samchain/econo-pairs-v1 huggingface dataset:
From the standpoint of the banking sector, the ultimate impact of the crisis will depend both on its scale and duration and on the effectiveness of economic policies in mitigating its effects on households and firms. Along these lines and in the case of monetary policy, in December we extended our pandemic emergency purchase programme until at least March 2022 to ensure that financing conditions are favourable. More recently, the ECB has sought to counter the rise in long-term interest rates observed in recent months, in a setting in which the macroeconomic projections are similar to those in December, with a medium-term inflation forecast some distance off our objective and below that expected before the crisis. Specifically, at the ECB we have stated our intent to use the flexibility of our pandemic emergency purchase programme to increase purchase volumes in the coming months. From the vantage of the macro- and micro-supervisory authorities, we have continued to stress that the use of capital buffers by banks is appropriate in the current situation in order to recognise credit impairment and to continue providing sound credit to economic agents. Our empirical analysis shows that the use of these buffers would give rise to a positive effect on economic growth which, in turn, would ultimately translate into likewise higher solvency levels. 5  One issue worth monitoring in the coming months will, precisely, be the capacity of, or incentives for, banks to use the capital buffers available in the face of risk-materialisation scenarios.

Specifically, at the ECB we expect dividends and share buy-backs to remain below 15% of cumulated 2019-2020 profits and not higher than 20 bp of the CET1 ratio, whichever is lower. Compared with the previous recommendation this affords greater flexibility, which is justified by slightly less uncertainty than in the spring and by the baseline scenarios of the projections being close to those used in the vulnerability analysis conducted by the ECB in the first half of the year. The analysis confirmed the European banking sector’s resilience. In any event, a prudent approach is still required; the impact of the pandemic has not fully materialised on bank balance sheets, banks continue to benefit from the various public support measures and, moreover, there is always a time lag when credit impairment is concerned. The aim of the revised recommendation is to safeguard banks’ loss-absorbing capacity and provide support to the economy. Meanwhile, the stress test projections and the credit quality measurements implicit in financial market valuations suggest an increase in the NPL ratio in the near term. Some signs of credit losses being anticipated have also emerged,12 such as the increase in forborne performing and Stage 2 loans,13 and a distinctly poorer performance in segments such as consumer credit. Against this background, banks should continue with the policy of anticipating the recognition of credit losses, thus ensuring appropriate and timely recognition in keeping with supervisory guidance.
Benoît Cœuré: Scars or scratches? Hysteresis in the euro area Speech by Mr Benoît Cœuré, Member of the Executive Board of the European Central Bank, at the International Center for Monetary and Banking Studies, Geneva, 19 May 2017. * * * Accompanying slides. One of the most interesting questions for policymakers to have emerged from the crisis is the strength of links between the demand and supply sides of the economy. 1The classical view – that only cyclical policies influence the former, and structural policies the latter – has been challenged in two ways: first, by the observation that long periods of weak demand can lead to rising structural unemployment and a permanently lower capital stock – the so-called hysteresis effects. And second, by corollary suggestion that stronger demand might be able to reverse such effects. These insights are not entirely new, of course. In 1986, Blanchard and Summers’ seminal “insider-outsider” model laid bare how recessions might lead to higher underlying “structural” unemployment rates even after shocks have fully dissipated. The question of hysteresis, however, received renewed interest as we have gone through the steepest collapse in demand since the Second World War, which has exposed our economies to significantly higher risks of hysteresis than in the past. And, as a consequence, policymakers are asking themselves if this should change the way they implement monetary policy. Should they, as usual, raise rates when there are signs that price pressures are building, so as to be ahead of the curve?

