samchain/econo-pairs-v1 huggingface dataset:
In my speech today, I want to look at these effects from two angles. In the first part, I shall attempt to explain how low interest rates have impacted the behaviour of issuers and investors on the Swiss franc capital market. In particular, I note that, despite much more favourable financing conditions, the Swiss franc bond market has not grown over the last few years. At the same time, the share of foreign investors has steadily declined. In the second part of my speech, I address the question of how investors build and hold Swiss franc positions resulting from the additional demand for Swiss francs. Available statistics  Seite 2/7  show that, for some time now, investors have increasingly been opting to build up Swiss franc positions using forward foreign exchange contracts (derivatives). No increase in capital market debt despite record low interest rates Despite the low interest rates, the Swiss franc bond market has contracted slightly due to special factors. Allow me to explain the context here in a little more detail. Against the backdrop of low interest rates worldwide, the cost of borrowing has steadily fallen in recent years – and the SNB’s policy of negative interest has further accentuated this trend in Switzerland. One would have expected issuers to have exploited this situation to take on more debt – and that this, in turn, would have resulted in higher issuance and a greater volume of outstanding bonds.

When the ECB Governing Council, in December last year, decided to also accept cash as collateral in our securities lending facility, we effectively increased the supply of bonds available in the repo market, thereby swiftly reducing the share of bonds trading special.7 The price effects of this decision can be seen on the next slide. Before we accepted cash as collateral, there was a strong positive relationship between the level of excess liquidity and repo rates, not only for trades backed by German collateral, but also for those involving French and, to a lesser extent, Italian securities. The moment we amended our securities lending facility in December last year, the relationship broke down, as you can see on the right-hand side. 4 / 10  BIS central bankers' speeches  Recent ECB analysis confirms the intimate relationship between cash and repo markets and the impact of supply and demand effects.8 The authors estimate that a 1% reduction in the effective supply may increase specialness, on average, by up to five basis points. Studies for the US market come to qualitatively similar conclusions.9 In other words, whether a bond trades special, and by how much, depends crucially on its effective supply, which is itself affected by factors such as the amount of investors that are willing to lend out securities in the repo market. These effects are also found to be persistent. You can see this on the same slide. The “scarcity” premium stabilised in spite of continuously increasing excess liquidity, but did not regress.
Recent decades have brought notable achievements in this area. They were possible thanks to the institutional strengthening of central banks, including statutes of autonomy and advances in the design, implementation and communication of monetary policy. It is important to persevere on these lines whilst also bearing in mind possible adjustments or improvements. Central banks, however, also have an important responsibility for financial stability. Although this responsibility had lost prominence over time, the experience of recent years has clearly underlined its importance. Moreover, because of their monetary policy tasks, they are in direct contact with the markets and, therefore, have access to first-hand information about  4  BIS Review 142/2010  the functioning of the financial system. This puts them in a privileged position to undertake tasks related to financial stability. Central banks must, however, be realistic in setting their objectives. It is critical to ensure that they do not result in a more than reasonable level of protection for the financial system since this would encourage banks and other financial institutions to take excessive risks. The responsibility of central banks as regards financial stability must be geared principally to strengthening the reaction capacity of the system as a whole. If problems occur in specific institutions – which cannot be ruled out – the aim must be to minimize their systemic impact. Central banks must have a set of instruments that allow them to contribute effectively to financial stability.

For coordination with the SBIF, a mechanism similar to that which already exists requiring a prior report or authorization from the BCCH when the supervisor exercises its regulatory power, could be used. BIS Review 142/2010  7  8  BIS Review 142/2010
Again, the outlook for emerging economies has continued to deteriorate. Despite a very recent increase, the prices of commodities-especially oil-are below their levels of recent years, affecting net exporting countries. Meanwhile, the growth prospects for China, Russia, and particularly Latin America are also declining motivated by idiosyncratic elements. Therefore, there is the risk that, beyond the real channel, commercial links and direct investments by Chilean companies, one cannot rule out financial contagion episodes in the prices of some assets, such as the exchange rate and sovereign spreads. Internally, the note of caution of previous Reports with respect to the situation of the corporate sector is maintained. Indebtedness as a percentage of GDP reached 114 at the end of 2014. This increase came mainly from a higher external debt and the peso depreciation (figure 9). Financial strength indicators of the companies reporting to the SVS are similar to those described in previous Reports, but low compared with historical averages (figure 10). This reflects a loss in the sector’s resilience to the possibility of a less favorable macroeconomic environment. Finally, some bank payment indicators have also deteriorated, with varying effects across banks, but especially affecting medium-sized ones. Activity in the residential housing market remains strong, with prices still on the rise. The moderation of production costs and anticipated purchases facing the upcoming enactment of the tax reform could be behind the sustained dynamic of the residential sector; meanwhile, price indicators continue to grow, although some moderation is observed in specific areas.

