samchain/econo-pairs-v1 huggingface dataset:
If I tell you to shoplift, then I am committing an unethical act - and so are you, if you follow my instruction. “I was only following orders” is not a legitimate defence. There is, if you like, a double-lock on unethical instructions within a wholly human environment - on the part of the instructor and the instructed. This is one reason why firms and regulators are so determined to promote ‘good’ cultures, including, for example, ‘speak up’ cultures, and robust whistle-blowing. But there is no such double-lock for AI/ML. You cannot tell a machine to “do the right thing” without somehow first telling it what “right” is - nor can a machine be a whistle-blower of its own learning algorithm. In a world of machines, the burden of correct corporate and ethical behaviour is shifted further in the direction of the board, but also potentially further towards more junior, technical staff. In the round this could mean less weight being placed on the judgements of front-office middle management. 6  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  6  There have been some initial steps to promote the ethical use of big data and AI/ML in financial services. Notably, for example, in Singapore,7 and – more broadly – within the EU.8 In the UK, the Centre for Data Ethics and Innovation is looking at maximising the benefits of AI,9 and many consider them leaders in this field. Principles-based expectations have focused on areas such as fairness, ethics, accountability and transparency.

Second, the decline in short-term real interest rates has been accompanied by a similarly steep fall in longer-term real interest rates. The yield on the 10–20 year portion of the indexed gilt curve, for example, was 4% in the mid-1990s; by the end of that decade it had dropped to barely 2%; on the eve of the financial crisis, in mid-2007, it was less than 1%; today it is –0.3% (Chart 4). This is significant because, just as a matter of principle, it’s hard to see how pure monetary disturbances – including any independent decisions of monetary  (Woodford (2003)). Occasionally people distinguish the short and longer-term level of this rate (using “natural” and “equilibrium” respectively). Neutral is the term usually reserved for the rate that would keep the economy cyclically stable over the longer term – the intercept in the Taylor rule – though in many settings this is the same as the natural rate. BIS central bankers’ speeches  3  policy makers – can have very enduring influences on real things, including real interest rates (that’s particularly true for monetary authorities in relatively small and open economies like the UK). So they’re unlikely to have had much bearing on real forward rates. Third, even if you doubt these basic principles, the data show that, where we’re able to isolate autonomous (or at least unexpected4) shifts in official interest rates, they don’t seem to produce any reaction in longer-term real forward rates (Chart 5).
Chart 15: Actual and estimated UK wage growth Actual Estimated  Percent change on a year ealier 8  6  4  2  The first is simply that the lags from lower unemployment to wage growth 0 are a little longer than in the past. That might be the case because job-to-job -2 flows in the labour market have been 2004 2006 2008 2010 2012 2014 low by historical standards, only recently picking up towards pre- Sources: ONS and Bank calculations. Notes: Dashed line shows inrecession levels. If so, we might sample fitted values from an estimated wage equation. expect the recent undershoot in wages to course-correct in the period ahead, as labour market activity picks up. In essence, this is the judgement underpinning the MPC’s central view of wages in the February Inflation Report. Wage growth is projected to rise, reaching 3.4% by end-2015. In effect, wages error-correct. There is some tentative evidence of wage growth picking up over the past few months, although yesterday’s wage data were notably weaker. If this pick-up were to continue, the wage puzzle would have been benign. Indeed, with slack eroding, we might then be concerned that wage pressures could overshoot, posing upside risks to the inflation target.7 But there are other explanations of the wage puzzle which pose downside inflation risks. One is that the Phillips curve has become less steep than in the past. This would mean that a fall in unemployment might have a lower impact on wage pressures than in the past.