Annuity writers should be cautious in changing their longevity assumptions. For example, the annual data can be volatile because of factors such as the failure of flu vaccines. Moreover, the slowdown in the rate of improvement in life expectancy appears less marked amongst wealthier people, who are represented disproportionately in annuity portfolios. Nonetheless, we have concluded that we should make some changes to our quantitative indicators in the light of recent longevity experience. These indicators are used by supervisors as one input into our review of whether insurers’ models meet Solvency II tests and standards. Third, we will soon complete the first full cycle of Solvency II reporting. Later this year, I plan to hold roundtables with insurers, investors and analysts to discuss Solvency and Financial Condition Reports (SFCRs). We are also reviewing whether an ongoing requirement for audit of every year’s SFCR is proportionate for the smallest insurers. It would be unhelpful for the PRA to be too prescriptive about the depth of content of SFCRs. But it strikes me that some areas could be made more consistent. For example, changes in Solvency Capital Requirement coverage could be broken down to show what is attributable to changes in capital, to changes in modelling and to changes in risk assumptions. Insurers need to explain fully to policyholders, investors and others what lies behind their Solvency II ratios. This is particularly true in more complex areas like internal models and the matching adjustment.
The increasing scepticism of the 1960s and the 1970s about monetary policy’s ability to fight inflation has given way to confidence that prudent, consistent and forward-looking monetary policy can contain the destructive forces of inflation. Global inflation figures suggest that such confidence is largely justified. In the industrialized world, inflation declined from 12% in 1980 to 1.4% in 2002.2 In the developing world, the decline of inflation has been even more remarkable with yearly rates tumbling from an average of 31 percent in the early 1980s to currently under 6%.3 Along with a significant decline in inflation, volatility of economic growth has fallen everywhere. Both in the U.S. as well as in Germany, the volatility of real GDP, averaged over four quarters, was about 30 percent less during the 1984 to 2002 period than it was between 1960 and 1983.4 The evidence therefore confirms that monetary policy efforts to achieve and maintain price stability promote stability in output and thereby help create economic conditions which are ultimately conducive to employment creation. (see annex for table 1)  2. New Challenges for Monetary Policy  Not unlike successful athletes, central bankers must never be complacent in victory. It would therefore be at best inappropriate and at worst irresponsible for the global central banking community to consider its job done. There will be no “End of Central Banking”. For one thing, there is no guarantee that the elimination of inflation throughout much of the world economy is a permanent achievement.

This insight has tremendous significance for Switzerland where, as I have attempted to show, much of the non-tradable sector of our economy remains tied up in a structural straight jacket. Eliminating this straight jacket or at least unbuttoning it would have wide-ranging positive effects on the Swiss economy. If our legislative authorities rise to that challenge, they are likely to replicate the competitionboosting effect that the forces of globalization have exerted on the external sector in the domestically oriented sectors of our economy. Higher productivity growth rates would ultimately lead to higher growth rates and thus reverse a worrying trend of declining relative growth dynamics in Switzerland in comparison with other OECD countries.11 Such productivity driven growth dynamics should lead to lower prices across a sizeable part of our economy. Obviously, this statement needs to be qualified. he Swiss economy will always remain vulnerable to developments abroad. A significant demand or supply shock to the global economy could reverse the beneficial impact on domestic prices of further domestic liberalization. For example, widespread protectionist measures rolling back the achievements of globalization or widespread geopolitical conflict and uncertainty would certainly threaten the broad achievements with regard to price stability. Nonetheless, breaking up the rigidities impeding competition in the domestically oriented sectors of our economy has every chance of rendering monetary policy not only more  10  Alan Blinder (1998): “Central Banking in Theory and Practice”. Cambridge: MIT Press.
Not only will this require a much wider network of collaboration among the trade associations in Hong Kong, it will also require the financial institutions themselves to play a role in educating their customers and stimulating the potential supply and demand of Islamic financial products in Hong Kong. Last but not least, although Hong Kong is still a relative newcomer to this industry, it has the strengths and capabilities to make significant contributions to the global Islamic finance market. Hong Kong is in many ways fortunate to have access to the Islamic finance talents and knowhow through an extensive network of international and regional players here. And I believe that there is endless potential for us to innovate in the area of Islamic finance, especially in deploying our special strengths – our close affinity to China, our experience as an international fund raising centre and asset management hub, and our role as a testing ground for the Mainland’s financial liberalisation. There is, for example, no obstacle to Hong Kong’s becoming a centre for Islamic IPOs, given our distinct record as a leading IPO centre in the region. What is needed is maximum preparedness on the part not only of the regulators but also of financial market players, who are the driving force of financial innovation and growth. With great challenges come great opportunities, and Islamic finance is an area that has shown much promise over the past years. I believe that now is the time to lay down the groundwork for future growth and development.

