samchain/econo-pairs-v1 huggingface dataset:
The fundamental problem with this arrangement was that these hybrid debt instruments often only absorbed losses when the bank entered either a formal resolution or insolvency process. It was more often the latter in many countries, including the UK, since there was no special resolution regime for banks (unlike today). But the insolvency procedure could not in fact be used because the essence of too big or important to fail was that large banks could not enter insolvency as the consequences were too damaging for customers, financial systems and economies more broadly. There were other flaws in the construction of these capital instruments. They often included incentives to redeem which undermined their permanence. They were supposed to have full discretion not to pay coupons and not to be redeemed in the event of a shock to the bank’s condition. But banks argued that the exercise of such discretion would create an adverse market reaction which would be disproportionate to the benefits, thus undermining the quality of the capital. More broadly, these so-called innovative instruments introduced complexity into banks’ capital structures which resulted from the endeavour by banks to optimise across tax, accounting and prudential standards. The big lesson from this history is that a going concern capital instrument must unambiguously be able to absorb losses when the bank is a going concern. Apologies for stating the blindingly obvious, but history painfully demonstrates why it is important to state the obvious.

In particular, the crisis has already generated an increase in the level of indebtedness of many firms. Thus, it would make sense to assess the possibility of actions to support firms that do not involve an increase in financial obligations, such as, for example, by means of direct assistance or, in some cases through temporary capital injections. 3  Furthermore, for companies that have difficulty meeting their financial obligations, streamlined debt restructuring procedures need to be available to avoid such difficulties leading to the disappearance of heavily indebted firms whose business model is nonetheless viable. And, in parallel, for firms with non-viable business models, an orderly market exit should be available, since this would result in a more efficient allocation of resources. Apart from these short-term actions, an ambitious structural reform agenda is urgently needed, to increase the economy’s potential growth, which was already low before this crisis. And this is also true for European policies. In this case, for example, it is crucial that the European fund be converted into a permanent, common fiscal stabilisation instrument for the euro area. This would allow a joint fiscal response to macroeconomic shocks and provide a larger supply of safe European assets, facilitating the general functioning of financial markets and the specific conduct of monetary policy. Completing the Banking Union is also a priority, with the approval of a fully pooled European Deposit Guarantee Scheme. Further, we must move towards lowering the barriers to a genuine Capital Markets Union.
I will close my presentation with a practitioner's conviction: yes, transformation and management of public services are indeed possible! (III) ** I. Our public finances have steadily deteriorated over time The "strange defeat": getting left behind in Europe Our public finances have been steadily deteriorating for over forty years. In 1980, our public debt amounted to only 20% of GDP. It currently represents almost 112%, a figure that has barely come down since the Covid shock, and by less than our European neighbours. This steady increase can be explained  Page 2 of 19 by the government expenditure ratio, which has risen from 46% in 1980 to 58% at present, systematically generating annual deficits. For these two key ratios, France is currently well above the average for the euro area excluding France (i.e. government expenditure ratio of 49%, public debt ratio of 86% in 2022). Page 3 of 19 France joined the euro area with a public debt ratio equal to that of Germany (59% in 2001); since then, Germany's debt has increased by 8 points, while France's has risen by 53 points. This sets France apart from most of its European neighbours, who all share the same social model, in which I am a firm believer. Let us take two comparisons: Germany and Sweden. Between 1995 (beginning of the OECD statistical series) and 2021, Germany reduced its government expenditure ratio from 55% to 51%, and Sweden from 63% to 49%.

