samchain/econo-pairs-v1 huggingface dataset:
But the fact that the Eurosystem does not have an exchange rate target does not imply that we are indifferent to exchange rate developments or that we will neglect them. The exchange rate of the euro is monitored within the second pillar of our monetary strategy as a potentially important indicator for monetary policy. If its development poses a threat to price stability in the euro area, the causes of this development will be assessed and appropriate measures taken. With regard to the use of the euro as an international currency, the Eurosystem has adopted a neutral stance: we will neither hinder nor actively promote the international role of the euro, but leave its development to market forces. We observe that the euro is already second only to the US dollar as the most widely used currency in the world, ahead of the Japanese yen. In general, the international use of a currency is determined by several factors. Private agents may use a currency for international trade and investment, as well as for pricing and denomination purposes. In the official sector, it is used as an  BIS Review 116/1999  6  anchor for exchange rate pegs, for holding foreign exchange reserves and for the conduct of foreign exchange intervention. The successful changeover to Stage Three of Economic and Monetary Union (EMU) played an important role in promoting the role of the euro. During the so-called changeover weekend, the bulk of bonds, shares and other financial instruments were re-denominated in euro.

As experience is gained, our strategy will be reviewed and may evolve, possibly in the direction of greater emphasis on one of the two pillars. However, this has to be a prudent process, since one of the main functions of a strategy is to provide a tool to facilitate the communication of monetary policy preparations and decisions. Continuity is therefore a major feature of any monetary policy strategy. The effectiveness of a monetary policy strategy and related decisions depend to a large degree on the credibility of the institution. Transparent and accountable policymaking can help to build up a reputation and, hence, credibility. Openness, transparency and predictability therefore rank high on the agenda of the ECB and the Eurosystem. Monthly press conferences given by the ECB’s President and myself are an important part of our communication policy. They take place immediately after the first Governing Council meeting each month, thus providing an opportunity to explain our decisions and the basis on which we have taken them, and to answer questions from journalists. As far as I know, no other central bank communicates with the public in such a prompt manner. Communication is and should not be a one-way street. The ECB must also take note of and be sensitive to its environment in order to be effective in its own polices. But, still, monetary policy has to be conducted independently of short-term political considerations.
The Capital Conservation Buffer (CCoB) was introduced to ensure that banks have an additional layer of usable capital that could be drawn down when losses are incurred (Chart 2).8 It is established above the regulatory minimum as a fixed, common amount across firms. When a firm dips into its CCoB, it incurs a far less significant regulatory consequence than breach of the minimum: automatic restrictions on distributions, including dividends and share buybacks, are imposed and a capital restoration plan must be submitted to its supervisors. The Countercyclical Capital Buffer (CCyB) is a time-varying capital requirement determined by domestic authorities. It is built up during periods where the authorities think that system-wide risk-taking is elevated and may threaten banking stability. Some authorities, including the FPC, set a non-zero resting rate of the CCyB in normal times – those are times where risks are neither elevated nor subdued – being conscious that it takes time for banks to build up capital buffers. During stress, authorities can reduce the CCyB to support banks in maintaining their supply of credit or other critical financial services to the economy.9 Management buffers are amounts that firms keep above regulatory buffers and are entirely under the discretion of their management. 8 The Capital Conservation buffer is extended by buffers based on a firm’s global or domestic systemic importance, and  by the Countercyclical Capital buffer when it is non-zero. 9 In this speech I am concentrating on the CCyB and the CCoB, but there are other buffers too.