Another source of “drag” has been at work.3 Identifying those drag factors is important when accounting for disinflationary trends in the past, but also when assessing whether these trends will persistent in the future. The drag If you consider the traditional determinants of inflation, there are at least three plausible sources of disinflationary “drag”: slack in the economy, a weaker relationship between slack and wages and lower levels of inflation expectations. These explanations are not mutually exclusive. Higher levels of slack, or a weaker relationship between slack and wages, could lower inflation expectations – for example, if demand is weak today, people may expect lower inflation tomorrow. And lower wage and inflation expectations could themselves depress demand – for example, by raising levels of real interest rates. Nonetheless, it is worth considering these explanations in turn. (a)  Slack and the Phillips Curve  The short-term relationship between unemployment or the output gap and wage growth or inflation – the Phillips curve – is one of the most intensively studied in macro-economics.4 Despite that, empirical estimates of the Phillips curve have tended to be poorly-identified. That may reflect the effects of structural and behavioural shifts, which have the potential to alter historically-estimated Phillips curve relationships. For example, changes in the credibility of the monetary policy regime can cause inflation and wage expectations to alter, causing the Phillips curve to shift around over time for a given level of slack.
So any decision on an exchange rate framework is not narrowly confined to external considerations, but must reflect broader policy choices, as well as the structure of the economy in question. The practical and theoretical considerations involved in deciding on an appropriate exchange rate system can be reduced to four broad factors: the external versus domestic orientation of the economy; the flexibility of its cost-price structure; the exposure to financial shocks; and the reputation and credibility of policy makers. These factors, naturally, differ from one economy to another. In theory, the choice is straightforward enough: the best system is the system that best accommodates a country’s “natural endowment” of these factors. Success in practice, however, is not simply — or even primarily — a question of choosing the preferred exchange rate framework from a textbook perspective. Policymakers on the ground need to address the much more demanding challenge of ensuring consistency between the overall policy framework and the exchange rate regime. Experience shows us that governments can choose exchange rate systems that do not appear optimal according to standard economic criteria yet still make them work if other policies are up to the task. At the same time, a regime that is appropriate on theoretical grounds will yield unsatisfactory results if it is not supported by other policies. Consider, for instance, an economy with relatively inflexible wages and prices that adopts a fixed exchange rate regime.

Half of the losses worldwide are estimated to be borne by US banks, a quarter by euro area banks, and another quarter by banks located in Switzerland and the UK. •  If we want to re-establish economic and financial stability, we need to develop the lessons from the crisis. To this end it is important to recall what triggered the crisis. Low inflation rates and robust growth in the context of global imbalances, as well as abundant liquidity, were the main drivers at the macroeconomic level. At the level of the financial system it was regulatory arbitrage, deterioration in credit standards and increased reliance of banks to fund their assets in short-term markets. BIS Review 102/2009  1  •  Thus, the crisis is a consequence of a combination of failures both in financial markets and on the part of regulatory authorities. Despite market failure having been one factor, we must not forget that market participants have simply behaved in line with the incentives provided by regulatory authorities. In this respect, improved regulation and oversight of financial markets will be crucial to ensure economic and financial stability. In particular, sound balance sheets, solid risk management and transparent and robust business models are key in strengthening the financial soundness of banks and their resilience to shocks. The first line of defence of financial stability is with market participants. To provide for the right incentives, market participants must be liable for their actions. This is an essential condition for sustainable economic growth and financial stability.
For our part, the Bank’s long-term focus will be on ensuring that the Bacs and FPS systems are robust and resilient and able to play their part in mitigating systemic risk, and that the NPA is developed to maintain and enhance this. In the short term this means that we will focus our supervisory efforts on ensuring the NPSO effectively manages its integration to deliver the benefits of consolidation. In particular, we expect the NPSO to:      Establish itself as a credible payment system operator, setting out a clear strategy for both what it will, and will not, do over the next three years; Provide strategic leadership within the retail payments ecosystem that is forward-looking; Demonstrate high quality governance across the systems it operates; and Put robustness and resilience at the heart of design decisions of the NPA. Now, the NPSO does not exist in a vacuum. For this programme to succeed, support is necessary from the financial industry itself as well as the payments community and the authorities. The NPSO has a lot to deliver 4  All speeches are available online at www.bankofengland.co.uk/speeches  4  and a great many expectations upon it – but it cannot deliver everything at once. It is vital that stakeholders allow the NPSO the space and time to set out, and then ultimately deliver, a realistic but ambitious set of goals. And, equally, the NPSO will need to manage stakeholder expectations carefully.

