samchain/econo-pairs-v1 huggingface dataset:
The sensible application of judgement involves looking at a situation from several angles, and employing forward-looking tools such as stress tests. For us, “judgement” is most certainly not a slogan. So judgement by whom, how, and to what end are reasonable questions to ask. I am going to place most emphasis today on the “by whom” question, but use that to illustrate the others. I want to consider the role of Boards, but in the broader setting of three groups of people: Executive Senior Management of firms; Boards (with Non-Executives in the majority); and Supervisors. It is the job of senior Executives to exercise judgement on risks and returns on a day-to-day basis. I know that you could be confused to hear me say this given some of the things that are written about financial regulation, but we want firms to earn sustained and thus sustainable returns through the exercise of good business judgement. Senior Executives exercise that judgement within frameworks set by, and overseen by, their Boards, namely the overall strategy, the risk appetite and assessment frameworks and the oversight of controls and compliance. As supervisors we apply our judgement against our framework of rules and regulations, the distinctive feature of which is that they represent public policy objectives and thus the public good, which is the overall objective of the Bank of England. BIS central bankers’ speeches  1  I want now to focus on the role of Boards.

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%.
There are good reasons to think that information asymmetries are especially prevalent in international capital markets since “foreign” investors find themselves at a disadvantage when assessing “domestic” projects and investments. 2. Exchange rate risk is, obviously, specific to international capital allocation decisions. 3. So is sovereign risk, always present, if often remote and limited in ordinary times for an increasing number of countries. 4. It is increasingly recognized that differences in financial development play a major role in influencing capital flows and, consequently, current account imbalances. In particular, capital tends to flow from financially repressed economies to countries and markets which provide and abundant supply of safe and liquid assets. For the same reason those countries’ currencies are the main vehicle for holding official foreign exchange reserves. 5. Finally, deliberately or not, public policies have a significant impact on the level and national or international allocation of domestic savings. These influences can be direct, as in the case of capital controls. They may be more diffuse, for instance when authorities build up foreign exchange reserves. By doing so, public entities essentially substitute themselves to private agents in managing and allocating part of the nation’s net foreign savings. Most likely, their choices and preferences will be different from those of the private sector and, therefore, their intervention would alter the country’s external position, tilting it towards holding foreign assets in liquid instruments.

Temporary illiquidity events may reflect unanticipated, complex and dynamic interactions among high-frequency trading strategies that can play out faster than the timeframe in which human intervention can occur. In addition, high-frequency trading activity, by undercutting the returns to providing liquidity services on a lower frequency and a higher trade size basis, may have both increased liquidity in the small – hence narrowing bid/offer spreads in normal trading conditions – but decreased it in the large – when selling or buying pressure on one side of the market predominates. For the corporate bond market, market structure has also changed in important ways. For example, bond mutual funds and exchange traded funds now hold a much higher proportion of corporate bonds than before the financial crisis. Presumably, this shift in the structure of the market has affected liquidity provision and liquidity risk in the corporate bond market through the redemption risk faced by these funds. Also, shifts in market structure and regulation have undoubtedly affected other markets related to the corporate bond market. For example, changes in capital requirements for single name credit default swaps have presumably – and appropriately from a supervisory perspective – increased hedging costs and affected dealer market-making appetites and capabilities. What are the costs associated with shifts in liquidity and how do these costs compare to the benefits of a more resilient and robust financial system?
More attention has been paid to the “time-series” dimension where there is now a clear international consensus among the members of the Financial Stability Forum and the Basel Committee that some form of counter-cyclical prudential supervision is required. The principle has been established. To correct these types of market failure will require a system of regulation that effectively marries the “top down” assessment of the risks to the system as a whole to the “bottom up” supervision of individual institutions. The present system has not delivered that. A lot of detailed work needs to be done to convert these general principles into concrete implementation. How would the interaction between the “cross-section” and “time-series” risks be taken into account? Would the framework take the form of an addition to capital requirements as a function of the degree of maturity mismatch, leverage or the rate at which the balance sheet was expanding? Or would there be a limit on leverage ratios? How would leverage and maturity mismatch embedded in the assets side of the balance sheet be taken into account? And how would the framework be implemented for banks whose assets and liabilities span jurisdictions? Can we define a group of institutions that are systemically significant? In the present crisis most institutions are deemed to be potentially systemic because of the impact of the failure of any of them on creditor confidence. If most banks appear systemic in a crisis won’t countries want to require foreign banks to be subsidiaries not branches?