Some reporting and disclosure requirements were extended, reducing the operational burden on banks; and some market risk-based capital requirements that were deemed to have moved excessively during the episode were offset.1 At the same time, fiscal authorities began to provide support to economies entering lockdown. In the UK, that included government guarantees for lending to the corporate sector as well as income support schemes for employees furloughed as businesses shut or scaled back their activities. The size of the policy response was huge. Across the US, Euro Area, UK and Japan, central bank assets increased by around $ trillion in 2020, more than twice their increase in the year following the collapse of Lehman Brothers. And, according to the IMF, by mid-March 2021, global pandemic-related fiscal support measures totalled $ trillion (around 19% of world GDP).2 This is at least twice as large as the fiscal response observed during the Global Financial Crisis. In 2020 alone, average overall fiscal deficits reached 11.7% of GDP for advanced economies, the largest measure the IMF has recorded since they began gathering data. As a result of all of these interventions, conditions stabilised. There was no credit crunch: credit provision to businesses increased by more than 10% during 2020.
But, some of this was also due to the lack of transparency about certain markets – the OTC derivatives market for credit default swaps is one notable example. Fourth, an inappropriate structure of incentives encouraged excessive risk-taking. This was evident within firms in the form of “the trader’s option”, in which compensation was based mainly on fiscal year results with no clawback when mark-to-market profits on illiquid securities and other assets turned into losses. It was also evident in the ability of the largest firms to benefit in terms of their funding costs via a perception that they would be “too big to fail”. BIS Review 131/2010  1  Fifth, regulators and market participants did not appreciate how the financial system was interconnected so that shocks were transmitted broadly through the financial system, often intensifying rather than dampening as they spread. The severe economic costs generated by the crisis indicate that the primary goal must be to reduce the likelihood and the severity of future financial crises. To accomplish this, we need a financial system that is better suited to withstand shocks of all kinds, regardless of their source. We need a financial system in which market participants face the appropriate set of economic incentives so that they do not take excessive risks, but instead behave in ways that generate outcomes that are supportive to economic growth and ongoing financial stability.

But repayments still total several trillion dollars and are spread over several years. Banks’ future profit streams are a key means of securing these repayments and thereby restoring banks to normality. Bank profitability may well have been the route into the present crisis. But it may also be a route out. 6  BIS Review 85/2009  Chart 1: Cumulative excess returns to finance  %  12000 10000 8000 6000 4000 2000 0 -2000  1900 1920 1940 1960 1980 2000 Sources: Global Financial Data and Bank calculations. Chart 2: Contributions to year-on-year UK financial equity returns Percentage points 140  Return on Assets  120  Leverage  100 80 60 40 20 0 -20 -40 -60 -80 1920  1940  1960  1980  2000  Sources: Global Financial data, MFSD and FRD. (a) Using year-on-year observed return on equity and observed unweighted leverage ratio to infer year-on-year returns. (b) Green lines show period average effect of leverage on year-on-year return on equity for 1920-1945, 1945-71, 1971-86 and 1986-2007.
In addition, international standards on margin requirements for non-centrally cleared derivatives have been adopted.3 By definition, bespoke derivatives cannot be centrally cleared and so do not benefit from the risk reduction and enhanced transparency associated with central clearing. To offset this, these derivatives will be required by regulation to have higher initial margin requirements, as well as variation margin. Despite these efforts, we still may not get the balance right in terms of the requirements applied to non-standard versus standardized, cleared contracts. One worry is that CCPs that are shareholder-owned and operated for profit may compete for market share by offering lower margin requirements on standardized products. This could strike the wrong balance between the private profit motive versus the public benefit of clearing. For this reason, I believe that all CCPs need to have strong governance and regulatory oversight. This must be harmonized on an international basis in order to prevent a potential race to the bottom. It is important to recognize that increased use of CCPs for central clearing also creates potential financial stability issues that must be addressed. While CCPs reduce aggregate risk, they also concentrate the remaining risk. That is, CCPs create potential single points of failure in global derivatives markets. CCPs need adequate capacity to absorb potential losses from the default of one or more of its members, and they need to have access to liquidity so that they can always fully settle their obligations.