Once the minister concerned had appointed each director, they could draw up a contract of objectives and means whose results could be tracked to ensure accountability. This approach is widely practised in Sweden and elsewhere, and requires no legal changes. Why not start experimenting it straight away? By way of examples, the Attali report cited the tax and accounting administration, INSEE, civil protection and the prison service. Support for managers These increased levels of responsibility and autonomy must be accompanied by a change in managerial culture to one that is more open and participative with a cross-cutting focus. When it comes to change management, we never spend enough time listening to and informing the men and women working in the public service, nor do we devote enough resources to supporting them dayto-day. Social dialogue, when it manages to get beyond posturing, can provide one of the levers for change. This support is particularly important for "middle"  Page 18 of 19 or local managers: they are the link between senior management and public service workers, and recognition and empowerment are crucial. For example, every year we bring the top 600 managers at the Banque de France together to discuss the progress of our strategic plan. We have given them more leeway when evaluating their teams or organising teleworking, backed up by feedback as often as possible. Simplification Lastly, simplification is an essential vector for transforming public services – expected by everyone but all too often neglected.
We are watching again very carefully, and I can assure you that as prudential regulator we want to see sensible outcomes that balance the objectives of all parties and ensure that we maintain a stable financial system that can support the activity of today’s customers. Nobody wants to see a world where ex-post enforcement weakens the capacity to support economic activity, and that means we must return as soon as possible to a world where the emphasis is on strong risk management, governance and forward-looking supervision. This review of risks covers much of our work programme for the year. Two other points I would note. First, we are reviewing the Sourcebook which since the beginning of April has been called a Supervisory Statement. The Sourcebook was first introduced in 2010 as a response to the crisis. We will consult on changes later this year and have already had two very useful pre-consultation meetings with the BSA and a number of societies. Let me assure you that this review is not the beginning of a major agenda to change how we supervise societies. Rather, a lot has happened since 2010, and we think a stocktake is in order. Second, recovery and resolution is an important focus of activity following the enactment of the EU Directive (the BRRD). Our objective is to ensure that orderly resolution is possible should it be needed, and thus to support our general approach that we are not a regulator that adopts a policy of no failures.

Clarity of responsibility is I hope unobjectionable. But this is not clarity in the sense of facilitating witch hunts. Rather, I see clarity as an appropriate allocation of responsibility, as important to creating the right incentives for behaviour and leadership, and of course in areas like remuneration. In the Senior Managers Regime, responsibility at the highest level covers both executives and non-executives. But, of course, they are different and always will be. There is much commentary, that the response to the crisis has muddied the responsibilities of executives and non-executives, with the burden on the latter increasing. I think there is no doubt that a greater formality is emerging around roles and responsibilities, and I’m afraid the burden of work for non-executives has risen, we can’t hide from that. An effective board is at the heart of good governance, ensuring that the appropriate policies are in place in respect of safety and soundness and good conduct. We at the PRA have a strong interest in supporting good governance and the work of board members to deliver it. An effective board is one which understands the business, establishes a clear strategy, articulates a clear risk appetite to support that strategy, oversees an effective risk control framework, and collectively has the skills, the experience and the confidence to hold executive management rigorously to account for delivering that strategy and managing within that risk appetite.
The increase in public investment and spending had mainly contributed to the economic growth of the last semesters; their drop could weigh on the recovery even if the calibration and the path of fiscal adjustment are supposed to be fine-tuned to allow a sustainable fiscal consolidation without challenging a long-lasting economic recovery. Strong and unambiguous responses from European governments and the Eurosystem In such a context, the role of central banks and public authorities was crucial to restore confidence and ensure a proper functioning of financial markets. Drawing on the lessons learnt from the financial crisis in 2008–09, European governments and the Eurosystem have therefore rapidly resorted to strong, unprecedented and sizeable actions to contain those tensions and prevent their spill over to the real economy. We could briefly mention the actions of the Heads of States and the central banks. Government actions helped contain the pressures 1)  I first welcome the commitments from many European countries to strengthen their fiscal position which is a necessary step to restore the credibility of governments and the normalization of sovereign bond markets.

However, increase in domestic agricultural production, stable performance of exchange rate and price stabilization in global markets have reduced its impact in recent months. These factors, along with the cancelling out of regulated price inflation have led to a continuous slowdown in the inflation rate in recent months. From the macroeconomic aspect, consumer prices were influenced by drivers of a different impact and intensity. The shocks arising from high prices in global markets, the increase in several regulated prices in 2010 and excise taxes in early 2011 were offset on the downside by the below-potential performance of economic activity and sluggish demand pressures. In the presence of anchored inflation expectations and low monetary inflationary pressures, the overall macroeconomic environment has favoured the reduction of inflationary pressures for the second half of the year. In the absence of direct data, the Bank of Albania’s estimates on the country’s economic performance, based on indirect qualitative and quantitative indicators, suggest a moderate increase in aggregate demand over the second and third quarters, in line with the one registered over the first quarter. The economic activity has continued to be supported mainly by foreign demand and growth of exports, whereas the public sector’s impact has been downward and private consumption and investments have remained weak. In particular, the private sector demand is assessed as sluggish. Notwithstanding the positive performance of real income, consumer spending is estimated as weak, affected by uncertainty surrounding the future and increased propensity of Albanian consumers to save.
We cannot be satisfied with the current state of the economy or the outlook for the next few years. The economy is operating far below its productive potential – leaving the levels of output, income and employment much lower than they would be if the economy’s unused resources were put back to work. One summary statistic says it all – the unemployment rate is unacceptably high at 9 percent. Imbalances and deleveraging So why has the U.S. recovery been so underwhelming? I think the answer lies in the nature of the boom in credit and housing, and the collateral damage that the bust caused to household balance sheets and to the financial system. Recoveries that take place in the aftermath of severe financial shocks and big declines in asset prices that were mainly funded by debt require highly indebted borrowers to deleverage, or in other words, pay down their debts. These shocks and asset price declines, in turn, generate large losses for the financial sector that tightens credit availability and further restricts demand. With weak demand comes weak income growth. Meanwhile, financial and economic volatility and the uncertainty this creates about prospects for future incomes causes those who retain access to credit to hold back. What we have learned, I think, is that the power of these economic forces is even stronger than we had previously understood. And, in such circumstances, although a stimulative monetary policy is essential for recovery, it may not be sufficient.