In particular, should central banks continue to use their single monetary policy instrument – in our case Bank Rate, supplemented when necessary by unconventional operations – to aim solely at price stability, or should they aim also at wider financial stability objectives, as some have suggested? For over fifteen years Bank Rate has been set to meet an inflation target. And it was very successful in achieving that objective until commodity prices pushed up inflation in 2007. Since the Monetary Policy Committee was established, the average inflation rate has been only 0.1 percentage points away from the target. The strategy of inflation targeting ensured that the MPC maintained a balance between overall demand and supply in the economy. We could, of course, have pursued a different policy. We could have set interest rates consistently at a higher level in order to lower the growth of domestic demand below the rate at which inflation was stable and close to the target. In the words of my predecessor, we could have rejected the approach of accepting “unbalanced growth rather than no growth”. But to argue that Bank Rate should have been set to achieve not price stability but other objectives would have meant accepting rising unemployment and falling inflation. And that would not have altered long-term interest rates in world capital markets and “irrational exuberance” in financial markets in the US and elsewhere.
It embeds across Europe the core principles necessary for sound regulation, namely: •  appropriate market-based valuation methodologies;  •  a comprehensive measure of risk and solvency covering all group activities; and  •  capital resources of an appropriate quality to absorb loss. Solvency II is the biggest change to insurance regulation in a generation, and it will be live in just over a year. While our shared history with ICAS means the UK insurance industry is relatively well placed, we must not underestimate the scale of the challenge. Even the standard formula, which nine out of ten UK insurers will use to determine their solvency requirements, is significantly more advanced than the Solvency I approach it replaces. Although more demanding, we have worked to ensure the standard formula does not impede your provision of long-term finance to the real economy. Steps have been taken to make Solvency II more accommodative of securitisation. And in parallel, the Bank of England has been working with the European Central Bank to remove other impediments to the revitalisation of securitisation markets, including pushing for revisions to regulatory requirements for banks and for the development of simple, transparent and consistent products. Where the standard formula is not a good fit for a firm’s risk profile, firms will be asked to consider developing a partial internal model; making an application for an undertakingspecific parameter; or adjusting their underlying business model. Many of you in this room are acutely aware of the demands of the Solvency II model approval process.

The Fed System is comprised of the Board of Governors in Washington, D.C. – a federal agency currently led by Chairman Ben Bernanke – plus 12 regional Reserve Banks that span the country. For example, the district overseen by the New York Fed includes all of New York, the 12 northern counties of New Jersey; Fairfield County, Connecticut; Puerto Rico and the U.S. Virgin Islands. Each Reserve Bank is distinct, with its own charter and a board of directors drawn from its district, but overseen by the Board of Governors. The law that created the Federal Reserve made the central bank independent so that policymakers could make decisions about monetary policy – such as whether to adjust interest rates – in the national interest, somewhat insulated from political pressure. However, the Fed is accountable to Congress. Congress has set an explicit objective for monetary policy: To pursue the highest level of employment consistent with price stability. This objective is often referred to as our “dual  BIS central bankers’ speeches  1  mandate,” because it combines two goals: high employment, and low and stable inflation. In order to promote these objectives, we also pay close attention to financial stability, because without financial stability, it is very hard to achieve our goals for jobs and inflation. The Federal Open Market Committee consists of the Board of Governors plus the presidents of each of the 12 district Banks.
Bottom-line, inflation depends on the cumulative wage gap: it does not increase close to or above its target level until the cumulative real wage gap is closed. For Phillips Curve to work, the loss of welfare from a negative cumulative real wage gap has to be fully compensated first – as a stock measure, not as a flow. The policy implication from our finding is that countries which closed their cumulative real wage gap should be much more prudent in further wage increases – because they will be seen in inflation much faster and larger than in the recent past. For countries which have not closed their cumulative real wage gap the implication is that inflation will remain subdued until they close their cumulative wage gap. Monetary policy cannot work in isolation. Its efficiency is influenced by the fiscal policy, by the wage policy in both the public and the private sector. Monetary policy is not a new-born. It matters that we did not only last summer, but quite some time ago. My two daughters, now 10 and 6 years of age, are still fascinated by the Disney’s animation “Frozen”. In that movie, Princess Elsa convincingly sings that “Past is in the past”. However, fairytales do not apply in real life. The past still influences our current consumption choices, and therefore inflation and monetary policy decisions. Moreover, monetary policy is less effective if it is done from an ivory tower.