Joshua Rosenberg: Operational risk management at the Federal Reserve Bank of New York Remarks by Mr Joshua Rosenberg , Executive Vice President and Chief Risk Officer of the Federal Reserve Bank of New York, at the 18th Annual OpRisk North America 2016 conference, New York City, 15 March 2016. *  *  *  Good morning. I would like to thank the organizers for inviting me to speak at this year’s OpRisk North America conference. Today, I will share my perspectives on operational risk based on my experiences at the Federal Reserve Bank of New York including those in my current role as the Bank’s Chief Risk Officer. Before I begin, I wanted to state that the views I will be expressing are mine and do not necessarily reflect those of the Federal Reserve Bank of New York or the Federal Reserve System. As you know, operational risk is defined as the risk of loss resulting from inadequate or failed internal processes, people and systems, or external events. The New York Fed faces operational risks because, like other public and private institutions, it relies on people, processes, and systems to execute its objectives, and, in the same way, the Bank is subject to external events that can impact the effectiveness of our people, processes, and systems. To give you a better sense of the New York Fed as an operational entity, I wanted to touch briefly on the broad range of the Bank’s operations.
Changes in childcare fees, for instance, have also lessened the distortional effects for people who receive increases in income, which is also positive for the labour supply. But Sweden is not alone in introducing reforms in this field. As regards low-income groups several European countries are now making a concerted effort to reduce marginal taxes and change benefit systems with a view to increasing the willingness to work. Germany has decided to lower marginal taxes for low-income groups to 15 per cent, and for high-income groups marginal taxes are to be lowered to below 50 per cent. At the same time, more stringent rules are being introduced for unemployment insurance. Similar tax reforms have been implemented or will soon be implemented in France, Spain, the Netherlands and Belgium. The risk is therefore that the gap between Swedish income taxes and those on the Continent will widen over the coming years. The financial markets an important reform area An often overlooked area when it comes to structural reforms is the financial markets. An efficient financial system can raise potential growth markedly. This area has also become increasingly important for long-term growth as technological advances have made it possible to quickly obtain information about global developments and to rapidly transfer capital between different countries. Countries that are able to attract capital can thereby attain financing at a lower cost, which also boosts investment in these countries.

The financing of the state pension systems are of vital importance for the taxpayers’ confidence in the economy. If we have learned anything from recent economic developments, it is that households and firms have become better and better at putting things in context, and to change their behaviour accordingly. When forward-looking taxpayers have realised the obvious - that the pension systems  BIS Review 45/2003  3  sooner or later must be overhauled - it has also affected their behaviour. Because in the end, the taxpayers have to foot the bill when the systems are underfinanced - either by way of higher pension charges or lower benefits. Irrespective of which, uncertainty results in households preferring to save a little extra rather than consume. This could also be one explanation to why saving in many central European countries has remained at a comparatively high level. It is therefore pleasing that steps have now been taken in the three largest euro area economies to reform their pension systems. Even if these reforms are insufficient to secure the government finances in the long term, they are important stepping stones towards healthier economic growth. Tax and benefit systems a key question for the labour supply Income tax and benefit systems are also important for long-term potential growth in a country, particularly in countries with a high tax burden. It is indeed not possible to establish with certainty that a high tax burden in itself would constitute a limitation to growth in the long term.
The financial core countries at the beginning of the period (such as the US and UK) remain core at the end; the offshore financial centres (Hong Kong and Singapore) remain significant throughout; while emerging markets remain, in the main, on the financial periphery. To illustrate that, the share of intra-advanced country external asset stocks in the global total was 77% in 1980. By 2005, that fraction had actually risen slightly to around 80%. Over the same period, the contribution of advanced to emerging market external asset stocks in the total fell from 13% to 5%, at the same time as the GDP share of emerging markets rose from 13% to 16%. So despite rising significantly in absolute terms, financial globalisation has not obviously closed the gap between core and periphery. These aggregate patterns mask two important, more recent trends. The first is the well-documented accumulation of official foreign exchange reserves by emerging market countries, in particular since 2005. The stock of global official reserves stood at $ trillion by end-2010, having more than doubled since 2005. These flows are in some respects an oddity of international finance, with capital flowing “uphill” from emerging to advanced economies and with emerging market investors exhibiting a “foreign bias” for debt securities (Prasad, Rajan and Subramanian (2007)). 1  A similar database has been developed by Lane and Milesi-Ferretti (2007). Von Peter (2007) looks at the pattern of the international banking network.