But it is my strong opinion that the original intuition is still valid: it is by pooling and sharing the instruments of economic welfare and prosperity that European nations have reached and will develop a strong sense of their common destiny and a joint vision of their future. Today, the EU has reached a diversified but, broadly speaking, very ambitious level of integration: it is complex because the degree of integration is largely dependent on which areas are at stake, it is ambitious since, in some areas precisely, the system is completely integrated and relies on one single policy. The creation of the euro seems to me the natural consequence of the original intuition. It results both from a political vision and an economic and financial necessity. The process of monetary cooperation was launched as early as 1975, as a response to the potential financial and economic instability stemming from the collapse the Bretton Woods system. It met with many obstacles and went through several crises. At some point, it came close to being abandoned altogether. But today, the euro is alive and well: since 2002, it has been the sole currency with legal tender in all countries of the euro area, providing more than 300 million of European citizens with a new, practical unifying symbol as well as many direct economic benefits. BIS Review 43/2007  1  What are those benefits? The first, and most obvious, is price stability.
The proposed measures are a step in the right direction, although we would like, in line with the recent US decisions, to exclude state-guaranteed loans from the leverage ratio. Together, they will enable banks to continue playing their full role in financing the economy, which is a prerequisite for a rapid economic recovery. The preliminary assessment published by the EBA this week needs, of course, to be interpreted with caution. But it expects that the majority of European banks have sufficient capital buffers to absorb the severe shock of the Covid-19 crisis. The EBA estimates the impact at between 230 and 380 basis points of CET1 capital. And with the aforementioned prudential easing measures, the banks have additional leeway. However, the earnings figures for the first quarter of 2020 already bear the scars of the economic difficulties and the shock to the financial markets. The earnings reports for the four main French banking groups (BNP Paribas, Société Générale, Groupe Crédit Agricole and Groupe BPCE) showed a decline of 4.8% in net banking income and a rise of 130% in the cost of risk, and, consequently, a drop of nearly 50% in net earnings compared with the first quarter of 2019. As a result, financial entities and institutions need to be actively monitored, to ensure that they remain sufficiently financially sound. The ACPR, alongside the Single Supervisory Mechanism, is remaining extremely vigilant in all its areas of competence, including with regard to the protection of customers and climate-related risks.

In the face of this exceptional health crisis, financial institutions and supervisors alike are responding rapidly and powerfully 2.1 Rapid, powerful and unprecedented responses to support the real economy during the pandemic Unlike in 2008, banks are at the heart of the solutions this time round, and not at the centre of the crisis. With their staff, whom I would like to commend, they have gathered their forces to put in place strong measures to support the real economy. That includes the rapid implementation of state-guaranteed loans: to date, 559,000 requests have been received for a total of EUR 105 billion, of which EUR 85 billion have already been granted. In France, loans have therefore been rapidly channelled to VSEs and SMEs, in contrast with the difficulties seen in Italy, the United Kingdom and the United States. Bernard Delas will come back to the measures taken by insurers, but let me just highlight the ACPR’s work on the conditions for the payment of compensation for loss of earnings, in order to better identify the challenges faced by the industry. 2.2 A responsive monetary policy Since this morning we have been in the silent period, so I shall limit myself to some retrospective remarks on monetary policy. I have often stressed that monetary policy is not made for the banks, but rather for the entire economy. And the banks have often been overly critical of monetary policy, holding it responsible for all their ills.
As we advance forward, the reputation, image and stature of the Centre will depend on the performance of its participants and their contributions to the environment and the organisations they represent. ICLIF regards its alumni members as important and looks forward to your continuous support to building ICLIF into a regional centre of excellence for leadership development in financial services. While ICLIF has put in great efforts in working with leading international consultants and the best schools in the design and delivery of its leadership development programmes, we see this as an evolving process. In this context, we see alumni members as an important sounding board in providing feedback to enhance the relevance and effectiveness of ICLIF’s programmes. As beneficiaries of  BIS Review 72/2004  1  ICLIF’s programmes, the alumni members are the best intermediaries in making ICLIF better known to the industry. Ladies and Gentlemen, ICLIF Leadership Competency Model One of the first initiatives by ICLIF upon its inception is to develop a unique leadership competency model that will analyse and enhance the understanding of what makes for great corporate leaders in the regional context. The Competency Model was developed through a participatory process involving strategic insights by industry leaders in the country and the region. This was achieved through behavioural-event interviews as well as benchmarking exercises based on literature research and the database of leadership competency models of world class companies.