Richard W Fisher: Uncertainty matters (with reference to kinky monetary policy, two nickels and a dime) Remarks by Mr Richard W Fisher, President and Chief Executive Officer of the Federal Reserve Bank of Dallas, before the Causes & Macroeconomic Consequences of Uncertainty Conference, Dallas, Texas, 3 October 2013. *  *  *  The views expressed by the author do not necessarily reflect official positions of the Federal Reserve System. The speaker is indebted to Dallas Fed Senior Vice President and Principal Policy Advisor Evan Koenig for his input in developing the themes articulated in this speech. Thank you, Evan [Koenig] It is a pleasure to share this platform with John Taylor. I first met John at a Carnegie Foundation seminar when he was Undersecretary of the Treasury; I have been among the legions of his admirers ever since. He is thoughtful, no-nonsense and, importantly, dedicated to making monetary policy work with maximum efficacy. We at the Dallas Fed are grateful that he chairs the advisory board of our Globalization and Monetary Policy Institute. And we all, as Americans, are grateful for his service and dedication to our country. Thank you, John, for being the good patriot and man that you are. Uncertainty matters Uncertainty matters. A lot. This won’t be a surprise to many of you. The first thing you are taught in any MBA program, be it at Stanford, where I earned my degree, or anywhere else, is that “business” is the process of managing under conditions of uncertainty.
Although they were not necessarily articulated fully at the time, these solutions entailed several goals: preserving a functioning domestic payment system, ring-fencing the sovereign in the case of bank failures, limiting the socialisation of private sector losses, and creating the conditions for rebuilding a domestic banking system. In essence, the adopted solution saved the domestic operations of the banking system and let the international part to go into a resolution process. The new banks were created by carving the domestic assets and liabilities out of the old failing banks. The idea was then that the Government would recapitalise the banks and place compensation bonds in the estates of the failed banks. However, valuing the assets and liabilities proved a complicated process in the middle of an economic and financial crisis, and a solution emerged where the estates of the failed banks became majority owners of two of the banks and kept a small equity stake in the third, which was otherwise recapitalised by the Government. The new banking system amounted to 1.7 times GDP. In order to stop an incipient run on domestic deposits, all deposits in Iceland were declared safe and all deposits in Icelandic-headquartered banks were given priority over other unsecured claims, including the deposits of the Icelandic banks in branches abroad. As a result of these measures, the domestic payment system functioned more or less seamlessly throughout, and there was uninterrupted access to deposits in Iceland.

In the panic that gripped global financial markets after the collapse of Lehman Brothers, these 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 the size of the banks, it was impossible for the Icelandic authorities to provide such assistance on their own. There was actually a plan to nationalise one of the banks in late September 2008. Fortunately it failed, as nationalising the bank would have turned a private bank’s foreign currency refinancing problem into a sovereign problem, with the serious risk that the sovereign might have defaulted on such foreign currency payments, thus initiating a full-scale sovereign debt crisis. Figure 2 gives a sense of the potential scale involved in the case of the three banks, by comparing the foreign currency liabilities of the banks and the Central Bank’s FX liquidity at the time. Figure 2  2  BIS central bankers’ speeches  Based on published financial accounts and the analysis of the supervisor, the Icelandic authorities assumed that the banks were solvent. On that premise, the authorities tried to build defences against potential foreign currency liquidity problems at the banks by negotiating swap lines and tapping foreign capital markets, in both cases with limited success. Now, however, we know that there were hidden vulnerabilities in the banks’ capital positions. However, given the lack of international cooperation, the Icelandic authorities were forced to consider radical solutions.
Paul M W Tucker: Monetary policy, stability and structural change Speech by Mr Paul M W Tucker, Executive Director and Member of the Monetary Policy Committee of the Bank of England, at the Confederation of British Industry, Guildford, 1 March 2005. *  *  *  MONETARY POLICY, STABILITY AND STRUCTURAL CHANGE1 Judging by the macroeconomic data, either there have been some fairly profound changes in our economy or we have been blessed by extraordinary good luck over the past decade or so. GDP has grown without interruption for 50 quarters. Unemployment has fallen from around 10½ % in 1992 to 6½ % in 1997, and just over 4½ % on the latest reading. Inflation fell through the first half of the 1990s, and since 1997 has, on average, been close to the Government’s target. All that is, of course, well known. But it may be less familiar that quarter-to-quarter changes in output growth and inflation have over recent years exhibited a strikingly different pattern from those of previous decades. Both output growth and inflation have been less variable (Chart 1; Table 1). Inflation also seems to have become less persistent. By that, I mean that, whereas in the past rises or falls in inflation tended to be protracted, more recent fluctuations in inflation have been short lived. Work undertaken by Bank of England economists,2 summarised in Table 2, suggests that – at least statistically – this apparent change occurred around the time of the UK’s introduction of inflation targeting in 1992.

