samchain/econo-pairs-v1 huggingface dataset:
However, there was no safety net of the type that we have in a national setting to back it up. This turned out to be the fatal flaw in the whole setup, although we now know that these banks were also undercapitalised, which might have done them in at a later stage. But so were also several European banks that were considered solid at the time! In the panic that gripped global financial markets after the collapse of Lehman Brothers, Iceland’s big banks were faced with a wholesale run on their foreign currency liabilities and were therefore heading towards a default on those liabilities in the absence of LOLR assistance in foreign currency. However, given their size, it was impossible for the Icelandic authorities to provide such assistance on their own. Liquidity risk was generally underestimated in the build-up to the crisis, both by the financial industry and by supervisors. This applied even more to FX liquidity risk, which can be more lethal due the lack of backstops and safety nets. For example, before the crisis, European banks had built up huge USD-denominated balance sheets that were balanced to a large extent – except, of course, in terms of maturity. This became a major problem when there was a run on such dollar-denominated bank liabilities post-Lehman, and many big European banking names might not be with us today had it not been for the USD swap lines granted to the European Central Bank, the Bank of England, and the Swiss National Bank.

But to set the stage, let me say very briefly that all the usual suspects were present: very strong capital inflows fuelling a credit and asset price boom that subsequently turned into a bubble at the same time as the economy overheated and an unsustainable external position developed, as could be seen in a double-digit current account deficit. And macroeconomic and prudential policies were not up to the task. Quite the contrary: there was a policy conflict between monetary policy and the demand levers pulled by the Government, and the risks inherent in capital flows, FX balance sheets, and credit and asset price booms were left under-regulated and insufficiently supervised. But as so often before in this country, we dealt more effectively with the crisis than the buildup. There were two key elements to this. The first was crisis management vis-à-vis the failing banks, as embodied in the Emergency Act submitted by Prime Minister Geir Haarde to Parliament shortly before the banks failed. The second was the economic programme developed by the Icelandic authorities in co-operation with the IMF. The programme had three key goals: stabilisation of the exchange rate, fiscal sustainability, and reconstruction of the financial sector.
One argument in the debate has been that the relationship between debt and interest rates is actually the opposite of what the Riksbank believes – in actual fact, both real debt and the debt ratio should decline, not increase, if the policy rate is cut.20 Earlier this year, the Riksbank presented the results from an empirical study, which estimated the relationship between interest rates and indebtedness during the period 1995–2013 with the aid of a commonly-used empirical method.21 The estimates show the reverse, that there is clear support that both the debt ratio and real debt increase when the policy rate is cut, even if the effect is not so great.22 But it is also important to emphasise that these estimates are not the final word and that the effects of monetary policy may very well be greater. For instance, the effects have been calculated for a temporary change in the policy rate. A lasting change would have quite different and much greater effects.23 One risk with holding the policy rate low over a long time is that it can distort households’ expectations of future interest rates, so that they act as though it were a lasting change in interest rates. Also, the empirical method used does not capture specific circumstances, such as the fact that the Riksbank has conducted extensive communication to make households aware of the risks linked to high and growing  19  Of course, the best thing is always to remedy the direct causes of the imbalances.

