samchain/econo-pairs-v1 huggingface dataset:
In the current crisis the National Debt Office has also helped to improve liquidity conditions in the financial system by auctioning extra treasury bills. Ultimately, the Government and the Riksdag also have a responsibility for financial stability if it becomes apparent that the initiatives of the authorities are unable to bring a crisis under control. These days the Riksbank is working very closely with other authorities to monitor developments and discuss how to handle the situation. Like other Swedish authorities, we are also in frequent contact with our foreign colleagues and with market participants. As I mentioned previously, the Riksbank has helped where we could to improve liquidity and market conditions. But what have we actually done? What has the Riksbank done? First of all, we have taken several general measures aimed at all of the Riksbank's counterparties. The purpose of the measures is to solve two problems with the Swedish banks: inadequate access to long-term financing in Swedish krona and a limited ability to gain access to US dollars. The lack of long-term financing is due to the lack of mutual trust among the banks during the crisis, which have had a negative impact on the interbank lending markets. One consequence is that the banks have been forced to borrow for shorter terms. Even if it has been possible to get financing, liquidity management have become much more difficult for the banks and risks also have increased.

There is one other arena where clearer rules of the game would be of great value - the Commercial Court. After 13 years, we have at last drawn a line under the BCCI case, the most expensive fishing expedition in history. It ended as a comprehensive victory for the Bank, both on the substance of the case and on costs. The trial set new records - the longest opening speech in English legal history, an even longer reply, and almost certainly the most expensive commercial litigation ever. It is for others to comment on the behaviour of those who brought a case that even they described as a blood sport. I can presume only that they were allowed to play within the rules of the game. In which case, it is the rules of the game that should be questioned. A legal framework for enforcing contracts and resolving disputes is not just an arcane process which allows professionals to earn vast fees, but an integral part of the infrastructure of a successful market  2  BIS Review 61/2006  economy. It matters that there are simple, clear and timely ways of resolving disputes. What the BCCI case revealed was a legal system incapable of guaranteeing that. How can a case described by the trial judge himself as built “not even on sand but on air” take thirteen years and over £ million in costs to come to a conclusion?
Even more important is how firms determine their capital resources. Reviewing the adequacy of reserving is a core element of our supervisory approach, particularly for general insurers. In the case of life insurers with significant annuity books, a key determinant of reserves is their use of the Matching Adjustment. Solvency II sets clear criteria for assets that can qualify for the Matching Adjustment. They must match the maturity of the underlying liabilities – so, for example, long-dated annuity liabilities require similarly long maturity assets – and they must have fixed cashflows. 8  These requirements are set by the Directive; they are not a feature of the PRA’s implementation. Indeed we have sought to interpret them in a purposive and proportionate way so that firms can back annuities with a wide range of assets, including illiquid assets, and still benefit from the Matching Adjustment. For example, we have allowed firms to restructure portfolios of illiquid assets, such as commercial real estate mortgages, infrastructure finance or equity release mortgages, using internal securitisations in order to create senior tranches that meet the Solvency II requirements. We have also allowed pairing and grouping of assets to meet the eligibility criteria - for example, combining a floating rate note with an interest swap, or a foreign currency-denominated bond with a cross currency swap. Restructuring of this kind has added complexity, operational risk and some costs for firms.

