samchain/econo-pairs-v1 huggingface dataset:
Last month, the Dow Jones Industrial Average reached an all-time high. Recent data suggest that families’ incomes have increased between 2013 and 2016, although they also suggest that the wealth gap is widening.3 People, too, have changed. Even at the New York Fed, now, over 50 percent of staff were not with us at the time of the crisis. I suspect that the same is true at banks and law firms, where many professionals have practiced for less than a decade. These junior bankers and lawyers have not even experienced a turn of the business cycle let alone have a memory of the financial crisis. Now, I recognize that the crisis and its aftermath is well trod ground. Indeed, my boss Bill Dudley delivered a speech on this very topic last week. That said, I think it is worth traveling down this well-worn path again. In doing so, I am mindful of a few aphorisms. First, those who fail to remember history are doomed to repeat it. Second, generals (and economists and even lawyers) tend to fight the last war. The third, which I will steal from a mutual fund prospectus, is that past performance is no guarantee of future results. All of this is to say that while it is critical to remember and draw lessons from what happened in that period of 2007–2009, and the response to it, it is also equally critical to remember that the next shock to the system is likely to look quite different in material ways.

Luis M Linde: The European and Spanish economic situation Opening address by Mr Luis M Linde, Governor of the Bank of Spain, at the Annual Economists’ Forum/Consejo General de Economistas, Madrid, 29 May 2014. *  *  *  I much appreciate the invitation to participate in this forum and the opportunity to share with you some brief thoughts on the European and Spanish economic situation. Following six quarters of negative growth, the euro area economy initiated a mild recovery in 2013 which has since continued. The recovery is essentially being underpinned by the gradual pick-up in domestic demand, after the strong adjustment it underwent during the recession. However, the latest GDP growth figure, for the first quarter of this year, illustrates the stillfragile and uneven nature of this economic improvement in the euro area. According to the provisional estimate released by Eurostat, the increase in activity in the euro area as a whole in 2014 Q1 was 0.2% in quarter-on-quarter terms, below most analysts’ expectations. Note that this rate has been affected by exceptional temporary factors in some countries. In any event, the mixed nature of the recovery is evident if we compare the strong momentum the German economy is providing to the area as a whole with the behaviour of activity in other countries such as France, where it is practically flat, or others still such as Italy, the Netherlands, Portugal and Finland, where negative figures have been posted.
BIS Review 122/2007  UNIDROIT or UNCITRAL] have turned the focus of their activities on financial market issues, such as secured transactions or cross-border holdings and transfers of securities. This focus is mirrored by a multitude of complementary initiatives on the European level, where I would just like to mention the various legislative projects aimed to enhance the integration of the EU financial markets that were combined in the so-called Financial Services Action Plan as well as the more recent attempts to enhance efficiency and integration in the EU post-trading industry, that is the clearing and settlement of cross-border securities transactions. 4. Lessons of the recent market turmoil  Turning to more recent events, the emergence of structured products, where the creditor is separated from the debtor by a complex financial infrastructure that transforms and repackages the underlying asset, might create significant legal challenges and this might become an important concern in the light of the recent market turmoil. Who pays if debtor A defaults, in case his debt has been repackaged by bank B, sold to the non-bank intermediary C and finally to investor D? These are legitimate questions that need to be addressed carefully. But answers have to be given if the uncertainties surrounding the current environment are to vanish.