From an investment perspective, the volatility in the Asian markets in recent years has allowed long-short and other strategic plays to outperform regional indices. The relative inefficiency of the regional markets also presents arbitrage opportunities. From a demand standpoint, US and European investors are expected to turn to alternatives in Asia as capacity (and quality) in their home markets diminish. Further, the improving economic climate in South East Asia should help foreign fund managers and investors to refocus their attention on the region. Hedge funds look set to play a larger role in Asia. The role of hedge funds in Singapore In Singapore, hedge funds form part of the expanding menu of products offered by the asset management industry. This industry grew rapidly over the last ten years: assets under management increased eightfold from just over $ billion in 1992 to more than $ billion last year. For the reasons mentioned earlier, asset managers and investors alike are finding a place in their overall strategies for alternative investments including hedge funds, commodities and real estate. (Of course, judging by concerns about Singaporeans over-investing in property, one wonders whether real estate can indeed count as an alternative investment here.) That aside, hedge funds can contribute to the development of Singapore as an international financial centre in a number of ways. First, as evidenced in other major financial centres, hedge funds can attract a mix of supporting professionals such as fund administrators, prime brokers and product specialists skilled at structuring new instruments.
There is mounting evidence that the effectiveness of macroprudential policies may be affected by leakages across borders. For example, Cerutti et al (2015) and Reinhardt and Sowerbutts (2015) provide evidence that cross-border borrowing may increase after domestic macroprudential policy is tightened. And Berrospide et al (2016) similarly find that domestic prudential policy may be less effective when banks operate globally. All of which points to the benefits of reciprocity, which I would like to illustrate using some results that 10  develop another strand of Bank research . Consider a stylised two-country model in which each of the two countries’ domestic credit is provided partly by banks from the other. Each country has a macroprudential tool – a countercyclical capital buffer – at its disposal, which can reduce the probability of a crisis, albeit at the cost of lower output in the short run. The presence of leakages worsens this tradeoff between short term output and stability. 7  Based on data from 38 advanced and emerging economies over the period 1970 to 2011, as set out in Cesa-Bianchi et al (forthcoming). 8 The 2016 stress test scenario, results of which will be published in 2016Q4, embodies a synchronised severe downturn in global output, which sees global growth trough at -1.9% as it did in 2008.

The only exception is that the steady state three-year growth rate of real credit is set to 15% (𝜙0 = 0.15) in order to reflect the fact that global credit growth has been slower and less volatile than that of the UK in the data. For simplicity, 𝜁 is set to 0. The two country model also has additional variables capturing the effect of foreign banks’ lending in the domestic economy, and the effect of global credit growth on the domestic crisis probability. The effect of global credit growth on the domestic crisis probability is set equal to that of home credit growth ℎ𝐵∗ =ℎ𝐵 , broadly consistent with the result in appendix 1 that a 1 standard deviation change in either has a similar effect. The constant term is also adjusted so that, at steady state rates of credit growth, it is equal to the same value as in appendix 2. In the model variant with full reciprocity, 𝜙𝑠𝐹 = 𝜙𝑠𝐻 = −6, implying that there is no leakage of credit growth when the CCyB is tightened, so that it is equally effective at tempering credit extended domestically by home or foreign banks. In addition, 𝑘1 = 𝑘1𝐻 = 𝑘1𝐹 , so that the effective setting of the CCyB is equal to the setting that the national policymaker chooses (𝑘1𝐻 ). In this case the value of 𝑓 has no bearing on financial stability.
(2001), “Independent Review of the Operation of Monetary Policy in New Zealand: Report to the Minister of Finance”. Sveriges Riksbank (2001), Inflation Report 2001:3. Sveriges Riksbank (2004), Inflation Report 2004:2. 12  BIS central bankers’ speeches

These include buffers for banks with global or domestic systemic importance; and buffers in the discretionary component of capital requirements, Pillar 2, such as the PRA’s firm-specific buffer. In the liquidity framework, the liquid asset buffer (LAB) is a reserve of high quality liquid assets which banks hold in normal times to manage a 30-day period of liquidity stress. Using its LAB in a stress can thus give a bank breathing space to meet extraordinary demands for cash without taking actions that may be damaging to the wider financial system and real economy. 5  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  5  Chart 2 Illustration of different capital requirements and buffers  Releasability and usability It is important that all of the buffers outlined above play their role, if necessary, in allowing banks to maintain lending whilst absorbing losses. Whether and how that is enabled rests on two key concepts: releasability and usability. A regulatory buffer is releasable when the authorities can reduce it – including down to zero if need be – freeing up additional resources. The CCyB is a good example of this. In the UK, the FPC released it during the early Covid period, increasing the size of firms’ management buffers.
For the property market, it is obvious that if there is a bottleneck or an imbalance in the supply of land, we have to deal with it. But the factors affecting demand, supply and prices of properties are very complex. Sometimes property prices rise not because there is a shortage of residential flats to satisfy housing demand, but because people expect that the market will continue to rise making it better to buy now to reap short-term profit or hold on for bigger gains in the long run. Currently in Hong Kong, the rapid surge in luxury-property prices may not necessarily be caused by insufficient supply of high-end residential flats, since rentals have not moved up in proportion with the prices. Actually, the increases were caused by the fact that many investors, including those from Mainland China, were optimistic about the outlook for future prices. 9. Apart from regulating the supply of land, another method that has long been used in Hong Kong to reduce the risk of bubbles in the property market is for banks to act as gatekeepers in preventing sharp increases in mortgage lending. The regulatory measures implemented by HKMA on 23 October that tightened the loan-to-value ratio for luxury  2  BIS Review 167/2009  properties priced at $ million or more to 60% serve this purpose. Some may argue that since many buyers of luxury properties are wealthy, they may not need to apply for mortgages and therefore the HKMA’s measures may not have the expected effect.

