to-peer basis Two, it allows the assets to be traded securely and seamlessly without the need for intermediaries Three, it can enable Decentralised Finance, or DeFi, where borrowing, lending and trading activities can be performed autonomously through smart contracts, potentially enhancing the efficiency and accessibility of financial services. But DeFi is still in its infancy and is not without significant risks. The dispersed governance processes, coupled with a lack of transparency, renders DeFi difficult to regulate. In traditional finance, if something goes wrong, supervisors can go after the entity, its board and management, and the errant employees. In a DeFi world, there is no responsible entity or individual. How does one take enforcement action against an algorithm? Just as Wood has the capacity to grow from tiny saplings to gigantic trees, we want to nurture the tokenised assets ecosystem. Through Project Guardian, MAS and the financial industry are laying the structures and protocols that will help harness the benefits of tokenised assets and DeFi while managing their risks.
What are the early signs of insolvency of a central bank? A central bank becomes insolvent when its capital is eroded to the extent that its net-worth turns negative. A central bank reaches such a catastrophic situation when it makes mounting losses year after year due to its engagement in imprudent financial transactions. A central bank can always finance itself (and also the government) by inflating the economy. However, it also spawns the danger of a central bank getting trapped in an ever expanding  BIS Review 58/2009  3  spiral of inflationary financing, if it does not pursue an inflation-fighting policy consistently. Economists have found that central banks, acting at the instance of their governments, have incentives to reverse the tight monetary policy after they have made some gains in controlling inflation. This is known as the “time-inconsistency problem” 2 or the “prisoner’s dilemma” 3 faced by a central bank. In the time-inconsistency problem, there is an unceasing battle between a central bank and the public for fooling each other. A central bank, in response to public’s outcry against the high inflation, may pursue a tight monetary policy to lower the inflation rate. However, once the inflation rate falls and the public’s outcry subsides, it no longer has the incentive to follow the same tight policy.

Accordingly, in order to raise its expenditure levels (or alternatively, to provide more funding to the government), it may go back on its tight monetary policy and reflate the economy so as to extract real resources from the public. It, therefore, tries to fool the people by generating inflation without their knowledge. However, the public are also smart and aware that the central bank would reverse the course of its policy by inflating the economy after it has made small gains. This mistrust of the public about the policy actions of a central bank is well revealed by the exceedingly high inflation expectations they normally form about the future trends in inflation. Consequently, they also try to fool the central bank by asking for higher wages, if they are employees, or higher future contract prices, if they are producers, than the normal wage or contract price levels permissible under the now low inflation rate. This battle between the central bank and the people will trap the economy in a high inflation-high wage spiral making it a self-defeating enterprise for both the central bank and the public. The high inflation in the economy now exerts pressure on the exchange rate to depreciate.
One international example is the establishment of a European Systemic Risk Board (ESRB), where the governors of the central banks in the 27 EU countries will play an important role. The ESRB’s work will focus on analysing financial stability and the risks that exist in an EU perspective. With regard to straightforward monetary policy, the question is whether the interest rate decisions should take into account asset prices and credit growth with the aim of preventing bubbles from arising. An interest rate policy that takes such factors into account can be described as “leaning against the wind”. When there are signs that a bubble is building up, the interest rate is set slightly higher than would otherwise be justified by the inflation outlook and resource utilisation. What are the arguments for and against such a policy? Arguments against The prevalent opinion is probably that monetary policy should not be used to prevent bubbles arising in the financial markets. Three conditions should be met if one is to use monetary policy to prick financial bubbles: It must be possible to identify the bubbles, there must be tools to prick holes in them and pricking holes in them must provide potential gains. 6 A common perception has been that none of these conditions is actually fulfilled. It is very difficult to ascertain whether there is a bubble or not. Policy rates would certainly seem to be far too blunt an instrument to fine tune asset prices.