Those observations and insights have brought to the fore the importance of leadership competencies in articulating the combination of essential skills, attributes and behaviours required by leaders for the successful and effective performance on the job. It is our hope that the ICLIF Leadership Competency Model will be a constant source of reference, inspiration and impetus to our leaders in building a dynamic organizational culture and in meeting future challenges. In order to better position ourselves in this more challenging environment, one that is more globalised, more integrated, more competitive and more complex, we need to play a more pro-active role in strengthening our own organizations, we need to prepare ourselves for difficult periods, we need to also contribute towards the development of the environment in which we operate, the markets and the  2  BIS Review 72/2004  financial infrastructure and finally and importantly we also need to invest in people, in their skills, to enhance our organisational capacity to bring about institutional development so as to enhance our respective organizational effectiveness. Leadership is an integral part of this process. Our investment in ICLIF hopes in some part to contribute to achieving these goals. Alumni members, distinguished guests, ladies and gentlemen, it is now my privilege and pleasure to officially launch ICLIF Alumni Association and ICLIF Leadership Competency Model. BIS Review 72/2004  3
As we just noted, in our reserve tiering system, banks with excess reserves have an incentive to lend those reserves to banks whose reserves fall short of their thresholds. Unless the borrowing capacity of these banks is substantial, there may still be excess reserves in the system even after all interbank trading is accounted for. This is precisely what we see in the 9  For each bank that is subject to the minimum reserve requirement, the individual threshold corresponds to the moving average of the minimum reserve requirements over the preceding 36 reference periods, multiplied by the applicable threshold factor. The instruction sheet governing interest on sight deposits provides further information. 10 We gained the insight that reserve tiering promotes interbank trading during the time when our policy rate was negative. As we applied a negative interest rate to reserves that exceeded bank-specific exemption thresholds, we were essentially making use of reserve tiering during this period. Fuhrer et al. (2021) investigate monetary policy implementation via reserve tiering both theoretically and empirically. Page 5/10  case shown on Slide 7. Even after factoring in interbank trading, there are still excess reserves, here depicted in light blue. In such an environment, the equilibrium interest rate that would prevail in the interbank money market would be relatively close to the lower remuneration rate on reserves, which is currently 0%.

Third, the euro area has a balanced current account. As such, the euro area does not contribute to global imbalances, one of the main challenges facing the global economy and the world community. It is worth stressing that the euro area is the relevant dimension to consider for a vast single currency and economic area with a common exchange rate and monetary policy. And there, the numbers are clear: the euro area current account balance averaged less than 0.1% of GDP over 2005–2007 before the global crisis broke out, according to IMF figures. Moreover, the euro area current account is still projected by the Fund to be broadly balanced this year and the next up to 2015. The picture is very different in other parts of the world. A concern is that after some partial reduction induced by the crisis, global imbalances are starting to widen again. This raises challenges for international monetary and financial cooperation. The euro area has a significant stake in effective global re-balancing, notably through sounder domestic policies worldwide which, in turn, would contribute to global external stability. The global economy has a lot of homework to do if it is to address these challenges. People of goodwill, inspired by the desire to keep the global economy “open, market-based, just and protective” will surely be needed to that end. Credit should therefore be given to initiatives such as the Global Economy Prize to encourage them to press ahead in that direction. 2  BIS central bankers’ speeches
Banks were then asked to use their models to generate PDs and capital for this hypothetical portfolio, which could be compared across banks. The range of reported capital requirements held against this common portfolio was striking. For wholesale exposures to banks, capital requirements differed by a factor of over 100%. 6  Financial Services Authority (2010). BIS central bankers’ speeches  3  For corporate exposures, they differed by a factor of around 150%. And for sovereign exposures, they differed by a factor of up to 280%. Those differences could equate to a confidence interval around reported capital ratios of 2 percentage points or more. A final means of gauging potential model error is to consider past evidence. During the crisis, model error was largest and most egregious in the trading book. Charts 3 and 4 compare UK banks’ pre-crisis capital held against the trading book to trading book losses during the crisis. Losses were up to six times greater than pre-crisis trading book capital (Chart 3). And capital ratios would have needed to be up to 2.5 percentage points higher to accommodate this model risk (Chart 4). A fundamental review of the trading book is underway to address this problem. This evidence only provides a glimpse at the potential model error problem viewed from three different angles. Yet it suggests that model error-based confidence intervals around reported capital ratios might run to several percentage points. For a bank, that is the difference between life and death.

But it is possible that banks themselves might find such a capital structure in their own best interests. To see why, consider a standard model of optimal capital choice by a value-maximising firm. The firm faces a trade-off. Debt confers the benefits of tax deductibility, while equity offers the benefits of lower expected bankruptcy costs.15 The tradeoff between these two sets of benefits defines an optimal capital ratio for a firm to maximise its expected value (Chart 9).16 Now consider adding CoCos to the mix. They are, in effect, a hybrid of debt and equity whose payoffs depend on the state of nature. When nature is kind and times are good, they offer the upswing (tax-deductibility) benefits of debt. And when nature is cruel and times are bad, they offer the downswing (bankruptcy costs) benefits of equity. They are, in the  14  Commission of Experts for Limiting the Economic Risks Posed by Large Companies (2010). 15  Debt could also provide some incentive benefits in disciplining management (Jensen (1986)). 16  Leland (1994). BIS central bankers’ speeches  7  language of economists, a form of “contingent” contract when the contingency in question is crisis. As Chart 10 illustrates, the optimal fraction of CoCos in banks’ optimal debt structure is likely to be non-zero. In other words, a CDE capital structure might be a smart option for valuemaximising investors and managers, even without the need for regulatory intervention.