samchain/econo-pairs-v1 huggingface dataset:
The transmission of instability typically occurs as a consequence of increased margin calls and mark-to-market losses that strain firms’ liquidity and capital positions and put additional pressure on firms to further deleverage. Such scenarios can have material adverse repercussions on other market segments and market participants. It is vital that we take steps to address this risk now, during a period when markets are functioning without stress, in order to improve the resiliency of this market before the next crisis occurs. This is especially important in light of the heightened threshold established by the Dodd-Frank Act for future central bank interventions in the event of a market disruption. Even if this constraint did not exist, the experience of the recent financial crisis has served to strengthen our resolve to ensure that the market is structured in a way where risk is accurately priced and resilient to stress on a day-to-day basis, without the need for official sector intervention as a first resort. As many of you know, the Federal Reserve has been calling for action on this issue over the past two years, and all three Financial Stability Oversight Council annual reports have highlighted this as a significant issue worthy of our attention. However, the diversity of participants in the tri-party repo market has made it difficult to move forward quickly with a market solution that addresses the risk I have outlined. Industry leadership is absolutely critical to overcoming these challenges.

As many of you are aware, the Federal Reserve Bank of New York published a white paper in May 2010 that highlighted three critical sources of instability associated with practices in the tri-party repo market: (1) the market’s excessive reliance on intraday credit from the clearing banks; (2) weaknesses in the liquidity and credit risk management practices of cash lenders and clearing banks that left them vulnerable to stress environments; and (3) the lack of a mechanism or process for liquidating collateral during periods of stress in a manner that did not destabilize other segments of the financial system. After the crisis, we asked the industry to help develop a plan to reengineer the tri-party repo settlement infrastructure to mitigate these risks. The industry responded by identifying key changes that could be made to the platform to eliminate market reliance on intraday credit, thereby removing a key source of fragility observed in 2008. This process was challenging at times, and ultimately required our intervention as a supervisor to move forward. But the industry successfully developed a roadmap for reform that is the basis for the changes now being implemented. The clearing banks are making substantial investments to reengineer  BIS central bankers’ speeches  1  their tri-party repo settlement processes, while lenders and borrowers are making adjustments to their business practices and technologies to ensure they are ready for changes that are occurring in the market.
26.10.2020  The banking sector and the challenges posed by the pandemic III Foro Banca de El Economista: The present and future of the financial system Pablo Hernández de Cos Governor  *English translation of the original speech in Spanish  Ladies and gentlemen, good morning: I should like to start by thanking the organisers of this event for inviting me to participate in the III Foro Banca. Allow me also to mention in relation to the content of my address that, as a member of the Governing Council of the European Central Bank (ECB), I am required to observe the so-called “quiet period” preceding meetings at which monetary policy decisions are to be taken. Accordingly, my reflections should not be interpreted as indicating the monetary or economic outlook. In the context of the COVID-19 pandemic and its already significant impact on the economy, the specific challenges facing the banking sector, both in Spain and internationally, are particularly relevant, given the role it plays in supplying financing to the productive sectors of the economy and households. It is evident that the crisis generated by the pandemic has intensified the credit, market and operational risks faced by the banking sector. It is also evident that the improvements made by the sector over the last decade, as regards the quality of its balance sheet and its solvency levels, have placed it in a better position to absorb this crisis and to continue supplying the financing that the economy requires.