We have dedicated significant resources to these efforts, and are committed to the continued production of rates so that market participants can have confidence about their long-term viability. For these reasons, the Federal Reserve concurs with the ARRC that SOFR represents a compelling alternative to U.S.-dollar LIBOR—particularly for most derivatives transactions, where a near risk-free rate is more appropriate than a rate that incorporates a bank credit risk premium. Nevertheless, market adoption of SOFR faces its own challenges, such as the development of sufficient liquidity in derivatives that reference SOFR, and the establishment of a term reference rate, which I will discuss in a moment. These elements will have to be built over time. The ARRC’s Paced Transition Plan lays out a timeline for the milestones that must reached over the coming quarters and years for a successful transition.21 I am confident that the ARRC will succeed, but it will take considerable attention and effort. Progress is already evident. The Chicago Mercantile Exchange began offering SOFR futures contracts earlier this month, and trading activity has gotten off to a good start. Development of SOFR derivatives, in turn, will support the creation of a term reference rate. Although the ARRC’s transition plan anticipates that this will be completed by the end of 2021, it would be better for this to occur more expeditiously. The good news is that is broadly appreciated.
During the period from August to mid-September the price of natural gas fell by 40 per cent and in a couple of weeks Amaranth lost USD 6 billion, which corresponded to two thirds of its capital. Despite the size of the amount, the market effects were largely non-existent and there was never any concern in terms of financial stability. The private sector also managed to settle its positions without any intervention from the responsible authorities. Does this mean that the concern over hedge funds is exaggerated? Or is increased regulation necessary? Before I discuss these questions, 1 however, I would like to take a brief look back at the development of hedge funds in recent years. A look back Hedge funds are a relatively new phenomenon in the Swedish market. However, the first hedge fund was established in the United States 60 years ago. At the end of the 1940s, US journalist Alfred Winslow Jones bought shares he considered to be under-valued and sold short shares he considered over-valued. His idea was that the price of under-valued shares should rise relatively more on a rising market and the price of over-valued shares should fall relatively more on a falling market. If the fund managers made a reasonable selection, this meant that the fund would earn money regardless of whether the market rose or fell – in other words the fund was protected, or hedged, against systematic market risk.

At the end of the day, culture is fundamentally about people. •  No organization can fully identify all policies or procedures for every type of issue that might occur. •  The culture needs to be embedded deeply enough in the organization and be strong enough to ensure that sound decisions are made throughout the organization – from top to bottom and from side to side. •  So, a strong culture identifies risks or issues that are new or unexpected and quickly escalates problems. Bad news needs to travel quickly. Culture can be a difficult characteristic to measure, but there is good work underway at the international level to further the dialogue on risk culture in particular. Following on the FSB’s work on risk appetite, the FSB’s Supervisory Intensity and Effectiveness group has undertaken additional work on risk culture and how firms and supervisors should be assessing risk culture within firms – and we expect to see the results of that work in the next month or so. FRBNY organizational changes I’d like to close with a couple of comments about some recent changes we’ve made to our internal organization. Earlier this year, we formed two new units within the Financial Institution Supervision Group – the Large International Financial Institution (LIFI) unit and the Regional, Community and Foreign Institution (RCFI) unit.
This is what the Riksbank began doing with effect from the first Monetary Policy Report published this year. I will talk about this a little more in a moment. Let me take up a final argument in favour of transparency that I believe should not be underestimated. It is that by being open and clear towards the outside world we also become better in our analysis within the walls of the Riksbank. As transparency makes it easier to evaluate how well monetary policy functions, it quite simply increases the incentives for us to do a good job. The objections are not convincing However, not everyone is agreed that transparency is a general blessing. Academic research shows both advantages and disadvantages with transparency. A theoretical result from this research that has received much attention is that more public information from central banks and other authorities can in some cases be a negative element 2 . However, this result is based on the public information being of low quality. If the economic agents attach greater importance to poor public information than to their own better private information, the economy as a whole may suffer losses. However, this assumes that the public information is much poorer than the agents’ own information – an assumption that is hardly true in practice 3 . A more reasonable assumption, in any case with regard to central banks and monetary policy, is that public information is not poorer than the assessments made by private agents.