IMF (2009), International Monetary Fund, World Economic Outlook, “Sustaining the Recovery” October 2009, page 102. Kohn, D. (2006), “Monetary Policy and Asset Prices”, The Federal Reserve Board, speech held on 16 March 2006, page 5. Kohn, D. (2008), “Monetary Policy and Asset Prices”, The Federal Reserve Board, speech held on 19 November 2008, page 2. Mishkin, F. (2007), “Enterprise Risk Management and Mortgage Lending”, The Federal Reserve Board, speech held on 17 January 2007, page 3. Taylor, J. (2009), Wall Street Journal, 15 October 2009. 12  BIS Review 162/2009
The second entails initial profit margins being sufficiently high to stimulate investment and enable continued rapid growth in the economy. The final assumption concerns the overall, average wage scope for the country as a whole. The definition of a long-term sustainable wage increase may differ between sectors and regions depending on the different conditions for production technology, productivity development and competition. If the economy is not balanced, there may be a short-term deviation in nominal wage developments from the long-term sustainable level. This could be due to a stronger exchange rate, for instance. The inflation target is expressed in terms of CPI, which consists of the prices of both imported and domestically-produced goods and services. If imported inflation, which comprises approximately onethird of CPI, develops weakly as a result of a stronger krona or lower international price pressure, domestic prices may rise more rapidly than 2 per cent over a period of time without causing a threat to the inflation target. There is then temporary scope for nominal wage increases above the level implied by productivity growth. Payroll expense has risen on average by approximately 3.9 per cent a year from the beginning of the 1990s up to 2001, which is slightly more than the "wage norm" implies. At the same time, inflation has been at an average of only 1.8 per cent. An important explanation as to why the increase in payroll expense could be so high without triggering an acceleration in domestic inflation is that productivity has developed strongly.

Although only a minority of households may be credit constrained they are probably sufficient  4  Young, G (1996), “The influence of financial intermediaries on the behaviour of the UK economy”, NIESR Occasional Paper No 50. 5  This is discussed in detail in the Bank’s memorandum to the House of Commons Treasury Committee’s inquiry into “The Monetary Policy Committee of the Bank of England: ten years on”, Quarterly Bulletin, 47(1), 2007Q1, 24- 38. 6  Credit Conditions Survey, http://externalboeweb/publications/other/monetary/creditconditions.htm  BIS Review 7/2008  3  in number to depress household spending somewhat, possibly reversing a little of the decline in the saving ratio seen since the early 1990s (Chart 9). In a similar way a tightening of corporate lending conditions will affect some companies’ investment. The Deloitte CFO survey taken in early December finds that 20% of firms expect the recent credit market events to have a negative impact on their capital spending in 2008. 7 This tightening of credit conditions would be exacerbated by any further weakening in the financial position of banks due to a slowdown in the wider economy. Slower growth and a rise in unemployment in particular would lead to higher loan defaults. There are signs that this is already happening in consumer lending in the US. Weakening property prices would reduce the amount that lenders could realise in the event of default.
Speech by Mr William A Ryback, Deputy Chief Executive of the Hong Kong Monetary Authority, at the Macro Prudential Supervision Conference: Challenges for Financial Supervisors, organised by the Korea Financial Supervisory Commission / Financial Supervisory Service and the International Monetary Fund, Seoul, 7 November 2006. *  *  *  Ladies and Gentlemen, I am pleased to be here today to add my thoughts to this important discussion on emerging insights into the macro prudential end of the supervision business. I also am pleased to be back in Seoul one of the most dynamic cities in Asia and to be hosted by my friends in the Korean Bank supervisory community - many of whom I have known for a number of years. It is almost ten years from the financial crises that affected many parts of Asia. This conference then is being held at an opportune time to allow us to reflect on the lessons learned. There has been considerable change over the last decade. Risk management in the regions banking systems’ have become more robust. There has also been a step-change in the standards of supervision. Risk-based supervision has replaced compliance checking. There are also now moves under way to improve regional cooperation on issues like Basel II implementation, in which EMEAP will continue to play a leading role. Clearly, no financial system can be considered stable unless the individual institutions that comprise its whole are themselves healthy.