Before joining the Reserve Bank, he served in the OECD in Paris, and before that he spent time with the IMF in Indonesia. He played a pivotal role during the Asian crisis, and was instrumental in Australia’s involvement in three of the larger support packages in the region. It is a great honour to have him here as discussant today. BIS Review 33/2002  1  Stan and Steve are old friends of mine. I therefore think it is right for me to comment on the positions in which they now find themselves after careers totalling around 40 years in central banking, and to try to see if this sheds any light on the eternal question: “What happens to central bankers when they cease to be central bankers?” I speak from a position of intense personal interest because the recent resignation of Don Brash of the Governorship of the Reserve Bank of New Zealand leaves me - so I am told - with the doubtful distinction of being the longest-serving central bank chief in the region. Don Brash, who has a reputation for making original career choices, has reportedly gone into politics a precedent which, let me stress, I have no intention of following. Stan and Steve have followed what the IMF would no doubt refer to as a “two-corner solution”. Since leaving the IMF earlier this year, Stan has firmly anchored himself to one of the world’s largest banking and finance groups as its Vice-Chairman.
Fixed rate of Estonian kroon and the currency board to support the peg necessitates in strong financial system for several reasons. In the open economy, if the exchange rate is fixed, the interest rates should be let to fluctuate, from time to time within wide margins, to meet the market supply and demand for Estonian assets. That monetary transmission channel from the rest of the world – in our case from the ECB in Frankfurt – to Estonian economy is of vital importance to provide early signals to address emerging imbalances. Financial system is, thus, both the messenger and the first line of defense, as the banks have to withstand volatile interest rates in case of negative expectations and resulting market uncertainty. Lack of lender of last resort even more underlines the essential role the financial stability plays to avoid domestic currency crisis. As Minister Kallas vividly explained, we have gone through lot of experiences over the past decade. At the outset of East-Asian crisis, Estonian currency system survived the speculative attack that we at these times considered a pure "Asian contagion". The 1-month TALIBOR rates were pushed up from 6 to 15 percentage points in less than 2 weeks. Of course, it became clear afterwards that at least part of the reasons for the attack were entirely home grown. Nevertheless, it showed us very convincingly, – in real life, so to say –, the importance of capitalized and liquid financial system that was able to adjust its risk management accordingly.

I would like to start this part by stressing the importance of the dialogue with market participants. The constructive discussions with bank managers serve two purposes. The commercial bankers know and  2  BIS Review 63/2001  in their own way understand both the market situation and the prevailing trends in the so-called "real economy". Thus, these regular discussions are most welcome complement to the economic analysis by central bank experts. But the regular contacts provide also a unique channel for moral suasion, for explaining central bank's concerns and in some occasions, possibilities to put pressure on managerial choices. Obviously, these contacts are easy to arrange in a small country like Estonia. We have made use of that opportunity and established dialogue with our financial sector on financial as well as on general economic issues, both on regular as well as on ad hoc basis. What we should do more is to have more in-depth contacts with the main strategic partners of our banks. The other essential, albeit specific element for crisis prevention is the pre-emptive involvement of the private sector in crisis resolution. I would like to point out two simple but effective principles that we have relied upon. Firstly, the completely free movement of capital, both long and short term, has increased the credibility of our financial policy and, thus, encouraged strategic partners to take much longer term approach to their investments. That has by now resulted in a full integration of our banks into Scandinavian markets.
Since then, subsequent capital market reforms —together with the creation of the private pension system and the incorporation of other institutional investors and capital market openness—, changed the size, composition, depth, strength, and forward-looking vision of the financial sector in Chile. All of these reforms led to a sound development of the Chilean financial system. Welldesigned public policies and public-private collaboration allowed our country to build a more complete and dynamic financial system, capable of channeling savings and investment to the financing of companies and projects. Our country has been able to attract foreign investors like the ones present in the audience today, who trust in the professional quality of financial institutions and intermediaries and also in the robustness and technical quality of regulatory and financial supervision. Chile is a small and open economy with a strong macroeconomic framework, flexible exchange rate regime, prudent fiscal policy, adequate regulatory framework and robust financial supervision and a monetary policy that carries the weight of stabilizing the cycle through a two-year inflation targeting framework. All of these have contributed to have solvent financial institutions and build up buffers to face difficult times. In this context, the exchange rate and capital market play a relevant role in absorbing external shocks. 2  Stable inflation and a credible framework have contributed to low levels of dollarization. Meanwhile, the growing participation of non-residents and the institutional agents themselves have allowed the derivatives market to develop. Those policies have been applied in a coherent and consistent manner for many years.