The step from theory to practice is probably too great in this case, at least for now. The interest rate path An important part of the transparency concerns the central bank’s communication of its monetary policy intentions. So, how open and clear should a central bank be with regard to its own assessment of the future interest rate path? I would like to reply "as open and clear as possible”. And I believe that we at the Riksbank work in this way today. But the road to this standpoint has been very long and lined with various requirements and considerations. With regard to the assumption of the future interest rate, central banks use three different approaches. The first is that the policy rate will remain unchanged throughout the forecast period. According to the second approach, the policy rate is instead assumed to follow market expectations. The third approach means that the central bank works on the basis of its own forecast for the development of the policy rate. 4 5 The Riksbank has moved away from the first of the three approaches, via the second, to now publish and build its forecasts on the basis of our own view of what we consider to be a reasonable development in interest rates in the future. Why did we take this step and why did we not take it before this year? Well, the easiest answer is probably that “everything has its place”.
Már Guðmundsson: The financial crisis in Iceland and the fault lines in cross-border banking Speech by Mr Már Guðmundsson, Governor of the Central Bank of Iceland, at FIBE, Bergen, 7 January 2010. *  *  *  It gives me great pleasure to be here in Bergen this morning to give an address on the financial crisis in Iceland, and I would like to take this opportunity to thank the organisers for inviting me to do so. You call this session Icelandic mysteries. At this juncture, this is a more apt phrase than you might think. We are currently waiting for the findings of a parliamentappointed committee that has been working hard for over a year, collecting evidence and analysing the causes of the financial crisis in Iceland. The committee is due to release its report in early February, and we hear the report and supporting material will be well in excess of a thousand pages. We know how the Icelandic banks failed in the autumn of 2008 and can identify some of the key vulnerabilities that led to their demise. However, some important pieces of the puzzle are still missing, in particular regarding the governance and risk management of the banks, on the one hand, and the Icelandic authorities’ crisis management and interaction with their counterparts in other countries, on the other. So what I will present here today is unavoidably a partial picture. 1 You could say that it is just as well, for this is a complex saga with many twists.

This certainly underlies the growing popularity of inflation targeting and the forward guidance that comes with it. But even this may be challenging in a changing environment, where the business cycle overlaps with structural changes, and more so in areas, like financial stability, where policy targets may be hard to design and explain. From credibility to trust So, a broader approach to credibility-building may be needed. To this end, it may be useful to acknowledge that credibility is an attribute of a certain individual or institution: that of being believed or trusted. So surely, credibility does not depend exclusively on your own actions but on how far others trust you. Trust, in turn, is defined as a person’s belief or expectation that another person or institution will act in favor of one’s well-being (OECD, 2017). So we could think of credibility as an institutional asset that depends on the factors that influence trust from stakeholders and the public. Credibility in a central bank refers to public’s belief that future actions of monetary policy that are optimal today will be carried out even if they no longer seem optimal in the future. This is related to public trust, but the two concepts are not quite the same. One can imagine the public having trust in the central bank and at the same time the latter adopting a discretionary monetary policy strategy to retain full flexibility regardless of past promises.
The more prolific the reporting, the more robust the risk assessment and the more widespread the return optimisation, the more rapidly this transition will happen, breaking the Tragedy of the Horizon. 12  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  12

This is due, in part, to my reading that monetary policy today is not as accommodative as one might think judging just from the level of short-term rates. But, the path will ultimately be determined by how the economic outlook evolves and how financial market conditions respond to monetary policy. I expect that there will be many twists and turns in the road ahead. As we make this journey, I will do my best to explain what I am seeing and how I think I might react as conditions change in the future. Thank you so much for your kind attention. I would be happy to take a few questions. BIS central bankers’ speeches  7