For instance, I mentioned before that Banking Union will tend with time to consolidate the banking sector and open the possibility for an increased role of capital markets in diversifying the financing of the European economy. However to fully reap the benefits of capital markets integration we need legislative changes that complete the programme of financial services integration, particularly in relation to the capital markets. That would include changes to company law, bankruptcy rules and procedures, and higher harmonisation in the taxation of financial products. I would urge the Commission to promote these issues. Other necessary institutional developments have also been well identified in the President Van Rompuy’s Report “Towards a genuine Economic and Monetary Union”.14 They include the reference to progress towards fiscal union, economic union and political union. First, a more complete Fiscal Union along the lines described in that Report seems necessary for the euro area, which goes beyond mere disciplinary rules. Specifically, it calls for the euro area “….the establishment of a fiscal capacity to facilitate adjustment to  13  Dirk Schoenmaker and Daniel Gros “A European Deposit Insurance and Resolution Fund: An Update” DSF Policy Paper Series September 2012. 14  See “Towards a genuine Economic and Monetary Union” a Report by the President of the European Council in close collaboration with the Presidents of the European Commission, the Eurogroup and the ECB, (http://www.european-council.europa.eu/the-president/eurozone-governance). BIS central bankers’ speeches  9  economic shocks.
Bank of England  Page 4  As a result, real income for the non-North Sea economy as a whole – how much our collective output is actually worth, in consumption terms – has fallen by over 5% since the end of 2019 (Chart 3). Chart 3: Real income has therefore fallen steeply relative to output  Real national income excluding North Sea relative to GVA; 2019 = 100 102  102  101  101  100  100 99  99  98 98  97  97  96  96  95  95 1997  2000  2003  2006  2009  2013  2016  2019  94 2022  Real national income excluding North Sea calculated as (Nominal GVA – North Sea profits) / Consumption deflator. Sources: ONS and Bank calculations. This may not be completely unprecedented but it’s pretty unusual. As you can see from the earlier bars in Chart 2, the post-war trend has been the opposite: compared with that of aggregate output, the average price of goods – and therefore of UK imports in aggregate – has tended to decline1. At times this has added significantly to real income growth. During the “noughties”, for example, the integration of China into the global trading system depressed global goods prices markedly. This wasn’t such a great thing if you were a manufacturer in the west, competing with this new source of production. Net buyers of goods, on the other hand, were made better off.

The important aspect of this, as with other areas of environmental management, is to try to set measurable objectives for green initiatives, to assign management responsibility for monitoring performance and to offer staff guidance and training on how to achieve the desired results. As noted earlier, the progress should be communicated to the outside world in the bank’s environmental report. I would like to close by expressing my appreciation for being allowed the opportunity to speak to you today on this important topic. Doing the research for my speech has certainly helped to raise my own awareness of the importance of environmental issues in general and the implications of these for financial institutions in particular. I hope that you will find this conference to be useful and 3  BIS Review 108/2000  informative, and that you will pick up lessons and advice on environmental issues that you can take back with you to build into your business operations and decisions. The need to do this is the keynote of my speech and the main theme of this conference. BIS Review 108/2000  4  5  BIS Review 108/2000  BIS Review 108/2000  6
However, no market participant wanted to be the first to begin charging margin out of  10  Several examples in the FX and fixed income markets illustrate that best practices would not be successful without the undeniable support of market participants. For instance, reduction is settlement risk due to the adoption of payment-versus-payment mechanisms, drop in settlement fails in U.S. Treasury markets after the implementation of the fails charge, and improvements in the derivatives markets infrastructure are just a few examples. 11  The BIS effort to develop an FX Global Code and the Bank of England’s leadership of the Fair and Effective Markets Review are two examples of this public-private partnership. 12  Automated trading has also been the focus of significant regulatory attention in the United States and elsewhere over the last several years. See, for example, the Commodities Futures Trading Commission’s proposed rules on “Regulation Automated Trading,” the recent Financial Industry Regulatory Authority (FINRA) amendment to the National Association of Securities Dealers Rule 1032, and the proposed amendments to the U.S. Securities and Exchange Commission’s Rule 15b9-1. 4  BIS central bankers’ speeches  fear that their counterparties would stop trading with them and move their business to a counterparty that did not require margin. The TMPG addressed this problem with a recommended practice that all market participants exchange two-way variation margin on a regular basis. 13, 14 Best practices can also encourage market participants to question long-established trading practices and advocate for change.