Spain chose to spend a large portion of the windfalls on luxury and war. More recently the expression “Dutch disease” reminds us that this issue is still relevant. It can certainly be argued that easy money is bad for a country. It is tempting to live comfortably on this income – which actually is not income but drawing on wealth – while it lasts, and forget about and be less concerned about safeguarding other revenue sources. The challenges with large income from natural resources and its negative impact on economic growth have also been pointed out by Jeffrey Sachs and Andrew Warren. 2  1  David Landes (1998): The Wealth and Poverty of Nations, W.W. Norton & Company, Inc., N.Y.  2  See e.g. J.D. Sachs and A.M. Warner (2001): ”The curse of natural resources”, European Economic Review 45, pp. 827 – 838. BIS Review 106/2006  1  Success in managing our petroleum wealth may be particularly dependent on four key factors. First, from a long-term perspective, oil and gas production will take place during a limited time period. When oil is extracted and sold, petroleum wealth is transformed into financial wealth. This wealth belongs not only to our generation, but also to future generations. We must therefore manage the wealth as an asset. Second, the size of the cash flow from petroleum activities varies considerably from year to year. If it were to be spent as it accrues, this would lead to strong cyclical fluctuations in the Norwegian economy.
He does this difficult job with immense grace and diplomatic skill. He is also the "sports captain", among central bankers, and organises the annual Governor’s Cup at a very fine golf course close to the Franco-Swiss border. In addition, Andrew doubles up as our gastronomic and oenological consultant at the informal social events that are an important part of any international gathering. Andrew has been a staunch supporter of Hong Kong and the HKMA for a very long time – indeed, formerly as an Executive Director of the Bank of England, he played an instrumental role in the conception of the HKMA. Since he became General Manager of the BIS in 1994, the HKMA’s ties with the BIS have gone from strength to strength. We joined the BIS as a shareholder in 1996. In 1998, Hong Kong became the location of the BIS’s first overseas office – an office which has become extremely active in this region, with its most recent event being the organisation in Hong Kong of a major BIS Governors’ meeting, held just this last weekend. In 1999, Hong Kong was invited, as one of the four non-G10 economies, to join the Financial Stability Forum, which Andrew chairs: this forum has the job of proposing reforms to the international financial architecture, and it is making good progress in this herculean task.

As discussant for today’s lecture, we are privileged to have Dato Dr Zeti Akhtar Aziz, who has been Governor of Bank Negara Malaysia since May last year, and who is another one of the ‘classmates’ at BIS. I have known Dr Zeti for some years now and benefited from her wise counsel, particularly during the time when she was Assistant Governor in charge of economic research. Dr Zeti is a career central  BIS Review 13/2001  1  banker who joined Bank Negara in 1985 and who has taken up various important positions within Bank Negara. She played a pivotal role in steering, very successfully, Malaysia through the Asian Financial Crisis and in introducing the very important financial sector reforms. Dr Zeti is therefore able to offer a particularly practical perspective on today’s theme, and I look forward to her comments with much interest. Ladies and Gentlemen, I now have great pleasure in calling upon our speaker, Mr Andrew Crockett, to deliver the fourth HKMA Distinguished Lecture. Mr Crockett, please. 2  BIS Review 13/2001
“You are not here to tell us what to do, but to explain why we have done it” is the way Norman rebuked the Bank’s Chief Economist of the day.8  5  Roberts, Reading and Skene (2009). 6  John, Roberts and Weeken (2012). 7  Boyle (1968) p105. 8  Ahamed (2009) p233. 4  BIS central bankers’ speeches  Norman saw the Bank’s role in expansive terms, as provider not just of emergency help but as builder of infrastructure and supporter of industry. The Bank became part of the post-war reconstruction effort. Having spent 200 years tending to its back garden, the Bank began to explore pastures new. To take one example, in 1928 the Lancashire cotton industry was on its knees. These problems risked ricocheting back to the financial system, with at least two of the big five UK banks up to their neck in cotton.9 A plan was conceived involving consolidating the industry into a Lancashire Textile Corporation. This was to be financed with debt and shares issued and supported by – you’ve guessed it – the Bank of England. It was a bold and cunning plan. Unfortunately, it flopped. The share issue by the Corporation in 1931 was a resounding failure, leaving the underwriter with a large chunk of the shares. The Bank ended up having to support the market.10 It, too, found itself up to its neck in cotton. Undaunted, the stage had nonetheless been set for the Bank’s on-going involvement in financial infrastructure.