4  All speeches are available online at www.bankofengland.co.uk/speeches  4  considerably more changes that reduced rather than increased capital requirements. We do put a lot of weight on accountability of senior executives (re-enforced through our new Senior Insurance Managers Regime), risk and actuarial functions and good governance within firms. But without strong supervisory oversight of models, firms might relax assumptions, follow their competitors in adopting more aggressive approaches and interpret new data in a favourable light. Model complexity gives ample opportunities to do this. The reality is that firms have strong incentives to reduce capital requirements in order to report higher coverage ratios, increase return on regulatory capital and ultimately pay higher dividends. That is why we have put in place a framework to monitor the possibility that firms’ model estimates of capital will drift lower over time. I am aware that our model change process can sometimes leave a firm in the anomalous position of needing to change a model – for example, following a sudden change in circumstances such as a loss event or acquisition – but without having approval for the change. Firms can help in this by giving us timely and well presented information. Where we can change things in the PRA to speed the process, then we will do so. For example, our recent consultation on market turning events highlighted the importance of timely decision making in those types of circumstances. 7  Capital requirements are only one side of the equation.
For example, in terms of subprime mortgage underwriting, this would have included enforcing standards with respect to loan valuation, loan-to-value ratios, household income verification, and the quality of loan documentation. As I have argued before, monetary policy will often, though not always, be too blunt a tool for such tasks. Generally, it will be better to develop and use more surgical instruments designed to fit the particular circumstances. In addition, no matter how effectively we reform the financial system, it seems unlikely that we will ever be able to completely eliminate booms and busts. There will be problems in identifying the boom – distinguishing between what is sustainable and what is unsustainable. There also will be broader and even more subtle obstacles – booms, when they are underway, are typically enjoyable. As a result, regulatory interventions that temper booms normally are going to be unpopular. So in practice even activist regulators may struggle to act early enough and with sufficient force to arrest a boom before it becomes a bubble. This suggests that to make the financial system secure, we are going to have to do much more than just act to temper booms and busts. In this regard, making financial markets and institutions, in their practices and structure, less prone to amplifying and propagating shocks is a critical step. This means, in particular, that regulation should be designed to create incentives that operate over sufficiently long time horizons so that the entire cycle of boom and bust is included.

In many areas, we have identified the necessary tasks only in general terms. Progress in figuring out the details and the implementation path and how to coordinate the efforts on a cross-border basis is more limited. I would particularly highlight the cross-border coordination problem – regulatory oversight is national, but many financial firms and infrastructures operate on a global basis. Effective reform requires mutually consistent global standards – and while international cooperation to date has been good on many fronts, progress is uneven, and the devil is in the details of implementation. We need all national authorities to resist the temptation to favor domestic financial interests over the interest of achieving a true level playing field globally. And we should resist the urge to favor locally controlled infrastructures where global solutions would better advance the collective financial stability interest. Instead we should work to ensure fair access to global infrastructures. Also, it is important that national regulators have access to data and a role in the regulatory oversight of such global infrastructures when that is relevant to their own national financial stability agendas. In the United States, I think we have made more progress in bolstering the resilience of our banking institutions than we have on the other tracks. There are two elements to this. The first element is the increase in capital that has already occurred. The major U.S. banking institutions are much better capitalized today than they were in the fall of 2008.
The previous day had seen disorderly conditions in the US Treasury market and the largest one-day fall in equity prices since the 1987 crash, despite major new policy announcements from the Federal Reserve and ECB. As I ran through my gloomy update, it was clear that further action would be needed – but perhaps not at that stage quite how much more. Monday morning would be no quiet start for Andrew Bailey, the new Governor. In my remarks today, I want to give a bird’s eye’s view of what happened in those extraordinary weeks, and the steps we took – either in concert with others, or using our own balance sheet – to neutralise the sudden pre-lockdown 'dash for cash' – the biggest test of core market functioning and resilience since the Great Financial Crisis (GFC) of 2008-9. Judged solely against that narrow yardstick, central bank actions – unprecedented in scale and speed – were successful in averting a market meltdown. Commercial banks, strengthened by the post-GFC reforms, have continued to lend, supported by a range of public sector schemes. And we learned some surprisingly positive things about operating a financial system remotely – both in terms of market resilience, but also in terms of diversity and inclusion. But this is no time for self-congratulation. The broader aspects of the Covid-19 crisis – medical, social, economic, and personal – remain hugely challenging, and involve a much wider set of actors than central banks alone. Further financial instability cannot be ruled out.