This means providing credible assurance that the financial sector is in solid shape today and that the restructured financial system will be able to reliably supply credit across the business cycle – ensuring there is no 2008-style sudden sharp constriction in credit availability. For this reason, policies that increase financial stability, both ex ante by eliminating incentives for excessive risk-taking and making the system more robust to failure, and ex post, by ensuring the capacity to respond to a major shock, will help support growth today. The process of financial repair also matters greatly in terms of high debt households, since underwriting standards help define how much deleveraging must occur to regain access to credit. While we do not want a return to the easy credit standards of the bubble period, we also don’t what to overshoot in the opposite direction. Housing is another area where policy can support the recovery by helping to stabilize house prices and housing activity. Housing is the most important tangible asset for most American households, and housing debt the biggest liability. Obstacles to mortgage refinancing undermine the impact of monetary policy. Moreover, declines in house prices and the risk of future declines directly affect the degree of deleveraging that needs to take place among homeowners with high levels of debt, and the extent of precautionary saving by homeowners with low levels of debt. While home prices had to correct following the bubble, they no longer appear overvalued relative to historic multiples of cash flow, income and rents.
Firms whose failure is unlikely to have financial stability consequences also have a part to play: they need to take a forward-looking realistic assessment to ensure they prepare for the event that they fail, which is likely to be a bank insolvency, and meet PRA rules on The RAF applies to such firms where they are a ‘material subsidiary’ of an overseas-based banking group for the purposes of setting internal MREL in the UK. 20  9  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  9  depositor protection. In placing an emphasis on the responsibility of individual firms to understand and plan for their own resolution, we are making firms accountable for this essential planning, reinforcing the credibility of those plans and the regime as a whole. Conclusion  Resolvability is better regarded as a spectrum than as a binary judgement. It is about ensuring authorities have credible options and the flexibility to respond to a crisis. A resolution is ultimately a transaction which occurs in a crisis situation and is unlikely to ever be a smooth process. But the work done by firms under the RAF should increase the chances that resolution is conducted in an orderly fashion and disruption to the financial system is minimised. Banks and building societies need to prepare themselves fully for these situations now.

So, for example, the holding companies of Goldman Sachs, Morgan Stanley and Merrill Lynch, which is now a subsidiary  2  See, for example, Senior Supervisors Group, “Risk Management Lessons from the Global Banking Crisis of 2008,” October 21, 2009, and “Observations on Risk Management Practices during the Recent Market Turbulence,” March 6, 2008. BIS Review 161/2009  3  of Bank of America, are now under our direct supervision. We are making sure that they have appropriate liquidity buffers and capital. Second, the Federal Reserve is working with a broad range of private sector participants, including dealers, clearing banks, and tri-party repo investors to dramatically reduce the structural instability of the financial system utilities, such as the tri party repo system. Third, the Basel Committee is working on establishing international standards for liquidity requirements. There are two parts to this. The first is a requirement for a short-term liquidity buffer of sufficient size so that an institution that was shut out of the market for several weeks would still have sufficient liquidity to continue its operations unimpaired. The second is a liquidity standard that limits the degree of permissible maturity transformation – that is, the amount of short-term borrowing allowed to be used in the funding of long-term illiquid assets. Under these standards, a firm’s holdings of illiquid long-term assets would need to be funded mainly by equity or long-term debt.
And for both the IMF and the World Bank, a critical question today is legitimacy. And the way emerging market economies are playing a more important role in the global economy – not only they are representing a larger share of world output as compared to before, but also represent at this point a solution for the crisis – it is imperative that these countries have a proportional weight in the governance structure of the two Bretton Woods institutions. Another fundamental development these days is the increasing role played by the G20, for the very same reason of the growing participation of emerging markets economies in global output. It is clear today that the G7 alone or even the G10 are not able to address all relevant issues that affect the world economy, which are better dealt by a larger group as the G20. Evidently there is always a trade-off, the larger the group, the more difficult its effectiveness. But that is a challenge that we have to face. The first meeting of heads of states of the G20 was an essential step towards making the G20 a more effective decision-making forum. The next topic is a global supervisory authority. The G20 suggested the creation of a college of supervisors, following a Financial Stability Forum recommendation. President Köhler raised here the idea of having the IMF playing this role.