Estimated effect on GDP after three years.1) Percent 0.2 Approved measures  Discussed measures  0.2 Gradual global tariff increases  0  0  –0.2  –0.2  –0.4  –0.4  –0.6  –0.6  –0.8  –0.8  –1  –1  –1.2  –1.2 –1.4  –1.4 US  China  Euro area  Globally  1) The effects are based on model estimates from the IMF and Norges Bank. Approved measures are described in the box “Trade conflicts create uncertainty” in Monetary Policy Report 3/18. Discussed measures include a 25 percent tariff on all US imports from China and a 25 percent tariff on US imports of cars and car parts, in addition to retaliatory measures by countries affected. Gradual global tariff increases imply a 1 percentage point annual increase in tariffs on all imported goods in all countries over the coming years. Sources: IMF and Norges Bank  Protectionism means reduced growth capacity, putting at risk the gains brought about by open borders. If the world enters a new period of rising trade barriers, a prime engine of growth and development may lose its momentum. The most serious consequences of new tariff barriers will be faced by developing countries. The WTO has more than 160 member countries. Many of the new countries have experienced rapid growth. Living standards have improved for large population groups. But not everyone has reaped the gains associated with globalisation and trade. Some have lost. Income gaps have widened.
•  Thailand is therefore poised to assume the role of a connector – by acting as a link or point of reference for the entry of global banks into the subregion. This is underpinned by our established financial platform, familiarity with the local business practices, as well as close cultural ties among our people. •  Of equal importance is our own inherent understanding of the challenges of developments faced by GMS, through our own experience. This is particularly important in two aspects. •  First, Thai financial institutions are still focused on core financial intermediary functions such as payments services, deposit, and loans which serve the basic needs of the real sector. Thai banks are inclined to serve the needs of the real economy rather than in speculative types of businesses such as proprietary trading. For these reasons, Thai banks are also less complex, with good risk management  2  BIS central bankers’ speeches  and strong capital base. Regulators in Thailand and GMS neighbours can understand fairly well the business model of our banks and their risk. We believe that given the lesson of the current global crisis, this type of bank model makes good sense for home and host regulators. •  Secondly, both regulator and the banks in Thailand could well remember the bitter experience of our own economic and financial crisis in 1997. We understand that financial liberalization needs to be properly sequenced.

In principle, this can be seen as a “one-off shift” upwards in the interest rate margin. Adjustment to this higher level may be more or less protracted, depending on the rate at which the regulations are implemented and the degree towards which they are expected by the market. During this period of adjustment, the transmission mechanism will be affected. One criticism of the regulatory framework and supervision of the financial area was that, prior to the crisis, these focused excessively upon individual institutions. The assumption was that the system would remain stable as long as the individual institutions were stable. Consequently, processes creating risks on the system level were ignored – processes such as a general underpricing of risk, the increased element of short-term market funding and the increasingly intimate connections between various market participants. One of the components in macroprudential policy, the package of more explicit systemic crisis preventative regulations being discussed internationally, is the more active application of regulations to dampen risk-building tendencies and build buffers when times are good. One specific proposal is to allow the capital requirement for the banks to vary over time. This would entail a division of the total capital requirement into two components. The first of these would be a constant minimum requirement to establish the amount of capital a bank is always to hold. To this can be added a further capital requirement that varies over time by being linked to a suitable indicator of, for example, credit growth or cyclical position of the economy (Figure 7).