In recent days, however, something had changed. Wednesday had seen a sharp intraday rise in yields on US Treasury bonds (USTs) – normally one of the deepest and most liquid markets in the world – amidst a big pickup in market volumes. Then, on Friday morning, yields on 30-year USTs fell by 7 basis points in less than 15 minutes. More worryingly, other normally reliable relationships between USTs and related financial instruments had begun to unravel. What seemed to be happening was that financial transactions that normally helped to stabilise UST markets had gone into reverse, becoming stress-amplifiers. In recent years, hedge funds and other leveraged investors had taken on the role of maintaining so-called ‘arbitrage relationships’ between financial instruments that should trade in line with one another. They did this in a number of ways – but a particularly popular trade involved the so-called ‘futures basis’: buying USTs, funded by repo, and selling bond futures to large asset managers eager to pick up return. These trades were conducted at thin margins and high rates of leverage.1 The sharp pickup in asset price volatility, as markets struggled to process the news about the onset of the virus, increased margin calls – forcing funds to unwind some of their basis trades, selling USTs to generate cash. Initially these trades were conducted quietly.
Andrew Bailey: The challenges in assessing capital requirements for banks Speech by Mr Andrew Bailey, Executive Director of the Bank of England, at the Bank of America Merrill Lynch conference, London, 6 November 2012. *  *  *  Thank you for inviting me to speak today. I want to talk about the challenges bank supervisors face in determining the appropriate approach to assessing the capital requirements for banks. Scarcely a new subject I know, but nonetheless one that is at the top of the agenda of regulators, both macro and microprudential. My starting point today is not whether banks are, or are not, adequately capitalised – I will come to that – but the framework by which supervisors assess capital needs, a subject that is attracting a great deal of attention. I will put my cards on the table at the start. I am not a believer that supervisors should rely on any single data point when assessing a given firm’s stability. We need to assess measures of capital, liquidity and leverage. The art of supervision is to look at a situation from several angles and seek thereby to identify weaknesses. Good supervision is about judgement. The psychologist and behavioural economist Daniel Kahneman has described good judgement as, “the product of a solid grasp of intuition coupled with empirical validation where possible”. There was too much box-ticking in the past, but I do not intend there to be in the future.

And third, as part of this, we are very focused on understanding business models, how firms make money, the risks they take. This, too, is a feature common to our supervision of banks and insurers. To give you an example, the high return on equity and low cost of equity business model is dead. It should never had been alive, because it could only exist through a misunderstanding of risks. Moreover, banks can alter their cost of equity through the choices they make on risk. Sometimes I hear the cost of equity explained as if it is exogenous, but it is not. Let me turn now to the current situation. I am not going to tell you the answer to whether the UK banks need extra capital, if so, how much of what type, and how rapidly should it be put in. The answer will of course differ for each bank. Let me though set out some of the considerations that shape the answers, and in doing so remember that we have to take into consideration the sizeable increase in capital in the system since 2008. And let me also emphasise that the FPC does need to reach a conclusion on these issues soon, and in doing so reduce one contribution to uncertainty over the future. The first consideration to note is that we face a situation where there is uncertainty around our judgements on the quality of a number of asset classes and their valuation.
However, these developments also project the improvements in regulatory and supervisory oversight which continues to be updated. Distinguished Ladies and Gentlemen, for Zambia the vision is to become a prosperous middle income country by the year 2030. In order for us to attain this vision, there is need to improve the financial infrastructure in Zambia. Since 2004, the Government has been implementing the Financial Sector Development Plan with the view to improve the functioning of financial markets and increase accessibility to financial services by a majority of Zambians. The second phase of the FSDP is currently underway after the initial five-year plan lapsed. We cannot deny that an improved financial infrastructure will result in efficient capital and money markets which in turn will attract domestic and foreign investment in the economy. Conclusion In conclusion Ladies and Gentlemen I would just want to emphasise that Zambia and many of our regional counterparts are small countries in need of investment. However, the high cost of capital has hampered the increase in investment, particularly among the SMEs which continue to face enormous financing challenges. Therefore provision of appropriate financing to this category of firms is likely to lead to higher investment opportunities and more efficient methods of production. In turn, this will translate into poverty alleviation due to employment creation.