Likewise, consideration of the positive impact of public guarantees and moratoria on the repayment capacity of private sector agents also seeks to mitigate the deterioration in credit ratings. These measures seek, as I say, to avoid a mechanistic application of the accounting rules leading to a procyclical effect. However, poor use of the rules could facilitate inappropriate accounting practices, delaying the recognition of actual deterioration in the credit quality of certain exposures. For this reason, supervisory guidelines also consider that accounting measures should not be detrimental to the appropriate identification of impairment or the assignment of reasonable coverage for credit risk, providing banks with the necessary incentives to maintain standards that meet supervisory expectations. These measures also include the adaptation of banks’ internal systems for the correct identification of transactions affected by the measures put in place to adapt accounting to the COVID-19 crisis. The crisis generated by the pandemic has already had a significant impact on the income statements of non-financial corporations and on the incomes of households, and has reduced the solvency of both. However, the increase in the rate of default has, to date, been very limited. This is largely explained by the broad raft of measures adopted by the various authorities, which have not only prevented a sudden sharp increase in the rate of default in this period, but have also mitigated its future increase. In any event, the projections suggest that the rate of default will increase significantly in the coming quarters even in the most benign scenario.
Thomas Jordan: Reconciling Switzerland’s minimum exchange rate and current account surplus Speech by Mr Thomas Jordan, Chairman of the Governing Board of the Swiss National Bank, at the Peterson Institute for International Economics, Washington DC, 8 October 2013. *  *  *  Introduction Ladies and gentlemen, it is a great pleasure to be here at the Peterson Institute for International Economics. Before we start, I would like to personally thank the President of the Peterson Institute, Adam Posen, for the invitation. I will begin by asking two questions: First, is Switzerland’s minimum exchange rate at odds with its longstanding current account surplus? Second, is such a policy undermining the adjustment of global imbalances? I will argue that, in both cases, the answer is no. The Swiss National Bank set a minimum exchange rate of CHF 1.20 against the euro in September 2011. In so doing, it took action against an excessive strengthening of the Swiss franc that was threatening price stability and the Swiss economy. To illustrate the extent of the franc’s appreciation, let’s look at Figure 1, which shows the real trade-weighted exchange rate on a monthly basis. As we can see, right from the onset of the financial crisis in 2007, the Swiss franc strengthened significantly, and dramatically so in July 2011.

BIS central bankers’ speeches  3  Second, we took additional non-standard measures to ensure that our interest rate decisions were transmitted effectively to the broader economy, despite the volatilities in the financial sector. If banks cannot easily access the money market or other sources of finance, they may not extend credit to households and companies, to the detriment of economic growth and employment. At the outset of the crisis in 2007, the ECB reacted immediately to the rapidly worsening liquidity conditions and heightened credit risk, particularly in the interbank markets. When stress in the financial markets re-emerged in the autumn of last year, the Governing Council of the ECB again took a series of measures to enhance the provision of liquidity to the banking system and to actively support lending, notably introducing two very long-term refinancing operations with a maturity of three years, which were conducted in December last year and in February this year. The exceptionally long maturity of these operations gave banks a longer horizon for their liquidity planning. It is also helping them to deleverage in a balanced and orderly manner over the medium term, thereby avoiding “fire sales” of assets and a downscaling of longer-term lending. At the same time, it is crucial that all the crisis measures taken by the ECB to ensure monetary stability in the euro area – the standard and the non-standard – do not create adverse incentives for market participants or unanchor inflationary expectations.
Currently, potential output for this group of economies is thought to be at around 1.5%, a significant drop from the 2% growth estimated in the pre-crisis period. At the same time, the 2  percentage of wealth held by the richest 10% of the population of the United States, France or the United Kingdom has risen by between 5 pp and 9 pp in the last 25 years. 3  Moreover,  far-reaching  transformations  such  as  globalisation, the digital revolution and demographic trends are all shaping the world economy today, and will continue to do so in the years to come. Against this backdrop, tax and transfer systems can play a crucial role in providing sound public finances, increasing potential output and delivering sustainable and inclusive growth. However, meeting these goals poses some significant challenges. And not only because of the intrinsic distortionary nature of taxation and the different existing trade-offs among these three dimensions, but also because 2  See Chapter 3 of the April 2015 World Economic Outlook. 3  See Alvaredo, F., L. Chancel, T. Piketty, E. Saez and G. Zucman (2018), World Inequality Report 2018, Harvard University Press. 2  some of these global phenomena, in particular globalisation and the digital revolution, can adversely affect the capacity of governments to collect taxes. As recently stressed in a newspaper article, the challenge is to define a system where taxes target rents, preserve incentives and are hard to avoid.