Its main elements now include: The Financial Stability Advisory Council (FSAC): a consultative body comprising the minister of finance, the governor of the Central Bank, and the chairman of the Financial Supervision Commission; The Central Bank as the designated resolution authority for banks; the resolution function of the BNB is outlined in the Law on Recovery and Resolution of Credit Institutions and Investment Firms, adopted in mid-2015, which transposed the BRRD in the Bulgarian legislation; A mechanism to fund resolution measures by the newly established Bank Resolution Fund (BRF) which is funded by contributions from the banks; the target level of the resources collected in the BRF is 2% of the amount of covered deposits of all banks licensed in Bulgaria and must be achieved by end-2024; A comprehensive resolution toolkit directly transposed from the BRRD comprising: (1) the resolution tools (sale of business; bridge institution, asset separation, and bail-in), and (2) the government stabilization tools (public equity support and temporary public ownership). Progress has been already made in operationalizing the crisis management framework in Bulgaria.
The interest rate decision in September Let me move on to the stance I took at the most recent monetary policy meeting around a month ago. I, like the rest of the Executive Board, then voted to raise the repo rate by 0.25 percentage points. At the same time, my assessment was that the forecast for the repo rate that we made in June still appeared reasonable. Today I shall return to why I made this assessment. Increased uncertainty abroad… On the whole, my view in September was that international growth was good and had not changed significantly since June. But this does not prevent the view of growth in some individual countries having changed in important respects. In September our assessment was that growth would be lower than we had expected in June, in the United States in particular, but also in Europe. At the same time, developments were slightly stronger in a couple of our neighbouring countries and in several emerging markets. However, the international risk outlook had changed gradually in connection with the rising unrest in the financial markets. The change in the risk outlook largely originated in the United States. There the problems in the housing market had worsened and according to several statistics house prices in the United States fell on average, measured as an annual change. The question we asked ourselves at the September meeting was to what extent the problems would spread and slow down activity in the rest of the US economy.

The Committee looks forward to continued collaboration with the BIS on matters related to financial stability. Basel II represents a genuine success story in international cooperation. And we know that our need to cooperate and to collaborate does not end when we release this framework. Indeed, under Basel II, supervisors and central bankers will need to work even more closely together in the future, especially in view of the evolutionary nature of Basel II. And the Committee has a full agenda ahead of it. We must, of course, continue to work on the specifics related to the implementation of the framework and its calibration. We must also ensure that the new framework keeps pace with market developments and advances in risk management practices. As we carry out this work, the Committee intends to continue its discussions with the industry and other supervisors in the same open and transparent manner as we have to date. It has been an honour for me to participate in and help to lead this process, and I look forward to the next phase of the Basel II project as we turn toward national adoption and implementation. Thank you. 2  BIS Review 38/2004
It is this complacency that prompts lenders to make credit cheaper. They think they need less compensation for risk. Interest rates on their loans come down and terms become looser. As it becomes cheaper, credit is taken up more widely. As mortgage debt expands, house prices rise. Lenders think borrowers have more valuable houses against which to secure mortgages. And as terms and conditions ease up, it becomes easier to service debts. More borrowers get access to consumer debt and make their repayments. Credit scores improve. Lenders then think they’ve really cracked it. What Governor Carney has described as the four most expensive words in the English language start to be heard: “This Time Is Different”. 5  The spiral continues and borrowers rack up more and more debt. Lending standards can go quickly from responsible to reckless. The sorry fact is that as lenders think the risks they face are falling, the risks they – and the wider economy – face are actually growing. So the safety of the economy needs a further defence line beyond the lenders; a defence line that guards against this spiral of complacency, and that takes account of the full, collective effect of individual decisions on the wider economy. That line is regulation – a defence line that was, frankly, missing in action in the run-up to the financial crisis. 4  This is a form of the ‘optimism bias’ documented by Daniel Kahneman.

First, employment has been more resilient than in past recessions and appears to have turned around more quickly than in the previous recoveries. The total number of people in employment in the UK has increased by over 300,000 since last winter, according to the official Labour Force Survey. 2  Chart 2 shows this contrast with previous economic cycles very clearly. Employment is down by not much more than 1% on its level at the peak of the cycle in 2008, compared with a decline of around 5% at the equivalent phase of the early 1980s and early 1990s cycles. This employment picture points to a rather mild recession in terms of the labour market, which contrasts with the much larger fall in GDP relative to previous UK downturns. The resilience of employment through the recession should help to sustain consumer confidence. It is also a positive indicator about medium-term economic prospects – as companies would not be retaining and taking on workers if they were not reasonably  1  UK economic growth averaged 2.5% in the sixty years 1948 to 2008. In the year to 1982Q1, GDP in the United Kingdom grew by 2% and in the year to 1993Q2, it grew by 2.1%. However, if growth is measured from the trough of output in 1991Q3, growth in the first year of the 1990s “recovery” would be just 0.5%.