This correction has also affected the establishment of more steady balances of the demand and supply for foreign currency in this period. Notwithstanding these encouraging developments, lending activity at home remains far from its potentiality, responding to the lower demand for banking loans and the tightened lending conditions as applied from banks. Lending to private sector marked an annual growth of 4% in real terms, providing an annual growth of 7.8 percent of monetary supply in January. All denominated credit continues to rule the lending activity, which mainly covers the businesses’ needs for circulating capital. January 2010 embodied a particularity, that is the improved state of the banking system assets denominated in foreign currency, has started to be mirrored on the growth of credit denominated in foreign currency. Notwithstanding, the stable increase of lending should be assisted by the re-activation of the demand for loans and the parallel easing of lending conditions as applied from the banking system. Bank of Albania deems that banking system should reveal more visionary in assessing potential sectors of economic growth and to take a more active role in encouraging the economic activity. Annual inflation in February 2010 pointed to 4.4%, exceeding by 0.4 percentage points the upper limit of the Bank of Albania target’s tolerance. The annual average inflation pointed to 2.6%.
The imminent entry into force of the regime allowing state-guaranteed loans to be accepted as collateral will give banks even greater access to Eurosystem financing. 2.3 Adaptation of prudential policy The ECB, ACPR and banking supervision bodies (the European Banking Authority, the Basel Committee, etc.) have also decided to take account of the impact of the crisis by making intelligent use of the flexibilities that they have as supervisors in the implementation of the regulations: we have reduced certain capital requirements and called on banks to reduce their precautionary reserves. We sometimes hear the suggestion that this is an unjustified relaxation: it is precisely the opposite. It is for this sort of exceptional circumstance that the reserves of capital and liquidity were built up. This is indeed in the spirit of the regulation that they should be used now, in a countercyclical way. This equates to a temporary reduction in the minimum capital requirement of about 3 percentage points for French banks. We have also temporarily reduced certain workloads by postponing stress-tests and easing certain reporting conditions. In addition, the European Commission recently proposed a series of targeted revisions to the CRR, to provide a regulatory response to the crisis on top of the flexibilities granted to the supervisor. While preserving the resilience of the banks, there is a need to make some adjustments to the prudential framework, to limit some procyclical effects of the current crisis on the level of capital requirements.

In the face of this exceptional health crisis, financial institutions and supervisors alike are responding rapidly and powerfully 2.1 Rapid, powerful and unprecedented responses to support the real economy during the pandemic Unlike in 2008, banks are at the heart of the solutions this time round, and not at the centre of the crisis. With their staff, whom I would like to commend, they have gathered their forces to put in place strong measures to support the real economy. That includes the rapid implementation of state-guaranteed loans: to date, 559,000 requests have been received for a total of EUR 105 billion, of which EUR 85 billion have already been granted. In France, loans have therefore been rapidly channelled to VSEs and SMEs, in contrast with the difficulties seen in Italy, the United Kingdom and the United States. Bernard Delas will come back to the measures taken by insurers, but let me just highlight the ACPR’s work on the conditions for the payment of compensation for loss of earnings, in order to better identify the challenges faced by the industry. 2.2 A responsive monetary policy Since this morning we have been in the silent period, so I shall limit myself to some retrospective remarks on monetary policy. I have often stressed that monetary policy is not made for the banks, but rather for the entire economy. And the banks have often been overly critical of monetary policy, holding it responsible for all their ills.
Going forward, there is certainly a need for greater role by takaful in supporting sustainable management of healthcare and retirement needs of individuals to effectively address the emerging challenges associated with demographic changes with rising healthcare expenditure. As the Malaysian society transitions to a more ageing population as typically seen in developed economies, there is room to harness the appeal of family takaful as a tool for long-term savings and investment, whilst protecting against financial vulnerabilities arising from critical illness, death, disability or unemployment, or providing for children’s education. With growing awareness on individual responsibility in financial planning among Malaysians catalysing demand for savings and investment-driven products, this positive trend will translate itself into an impetus for strong growth in endowment family takaful products. The second dimension of growth opportunities for the takaful industry is to be seized from the transformation of Malaysia as a high income economy. In advancing towards  BIS central bankers’ speeches  1  this transformation, the Malaysian economy is to undergo significant structural shift into new areas of growth and comparative advantage. With Islamic finance specifically identified as one of new growth areas under this envisioned new economic model, the takaful industry stands to gain from the march towards socio-economic transformation by seizing the opportunity to grow business beyond the more traditional business lines. This entails broadening product offerings to higher value-added activities and capturing the growing demand for more customised, niche and sophisticated product range, including investmentlinked and wealth-management products, among the more affluent customer base.

I wish ING Public Takaful Ehsan every success in its endeavors and look forward to its meaningful contribution in driving the takaful industry and Islamic finance in Malaysia forward. BIS central bankers’ speeches  3