Given the Bank’s somewhat chequered record on gender diversity up to that point, it was rather unfortunately named CHAPS. And indeed still is. In 1993, the Bank stepped-in to rescue a flagging project to upgrade the securities settlement process in the UK. The Bank designed and built a new, safety-first, system which again exists to this day. Fortunately, we did not call this one BLOKES, but rather the gender-neutral CREST. Most recently, in the light of the crisis, the Bank has been at the forefront of the debate about re-organising the structure of banking, with a ring-fence or firewall between the basic retail and investment banking sides of the business. This structural approach is increasingly finding favour both in the UK (through the proposals of the Vickers Commission) and internationally (for example, through the Volcker proposals in the US and the recent Liikanen proposals in Europe). 9  Sayers (1976). 10  Sayers op cit. BIS central bankers’ speeches  5  For the past half-century, the Bank’s structural agenda has become a central feature. But at the time it marked a radical departure from the Bank’s past. Designing what are in effect financial public goods is a front-foot activity. The Bank had grown a new limb, augmenting its crisis-management right arm with a crisis-prevention left arm. Stitching it all together So far, I have made no real mention of monetary policy. That is because, for much of its life up to the early 1970s, monetary control at the Bank of England was pretty simple.
1  For an overview of what inflation-targeting central banks say about stabilising output, see Kuttner, K.N. (2004), “A Snapshot of Inflation Targeting in its Adolescence” in Kent, C. and S. Guttman, The Future of Inflation Targeting, Conference Volume, Reserve Bank of Australia. 2  BIS Review 45/2005  To some extent, the problems we have experienced probably reflect the fact that most people always prefer lower interest rates to higher ones. But it could also be the case, of course, that the way in which we have dealt with and communicated the flexibility problem has simply not been clear enough, despite our best efforts. One could perhaps see it as a sign that we have been too successful in “anchoring” the simple rule that we introduced at an early stage in an attempt to clearly explain our decisions and to create confidence in the new regime. Discrepancy between word and deed Of course, Sweden is not the only country in which the communication of flexible inflation targeting has caused problems. For instance, at the international level there is more general criticism claiming that the central banks in inflation-targeting countries are biased in their monetary policy communication towards stabilising inflation.2 The criticism is hence not levelled at how inflation targeting is conducted in practice; it recognises that the central banks in inflation-targeting countries do take account of the real economy.

Similarly, although it is not possible to completely eliminate inflationary pressures stemming from rising world oil prices, efforts are nonetheless needed to moderate their impact on the economy. To this end, such efforts as conserving the use of petroleum products can go a long way in reducing the attendant inflationary pressures. Allow me now to turn to the issue of interest rates. As you may be aware, interest rates refer to the price of money. Over the last few years the general trend in commercial banks’ weighted average lending rates has been largely downwards. As at end-June 2005, the weighted average base lending rate had reduced to 28.6% from 36.2% in January 2004. The fall in lending rates has in large part been induced by a fall in yield rates on Government securities as banks in Zambia have tended to use yield rates as anchors. BIS Review 53/2005  1  However, at the current levels, lending interest rates are too high to contribute to sustainable productive investment. This calls for concerted efforts among other key stakeholders, namely, the Government, commercial banks and the borrowing private sector to continue playing their respective roles effectively to bring about a further reduction in the lending interest rates. It has also to be appreciated that inflation is another major contributing factor to high interest rates as banks set their lending interest rates above the rate of inflation thus the need to reduce the high inflation that has characterised the economy.