Even controversial issues that were long blocking international negotiations, as the Doha agenda, received a new momentum in the G20 communiqué. So far, as you all know, significant progress has been achieved in terms of recognition of the causes of the crises, including development of unsound risk management practices and excessive leverage, in a time regulators in many jurisdictions failed to perceive the build up of unbalances in individual institutions and financial markets in general. At the same time, each country in one way or another has taken actions to provide liquidity and unfreeze credit markets, and when necessary – particularly in mature economies – to stimulate the economy, strengthen the capital basis of financial institutions and tackle regulatory deficiencies. That said, authorities in Washington committed to implement reforms that will strengthen financial markets and regulatory regimes. An important novelty is the recognition that financial markets are global in scope, so that enhanced international cooperation among regulators is needed in a globalized world. Commitment to reform the multilateral institutions to increase their legitimacy and effectiveness has also progressed, granting a larger weight in their decision bodies to emerging economies, as well as expanding the representativeness of the Financial Stability Forum and of the Basel Committee on Banking Supervision. The IMF and the expanded Financial Stability Forum are called to increase efforts in crisis prevention and responses.
Smith, R (2010), “Is HFT inducing changes in market microstructure and dynamics,” working paper. Stoll, H (1978), “The supply of dealer services in securities markets”, Journal of Finance, Vol. 33, pp. 1133–51. Vaughan, D (1996), “The challenger launch decision: risky technology, culture, and deviance at NASA,” The University of Chicago press. Zhang, F (2010), “High-frequency trading, stock volatility, and price discovery”, mimeo. 16  BIS central bankers’ speeches  Chart 1:  Chart 2:  Market capitalisation by region, relative to GDP  Equity market turnover by region  Ratio  North America  1.8  Europe and Russia Asia  Ratio 6  North America  1.6  Europe and Russia  1.4  Asia  5 4  1.2 1.0  3  0.8 0.6  2  0.4 1  0.2 0.0 2001 02  03  04  05  06  07  08  09  Source: World Federation of Exchanges. 0 2001 02  03  04  05  06  07  08  09  Source: World Federation of Exchanges. Chart 3:  Chart 4:  NYSE-listed trading volume shares, January 2005  NYSE-listed trading volume shares, February 2011  0%  16%  0%  24% 80%  2% 2%  33%  11%  15%  9% 9% NYSE NASDAQ DirectEdge  Source: Fidessa.

Recognising that, the US authorities have recently revised their circuit-breaking rules with all trading in a specified set of securities and futures now halted, irrespective of where trading is taking place. 33 Although the pattern of trading fragmentation in Europe is similar to the US, current MiFID proposals do not envisage an automatic cross-market trading halt. But in a world of locationfree, tightly arbitraged trading, cross-market circuit-breakers might become increasingly important. Indeed, these rules may potentially need to cross continents, as well as countries and platforms, if price dislocations are not to be redirected. 31  European Commission (2010)  32  MacKenzie and Demos (2011). 33  CFTC-SEC (2010). BIS central bankers’ speeches  13  (iii) Resting rules: Circuit-breakers are an ex-post, state-contingent intervention rule, specifying a minimum T for a temporary period. A more ambitious proposal still would be to impose a minimum T, or resting period for trades, at all times. Minimum resting periods are an ex-ante, non-state contingent intervention rule. They tackle the arms race at source by imposing a speed limit on trading. Though mooted in both the US and Europe, they have not been implemented in either trading jurisdiction. In some respects, it is easy to see why. From equation (1), imposing a minimum T will tend to result in a higher average bid-ask spread in all states. By increasing the per period transaction cost, the imposition of a minimum resting period would tend to widen bid-ask spreads and damage market liquidity in peacetime.