10  And fourth, the emergence of the digital economy poses significant challenges and opportunities for tax systems  9  See, for instance, Card, D. and J. E. DiNardo (2002): “Skill-biased technological change and rising wage inequality: Some problems and puzzles,” Journal of Labor Economics, 20 (4), pp. 733-783. 10 See Guner, N., M. Lopez-Danieri and G. Ventura (2016): “Heterogeneity and government revenues: Higher taxes at the top?” Journal of Monetary Economics, 80, pp. 69-85. 5  around the globe. For instance, research for the US suggests that profit-shifting to low-tax jurisdictions reduces the tax bill of US-owned companies by about 20%. Thus, 11  globalisation and the growing reliance on intangible assets demand new ideas to limit the erosion of corporate income tax. In this situation, the international dimension of tax design emerges at the forefront of the policy debate. Against this backdrop, for instance, the OECD has launched a welcome initiative, known as the Base Erosion and Profit Shifting Project (BEPS), which brings together 115 countries with the aim of ensuring that profits are taxed where the economic activity takes place and where value is created. 12  As you can see in the conference programme, we have an excellent menu of papers covering a large amount of topics, related to these and other issues. They will provide new and valuable insights in the realm of fiscal policy, and will therefore improve our understanding of this field, both from a theoretical and an empirical perspective.
As far as the NBR is concerned, enhancing the governance has been a steady concern over the course of time, the ultimate goal being the alignment with the best practices, often with IMF support. Let me just point out that the NBR shifted from an internal auditors’ Commission to the auditing of financial statements by external auditors as early as 2001, while the following year saw the establishment of the Audit Committee as a substructure of the NBR Board (at a time when not even the ECB had such a committee in place!). In addition to the Audit Committee, the NBR’s internal control system includes several control layers. In fact, there are three lines of defence against any factors that might jeopardise the fulfilment of the NBR objectives. BIS central bankers’ speeches  3  First of all, the National Bank of Romania takes a functional approach to risk management, meaning that each organisational unit has primary responsibility for identifying, assessing and managing the risks associated with its own activities and operations. The risk management process is an integral part of the NBR’s internal control system and represents the bank’s first line of defence. Each organisational unit implements operational control procedures within its area of responsibility, in accordance with the levels of risk tolerance set in advance by the executive management.

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2  BIS central bankers’ speeches  industry, some partnerships became public companies, in part, so that they could more easily obtain the capital needed to expand rapidly. For example, when Goldman Sachs went public in 1999, it had about 15,000 employees and $ billion of assets. Just eight years later, the firm had expanded to 35,000 employees and $ trillion of assets. In the mid-1990s, the top five banks in the United States had total assets of $ trillion or about 14 percent of gross domestic product (GDP). The top securities firms had total assets of $ billion, or about 9 percent of GDP. By the end of 2007, the top five banks had assets of $ trillion or 49 percent of GDP. Similarly, the top securities firms accounted for $ trillion, or about 27 percent of GDP. In addition, the firms’ off-balance-sheet exposures rose sharply. Second, the complexity and interconnectedness of the largest financial firms increased markedly. Factors behind this include the adoption of a universal banking model by some commercial bank holding companies and the rapid growth of trading businesses, especially the over the counter (OTC) derivatives market. In the early 1980s, there were no true U.S. “universal banks” that combined traditional commercial banking with capital markets and underwriting activities. By 2007, there were several operating in the United States, including Citigroup, J.P. Morgan, UBS, Credit Suisse and Deutsche Bank.

The experience of the crisis increased the advantage from being perceived as TBTF, and, thus, strengthened the incentives to become bigger, more complex, and interconnected. The Dodd Frank Act (DFA) set out to end TBTF. One means was by eliminating the Federal Reserve’s discretion to provide emergency financial support through a program open only to a single financial institution, and, in general, raising the bar for broader-based emergency interventions under section 13.3 of the Federal Reserve Act. But, as the DFA recognized, simply tying the Fed’s hands on intervention is insufficient. It does not reduce the cost to society from the failure of a large and complex firm. In order for the non-intervention strategy to be both fully credible and consistent with the public interest, we need to tackle the underlying externalities and incentive problems that give rise to TBTF in the first place. Tackling too big to fail As I see it, solving the TBTF problem requires working on a number of different margins. These include measures that are firm-specific and those that address the structure of the financial system more broadly. One set of measures works to reduce the incentives for excessive risk-taking and to lower the probability that large financial firms fail or come close to failure. Another set lessens the disruption to the financial system and hence the cost their failure imposes on the broader economy and society as a whole.
In response to these conditions, the Federal Reserve System took action to support a strong economy and a stable financial system.9 As part of this effort, pandemic crisis facilities were established to restore market functioning and support the flow of credit to households, businesses, and state and local governments.10 The New York Fed was responsible for operating five of these facilities.11 Risk management was a cornerstone of that work, and we used our three-lines-of-defense risk model to build strong risk management into facility operations.12 The first line of defense, the facilities teams, were responsible for understanding and managing their risks. The second line – my group (the Risk Group), the Compliance Function, and others – was responsible for independent assessment and oversight of those risks. And, the third line – our Internal Audit Group – was responsible for fully independent assurance. Just to give a bit more detail about the second line of defense, we are responsible for designing and delivering a set of products, services, and relationships that lead to better plans, decisions, and actions that help the Bank thrive in any environment. We serve as trusted risk advisors, independent risk experts, and enterprise risk guardians.13 In our guardian role, we identify material risk issues and make sure that risks are understood, communicated, and addressed. We provide the stakeholders who are ultimately responsible for organizational success with a clear picture of the Bank's risk profile. In our expert role, we provide independent risk assessments, actionable risk insights, standards, and tools to help businesses manage risks.