Between 1995 and 2010, the emerging G20 countries more than quadrupled their share of the world equity market portfolio, from 4% to 21% (Chart 6). Had advanced country portfolio allocations remained constant over this period, measured home bias would have risen rather than fallen. These trends in international portfolio allocation have been a key driver behind the emerging BFSP problem during the course of this century. Portfolio reallocation by the big fish has outpaced growth in the small pond of emerging capital markets. The upshot has been large and mounting financial ripples. These strengthening waves of capital inflows have, in turn, prompted some emerging countries to construct protective policy seawalls, such as capital flow restrictions and macro-prudential policies. Recently, these measures have included:   In Hong Kong, the authorities imposed a cap on loan-to-value (LTV) ratios and a maximum loan amount on certain properties, alongside an increase in stamp duty on sales in October 2009.   The Chinese authorities in 2010 increased taxes on properties resold within five years and offered greater administrative guidance on financing, including lower LTV ratios for second and third homes and a mandated increase in mortgage rates for second homes.   In Brazil, the authorities reintroduced in October 2009 a tax on non-resident portfolio equity and debt inflows, with a broader coverage and a higher rate. They also increased the tax on the margin payments required on foreign exchange futures and other derivatives. In early 2011, reserve requirements on short foreign exchange positions were introduced.
200 million Chinese will migrate from villages to cities and find employment in industry — to a large extent in export-oriented industry sectors — and in services. This means that over the next 10 years, every month one to two million Chinese on average will give up their low-paid, low-productivity jobs in agriculture and take up betterpaid and more productive work in other sectors. The monetary policy must take into account the impact that this process is going to have on the Chinese economy and on economies of other countries. As opposed to trade and capital, the flow of people within EU Member States was stable. The annual net migration to EU-15 remained at a level of less than 5 people per 1000 inhabitants over the past 40 years. Approximately 9% of EU population was born in other countries, whilst in the USA this figure was 12% and ca. 20% in Canada and Australia. However, following the EU enlargement, where 10 new members joined the structures, our part of the world has also seen an increase in migration, which is shown in Table 3 below. In some cases, a significant part of the domestic work force took up employment in other countries. The estimates show that, for example, ca. 5% of Lithuanians took up employment in countries that opened their labour markets for the new EU Member States following 1 May 2004. Table 3.