When Bank Negara Malaysia and the Bank of Thailand first operationalized this arrangement between our central banks in March 2016, we saw the potential and benefits for local currencies to play a more important role in enhancing regional trade linkages. The expansion of the arrangement today to include our close trade partner, Indonesia, underscores this potential. The signing of this MoU between Bank Indonesia and Bank Negara Malaysia represents another important milestone in the move to strengthen the relationship between Malaysia and Indonesia. Following the conclusion of the ASEAN Banking Integration Framework, we are confident financial institutions in both countries will be able to collaborate towards realizing the objective of facilitating greater cross-border trade and investments. Both Thailand and Indonesia share important links with Malaysia, forged through a long history of trade and investment activities, and close cooperation between our central banks. This occasion reflects how far we have come in this process. The cooperation arrangements between our central banks have now expanded to include clearly defined protocols and operational frameworks in a broad range of areas, including financial market development, supervision, surveillance, payment arrangements and crisis management. Bank Negara Malaysia has long been a strong supporter of financial and economic integration in both ASEAN and broader Asia – to unlock the region’s growth potential and support a stronger, more resilient economic community.
This, in turn, significantly reduced the risk that a dealer would not be able to obtain short-term funding through the tri-party repo system.3 Over much of this period preceding the failure of Lehman Brothers, U.S. commercial banks were relatively insulated from the liquidity run dynamics that plagued the securities dealers.4 This relative stability was due, in part, to the broad access these commercial banks had to the Fed’s discount window through the traditional primary credit facility and through the Term Auction Facility (TAF), which had been introduced earlier in the crisis in response to liquidity strains in the interbank market. The fact that most commercial banks relied on insured deposits for significant portions of their funding was also important. Not only were these insured deposits stable sources of funding because they were guaranteed by the Federal Deposit Insurance Corporation (FDIC), but also because they were unsecured; these deposits freed up collateral that could be used by banks to secure borrowing from the central bank and elsewhere. However, once Lehman Brothers failed, many commercial banks and other financial institutions encountered significant funding difficulties. News that the Reserve Fund – a large money market mutual fund – had “broken the buck” due to its holdings of Lehman Brothers paper led panicked investors to withdraw their funds from money market mutual funds. This caused the commercial paper market to virtually shut down.

This can lead to haircut spirals in which higher haircuts lead to forced asset sales, increased volatility and still higher haircuts. These sources of instability create the risk of a cascade – of firms moving rapidly from the situation represented in Figure 1 to that shown in Figure 2. Once the firm’s viability is in question and it is does not have access to an insured deposit funding base, the next stop is often a full-scale liquidity crisis that often cannot be stopped without massive government intervention. Fortunately, there are ways to mitigate the risk of a cascade. First, we can require that financial intermediaries hold more capital. This would push the probability distribution to the right in Figure 2. With sufficient additional capital, the probability of insolvency could be reduced to a low enough level that liquidity providers would not run. Higher capital requirements work to reduce the risk of liquidity runs, but potentially at the cost of making the process of financial intermediation much more expensive. In particular, a requirement that firms must hold more capital increases intermediation costs. Moreover, banks may respond to higher capital requirements by taking on greater risk. If an increase in risk-taking were to occur, the movement of the probability distribution to the right in Figure 2 might be offset by an increase in the degree of dispersion. Thus, higher capital requirements might not necessarily be sufficient to push all of the probability distribution above zero. Second, regulators could require greater liquidity buffers.
It is clear, in retrospect, that our attempts in the spring of 2013 to provide guidance about the potential timing and pace of tapering confused market participants. Market participants seemed to conflate the prospective tapering of asset purchases with monetary policy tightening, and pulled forward their expectations about the likely timing of liftoff and raised their expected paths for policy rates. Lately, we seem to have done better: the tapering down of the Fed’s asset purchase program went smoothly and market participants now seem to share the assessment embodied in the FOMC’s March Summary of Economic Projections that lift-off is likely to begin sometime later this year. As you know, we’ve taken a number of steps in recent years to increase transparency and improve our communications. This includes regular press conferences by the Fed chair following FOMC meetings; the publishing of growth, inflation and short-term rate forecasts of FOMC participants; and a concerted attempt to lay out the guideposts that the FOMC will look at to assess progress toward our mandate. We also have explained in considerable detail what tools we will use and how we will likely use them to ensure to ensure a smooth lift-off. A second area we have focused on is doing a better job safeguarding financial stability. Simply put, we failed to act both early enough and decisively enough to stem the credit excesses that spawned the financial crisis and the Great Recession.