See ‘Lambda’, speech by Mark Carney at the London School of Economics, 16 January 2017. 16 Each observation shows the central projection for spare capacity or excess demand at the end of the second year of the forecast period (the 'Year 2' point) on the horizontal axis against the central projection for four-quarter CPI inflation at Year 2 on the vertical axis from successive Inflation Reports. The left-most observation (labelled "Aug. 2016 no stimulus") is a counterfactual version of the August 2016 Inflation Report forecasts with the effect of the MPC's Bank Rate cut, Term Funding Scheme and Asset Purchases removed. See ’Lambda’, speech by Mark Carney at the London School of Economics, 16h January 2017, for further details and discussion. 17 See Table 4.C in the May 2018 Inflation Report, available at www.bankofengland.co.uk/inflation-report/2018/may-2018. 12  All speeches are available online at www.bankofengland.co.uk/speeches  12  Chart 7: Trade-off in successive Inflation Report projections at Year 3 3.0  Inflation (%)  August 2016 2.5  November 2016  February 2017 August 2017  May 2017 November 2017 February 2018  2.0 -1.0  August 2016, no stimulus  -0.5  May 2018  Excess demand (%)  0.5  1.0  0.0  Preferred trade-off if λ=0.1  1.5  Preferred trade-off if λ=1 1.0 A Guidance Stocktake As the UK enters the most critical phase of the Brexit negotiations, it is useful to take stock of forward guidance and its potential role during the upcoming period.
Gent Sejko: Increasing the formalization of the Albanian economy Address by Mr Gent Sejko, Governor of the Bank of Albania, at the joint press conference with the Minister of Finance and Economy, Tirana, 7 December 2017. * * *  Dear Minister Ahmetaj, Dear media representatives, It is with great pleasure that I present this concrete initiative of the Bank of Albania (BoA) in the framework of our efforts to promote the formalization of the economy. It is encouraging to see that a series of initiatives by other Albanian authorities are taken for the same purpose, to enhance the law enforcement and the use of financial channels. Experience has shown that complementary efforts of regulatory institutions lower the policies’ implementation costs and increase their likelihood for success. Informal activity imposes open and hidden costs for the Albanian economy and the society. It damages the country’s public finances, increases the tax burden and distorts its effect on the economic agents, hampers competition and increases the costs of fair business activity, reduces business financing resources and curbs their normal development, and creates social problems that arise from lack or insufficient coverage of social and health insurance. From the BoA’s point of view, as the monetary authority and as the supervisor and regulator of the banking sector, informal activity reduces the effectiveness of our stabilization policies and creates the premises for instability of one or more segments of the financial system.

Focusing on the latter issue, I would like to remind you that safeguarding and strengthening financial stability has been and remains a major objective of BoA’s work. As we have stated in our previous communications, the deterioration of the loan portfolios’ quality has been one of the biggest challenges we have been facing in recent years. This deterioration reflected the effect of many factors, but the high level of informality in the economy, undoubtedly, provided its contribution to this performance. More concretely, the lack of financial transparency, lack or problems with property titles and those encountered during the execution of collateral contributed to the increase of non-performing loans and were a barrier to our legal and regulatory measures, for their reduction. In addition to the negative impact of informality on the loan performance and quality, it has also negatively affected the borrowers. Taking risks beyond the repayment capacities, not identified as a result of the lack of clarity regarding the financial statements, has also caused credit default, thus making/driving borrowers face with unpredictable situations. For these reasons, the Bank of Albania has commended and has continuously supported the initiatives for increasing the formalization of the economy. We have taken several measures to address informality, which have given their effects over the years. Enhancing transparency and lowering the costs of bank transactions, without affecting the operational independence of banks and their decision-making, has brought households and enterprises closer to the financial institutions.