As with the previous two factors I see no signs of a reversal in this trend. Seventh, recent decades have produced a rising spread between the return on capital and the risk-free rate, which is depressing the risk-free rate even further. Obviously, this phenomenon is connected to risk aversion and can be expected to reverse, at least partially, in response to the current wave of strong confidence in global growth prospects. 1/2  BIS central bankers' speeches  In summary, I see reasons for modest optimism concerning growth in the equilibrium rate. The factors contributing to this new trend will include an increase in growth expectations, a rise in dependency rates, a halt to the increase in inequality, and a decrease in risk aversion. The equilibrium rate will be kept from rising swiftly, however, by a continuing savings glut, a decrease in the relative price of capital, and muted investment in infrastructure projects. These prospects also hold more specifically for the Czech economy, for which we at the Czech National Bank currently forecast the equilibrium real 3-month interest rate to stand at around 1%. Adding the 2% inflation target, this translates to a nominal interest rate of 3% in normal times. Given that the Czech economy is currently doing much better than in normal times, we have room to increase our short-term rate even without a substantial rise in the underlying equilibrium rate. References Holston, Kathryn & Laubach, Thomas & Williams, John C., 2017.
In consequence, to stabilise inflation, real interest rates must now be lower than they were two or three decades ago. Indeed, in economies such as the euro area, various estimates even place the natural rate of interest at negative levels.4 This would not be a problem if nominal rates were able to fall as far as was necessary; for example, with expected inflation of 1%, to place the natural rate of interest at, let’s say, -2%, the nominal rate would have to be lowered to -1%. The problem lies in the fact that nominal interest rates cannot fall as far as is necessary into negative territory. If the central bank were to impose negative rates of -5%, for example, the commercial banks would bear negative returns on the bulk of their assets. This would adversely affect their financial intermediation capacity, with a consequent negative impact on the supply of credit, economic activity and inflation. There is therefore a lower bound on nominal interest rates: if the central bank reduces interest rates below that level, the effect on the economy may be contractionary rather than expansionary, owing to the negative impact on the financial system overall.5 The level of that lower bound on interest rates is not directly observable and varies over time in accordance with the situation of the financial sector. However, it is, in any event, the lower limit on the extent to which central banks may reduce interest rates.

Panel Remarks: The Fed and Main Street during the Coronavirus Pandemic - FEDERAL RESERVE BANK of NEW YORK  SPEECH  Panel Remarks: The Fed and Main Street during the Coronavirus Pandemic "Supervisory and Regulatory Action to Support the Economy and Protect Consumers" April 23, 2020 Posted April 24, 2020 Kevin Stiroh, Executive Vice President As prepared for delivery  Good afternoon. Thank you for your critical work and for participating in this important forum on "The Fed and Main Street during the Coronavirus Pandemic." The COVID-19 pandemic is impacting all of us – first and foremost from a health perspective, but clearly in terms of social and economic impacts. As has been discussed extensively today, this impact has fallen heavily on low- and moderate-income and minority communities across all three dimensions. I'll speak about what the Federal Reserve is doing to support the economy and to protect consumers and small businesses through supervisory and regulatory actions. I'll note that these action are focused on supervised banks and do not address the significant challenges faced by those households and businesses outside of the traditional banking sector and served by socially responsible capital providers such as community development financial institutions (CDFIs), non-profits, foundations, and impact investors. Before proceeding, let me emphasize that I am speaking for myself and that these view do not necessarily reflect those of the Federal Reserve System or the Federal Reserve Bank of New York.