The policy rate in the UK has been 0.5 percent for some time. In the Bank of England’s assessment, a further reduction would not serve any useful purpose. 8 Nor has the ECB found it appropriate to reduce the policy rate further, but is prepared to expand its asset purchase programme if necessary. 9 Central banks also influence long-term interest rates For monetary policy to work, it must have an effect on more than short-term money market rates. The interest rates that influence inflation and employment are those facing enterprises and households. In economies with well-functioning money and credit markets, a reduction in the policy rate will relatively quickly push down market rates. In recent years, there have been cases where this did not happen. The most serious situation that has arisen occurred after the Lehman Brothers collapse. The resulting uncertainty led to very high risk premiums. Despite substantial policy rate cuts, market rates remained high. 8  Bank of England (2013): Note on Negative Interest Rates for Treasury Committee. 9  Cœuré, Benoît (2015), Member of the Executive Board of the ECB: “How binding is the zero lower bound?” (speech given on 18 May 2015), European Central Bank. 4  BIS central bankers’ speeches  In response, a number of central banks, particularly the Federal Reserve and the ECB, intervened directly in those money and credit market segments that had been hardest hit.
As a result, we are seeing a record number of job openings, supply bottlenecks in sectors such as autos, and sharp increases in prices for some high-indemand goods and services. To get an idea of how fast the economy is restarting, it’s useful to look at gross domestic product, or GDP. Fueled by rapid growth in consumer spending, business investment, and housing, I expect inflation-adjusted, or real, GDP to increase seven percent this year. If that forecast comes true, that would be the fastest year-over-year growth rate since 1984. This strong growth in demand is translating into large numbers of people getting back to work. More than half a million jobs were added in May, which is good progress. But, I cannot stress enough that we still have a long way to go to get back to full strength. For example, there are still over seven million fewer jobs today than before the pandemic. Underlying these numbers are sizable movements of people in the labor market. Employers are hiring at a rapid clip, with nearly seven million people moving from the ranks of non-employed to employed per month. At the same time, people are leaving jobs in elevated numbers, either to look for new work or to exit the labor force altogether. These big movements in the labor market, both in hires and quits, reflect the extraordinary nature of the pandemic, as employers and workers adapt to rapidly changing circumstances. What should we take from all of this?

The Eurosystem could also outsource parts of the settlement, such as recording or validation, to intermediaries.   Moreover, it is clear that some functions should remain under the sole  responsibility of intermediaries. In particular, I believe that the Eurosystem should not have the role of managing digital euro holdings: the Banque de France closed its last private customer accounts over 20 years ago, and does not intend to reopen any. Customer relationship management is best handled by financial intermediaries, as they have the experience in this field. They would also ensure compliance with the related regulatory requirements, including KYC and AML/CFT. Such a design would allow them to preserve the role of financial intermediaries in the retail payment system, and would ensure the high level of privacy required by the public.   Finally, regarding the possible risks of banks’ deposit conversions, we  must and will ensure that a digital euro remains a means of payment rather than a saving/investment asset. This could be achieved by capping the maximum amount of digital euro in circulation, at a low enough level. In a completely other field, regulated savings, ceilings for the Livret A have proven an efficient tool, without requiring the intervention of a Big Brother to check on them. Page 5 sur 7 II.
In my intervention this afternoon, I would like to offer first some views on why the new capital framework is necessary. I would then like to address two topics: firstly, co-operation among supervisors; and secondly, the work that must continue to maintain the relevancy of the framework. 2. The benefits of Basel II. Why the new framework is the one we need. Forward-looking approach to capital and risk management As I mentioned before, the new capital framework takes a forward-looking approach to capital and risk management that will remain up-to-date with sound practices in the industry. In the sixteen years since the 1988 Accord was adopted, the tools for measuring and managing risk have evolved in ways that its architects could not have anticipated. Improvements in technology and telecommunications, the explosive growth in the markets for securitised assets and for credit derivatives, and the emergence of new disciplines in risk management - such as operational risk management - have changed the ways that banks measure and manage their risks. As risk management practices become more sophisticated, the static and very simple rules of the 1988 Accord are becoming less relevant to the most sophisticated and complex banking businesses. Therefore, in the mid-1990s, the Basel Committee agreed that it was time to develop a new framework for capital. Our goal was to develop a new approach that would be more sensitive to the actual risks that banks take on and that would ensure a level playing field for banks that compete globally.