Shares of individual regions in global trade % Total  1990  1995  2002  Developed countries  72  67  63  US  12  12  11  UE15  44  39  38  Developing countries  28  33  37  Asia  13  19  20  Source: IMF Direction of Trade Statistics  6  BIS 75 Annual Report, 2005. 7  th  Ciccarelli, Mojon “Global Inflation”, Central Bank of Chile Working Papers No 357, December 2005. BIS Review 32/2006  3  Global capital flows keep growing even more dynamically, whereby the share of the global FDI in the global GDP increased from 8% in 1989 to 22.1% in 2003, and foreign assets expressed as percentage of the GDP increased from 62.6% of the GDP to 186.1% of the GDP, respectively. As evidenced, the role of trade and financial links between enterprises in various countries has become more important over recent years. Previously, in response to growing fuel prices or costs of living, trade unions demanded wage increases, which triggered the so-called second-round effects and central banks had to increase interest rates to mitigate inflation. Nowadays, trade unions must take into account the fact that in the case of wage increases, production and services may be transferred to countries with lower manufacturing costs.
Moreover, it is difficult at this stage to disentangle the positive impact of the bank support measures from the effects of other developments, notably those related to the deteriorating economic environment. The causes and contributing factors of the financial turbulence are manifold. The crisis revealed several weaknesses in the financial system, but it has also highlighted inadequacies in the current system of prudential supervision and oversight that prevented the nature and magnitude of the accumulating risks from being identified in good time and appropriate remedial action from being taken. At the initiative of the European Commission, the group chaired by Jacques de Larosière undertook a comprehensive review of the EU framework for financial supervision and proposed, among other innovations, the creation of a European Systemic Risk Council with responsibility for macro-prudential supervision. The ECB welcomes the group’s report and broadly supports its recommendations for macroprudential supervision, as well as the related communication issued by the European Commission. The proposed establishment of the Systemic Risk Council under the auspices of the ECB and the Council’s composition are a recognition of the extensive analytical capabilities developed by central banks in the fields of monetary and financial-stability analysis, their relevant expertise, and their closeness to the financial markets. The work of the Council will also benefit from the use of the technical infrastructure already in place.

In particular, stricter discipline is observed in Switzerland in terms of compliance with credit conditions, and price swings have been considerably less extreme. Moreover, there is no evidence to date of any upsurge in speculative trends on the Swiss property market. At present, neither a general property bubble nor any general mortgage problem could probably be said to exist. Although the banks have largely drawn the correct conclusions from the real estate crisis of the 1990s with regard to lending in Switzerland, it is still essential – given the losses on the US real estate market – to carefully assess risks when granting loans (including mortgages) in Switzerland too. BIS Review 150/2007  1
Nor are we forecasting that we will recover any of the accumulated 15% loss in the level of productivity, relative to pre crisis trend, since 2007. The longer term issues remain; UK productivity is now around 30% behind the US. And as I have explained these longer-term issues are not something central banks can do a great deal about. 3  See Reinhart, C M and Rogoff, K S (2014) ‘Recovery from Financial Crises: Evidence from 100 Episodes’, NBER Working Paper No.19823. BIS central bankers’ speeches  5  Nor can we explain fully what has happened to productivity in the UK economy since the crisis. As well as the factors I have mentioned, other factors have surely played a role. And I don’t doubt there has been some mis-measurement of productivity growth in some sectors and of output more broadly. The Bank, like many others, has tried very hard to explain the puzzle but we can’t explain it all. Indeed, we may never solve the productivity puzzle. Perhaps that is not so strange. A very important part of productivity growth, so called Total Factor Productivity is pretty mysterious by definition. It is the extra efficiency with which a given amount of labour and capital can be used to produce output. It exists – but we can only estimate it by looking at the part of productivity growth our equations can’t explain. Indeed, because of this it is sometimes referred to by economists as the ‘Magic Fairy Dust’.

That counterparty bids more aggressively for funds – something that is immediately observable from the pattern of bids (Table 2 and Chart 6). These examples highlight how the new ILTRs can provide an “early warning indicator” of stresses in the market, at both an individual and aggregate level. That information can be used to determine the size of and frequency of subsequent ILTRs (hence solving one important problem with the old LTRs). The ILTR supply curve The Bank’s supply curve is pinned down by its preferences – namely to provide liquidity insurance to the banking system at a price that doesn’t undermine the incentive to prudently manage liquidity. The Bank summarises its preferences using a Relative Supply Schedule (RSS). The RSS dictates how the proportion of each auction allocated to the wider collateral set responds to changes in the bids submitted, and specifically the difference between the clearing spreads on the narrow and the wider collateral set (known as the stop out spread). Chart 7 below shows some illustrative examples of an RSS. A larger stop out spread increases the proportion of the auction allocated to the wider collateral set, so the Bank’s “supply schedule” is upward sloping. Consider two simple examples. With a perfectly inelastic RSS, the Bank essentially pins down the quantity of funds it would provide against wider collateral, regardless of the bids submitted. With a perfectly elastic supply curve, the bank would, once a certain price threshold is exceeded, be prepared to allocate against all the wider collateral bids.