This legislation will not only affect the banks that we supervise, but also our own supervisory system and the tools we use to carry out our responsibilities, so I hope my additional perspectives will be useful. The publication of Basel II in June 2004 was a milestone which marked the culmination of a worldwide and unprecedented effort spanning more than five years. It involved extensive and open discussions among bankers, central bankers, bank supervisors, market observers, and the public. The Basel Committee published three proposals for public comment. It conducted several impact studies and it engaged in extensive discussions with interested parties. I believe that this broad and often highly technical dialogue was of mutual benefit as a learning process. It contributed greatly to the thorough examination of banks’ risk management practices. This was necessary in order to find ways to harness recent advances in these practices to promote financial stability. It also allowed us to take into account concerns and suggestions and to make a considerable number of changes that have significantly improved the framework. Let me mention, for example, improvements made in important areas such as SMEs, procyclicality, complexity, recognition of collateral, and the treatment of securitisation, etc. Likewise, the global nature of the consultations led to changes which increased the relevancy of the new framework to all kinds of banks, something that is important for the European market. As a result of the dialogue, we were able to design a solid, comprehensive and balanced new capital framework.
The responsibilities of individual policy areas in ensuring sustained non-inflationary growth This brings me to a crucial issue: the single currency is the joint responsibility of all policymakers and Member States. Monetary policy is strictly geared towards the maintenance of price stability and thus also makes an important contribution to strong growth in output and employment. However, monetary policy needs the support of other policy areas. This is best achieved by having specific roles, clear mandates and agreed responsibilities for the individual policy areas. Let me go into these in a little more detail. The best contribution which monetary policy can make to sustainable growth is to achieve price stability. Indeed, inflation entails numerous costs and creates an uncertain economic environment. This is harmful to an optimal allocation of resources and thus hampers economic growth. Some costs of inflation are quite tangible, as is the case with those induced by the periodic revision of prices and indices or the increasing cost and time spent in cash transactions. More generally, increased inflation is accompanied by increased volatility of inflation. Stable high inflation has almost never been observed, and is seemingly a contradiction in terms. This volatility of inflation creates uncertainty which affects economic and social decisions.

Many governments are as yet insufficiently prepared for this problem, inasmuch as they are still highly indebted and are not pursuing the structural reform of public transfer systems with sufficient vigour. The assessment that much has been achieved, but that, at the same time, much remains to be done, also holds true in the case of general economic policies. The structural reform of labour and product markets remains the key to achieving significant reductions in unemployment. There is by now broad 5  BIS Review 58/2000  consensus on the fact that the larger part of the still very high level of unemployment in the euro area is of a structural nature. Only flexible labour markets will prevent bottlenecks from emerging and triggering upward pressures on prices at a relatively early stage of the current economic upswing. Looking at the regulatory reform process across the euro area, a good deal of deregulation and liberalisation of previously sheltered sectors have taken place in recent years. There remains significant scope for further action along these lines. In regulated industries, a low level of competition is often accompanied by a high level of public ownership. Privatisation and regulatory reform should thus be seen as mutually reinforcing measures. The favourable impact of such measures in terms of lower price increases has become clear in the case of the telecommunications and energy sectors. This should be encouragement enough to step up efforts in other sectors.
I am gratified that the Attorney General and the United States Attorney for the Southern District of New York have acknowledged the work of the Federal Reserve in supporting our law enforcement partners.10 The New York Fed has also devoted significant resources and attention to the reform of bank culture and conduct. Increased capital and liquidity are important tools to promote financial stability, but in the end a bank is only as trustworthy as the people who work within it. I have personally delivered a strong message that the culture of Wall Street is unacceptable.11 Bad conduct by bankers damages the public trust placed in banks. In my view, this loss of trust is so severe that it has become a financial stability concern. If bad behavior persists, it would not be unreasonable – and may even be inevitable – for one to conclude that large firms are too big and complex to manage effectively. Our nation’s largest financial institutions need to repair the loss of public trust in banks. This means a back-to-basics assessment of the purpose of banking, including duties owed to the public in exchange for the privileges banks receive through their bank charters and other functions of law. Among these privileges are deposit insurance and access to a lender of last resort. 10  See U.S. Department of Justice, “BNP Paribas Agrees To Plead Guilty To Conspiring To Process Transactions Through The U.S. Financial System For Sudanese, Iranian, And Cuban Entities Subject To U.S. Economic Sanctions,” June 30, 2014.

As you can see in blue in Chart 8, long-term sickness has driven much of the persistent rise in inactivity amongst 16 to 64 year olds since the start of the pandemic. That is a striking fact. As their number has increased, the inactive population appears more detached from the labour market. More of the inactive people now say that they would not like a job than before the pandemic, and fewer now expect to return to work. How should monetary policy respond to such a reduction in labour force participation? Bank of England  Page 13  The first thing to note is that this does not seem to be a case in which participation has fallen in response to weaker economic conditions and a weaker labour market. This is not a fall in participation driven by a shock to demand. So, we should not expect there to be a margin of spare capacity outside the workforce that exerts downward pressure on inflation in a way that would call for a lower level of interest rates to stimulate demand. Instead, the rise in economic inactivity is a change to the supply of labour, independent of demand, in particular by older workers. If those workers have accumulated enough savings to sustain a desired level of consumption much like the one they had before their early retirement, at least for a while, aggregate demand will not have fallen by as much as aggregate supply.