samchain/econo-pairs-v1 huggingface dataset:
In dealing with global and domestic economic and financial cycle spillovers in the last years of turbulent global environment, central banks have broadened their objectives by including the financial stability goal, as well as many creative innovations in their toolkit. In a low or zero interest rate environment, the monetary authorities across the world turn to the use of unconventional monetary policy measures and obviously now, several years after the outburst of the crisis, it is still an ongoing practice for most central banks. While still examining their usefulness, it is difficult to discuss their exit dynamics, even in the case of the FED, although its monetary policy normalization started at the end of the last year. Anyway, it is still debated whether the unconventional instruments and tools created during the crisis will become an integral part of the conventional monetary policy framework. Probably this will depend on country specific circumstances and individual contribution of these newly created instruments and measures in fulfilling policy objectives on price and financial stability. Macroprudential tools have also been widely used for dealing with specific features of the financial cycles in the last period, aiming to boost financial soundness or provide positive feedback to the economic recovery that has certainly expanded the horizon of their expected impacts compared to the past. Policy measures aimed to support lending, especially in the economies with strong negative loop between private sector leverage and banks’ credit risk, will probably stay effective for a reasonable time span.

In this context, perhaps the biggest advances of monetary policy of the last 20 years leading to the GFC had to do with the transparency and the overall macroeconomic coherency of interest rate decisions, which led, among other transformations, to the adoption of explicit inflationary objectives in a number of advanced and emerging market economies. In the aftermath of the global crisis, it soon became clear that traditional MP was simply not going to cut it, especially given the limitations of other policy options, such as fiscal expansion, to reactivate the global economy after the major blow it suffered. Central bankers were forced to be creative and think outside the box of traditional monetary tools in order to make a difference. A useful framework to understand how policy tools have evolved is to think about interest rates in the following way. The price of a given form of debt, issued at a particular maturity and by a specific counterparty, is the sum of three main components. The first is the expectations of short-term, risk-free debt over the maturity of the instrument. Let’s call this component the path of risk-neutral rates. The second is the compensation for risk that must be offered to an investor to account for the fact that longer maturity instruments are more volatile (have higher duration) than short-term rates, let’s call it the term premium channel. The third is simply default risk.
Instead, the goal of the CCAR was to help ensure that large bank holding companies have strong, firmwide risk measurement and management processes to support their internal assessments of capital adequacy and that their capital resources are sufficient given their business activities and the resulting risk exposures. 4  BIS central bankers’ speeches  The second important strand of reform is to ensure that regulatory oversight is sufficiently broad to include the activities of the so-called shadow banking system. This aspect of reform and oversight is still in its early days. But work is underway. For example, the Financial Stability Board is undertaking work to identify potential sources of vulnerability caused by the activities in the shadow banking system and how such vulnerabilities could be addressed. Also, in the United States, the Financial Stability Oversight Council (FSOC) views its mandate broadly with respect to identifying systemic risks and proposing remedies. For example, on an ongoing basis, the FSOC will monitor and assess which non-bank financial intermediaries in the United States are systemically important and, thus, require greater regulatory oversight. But the focus will not just be on large financial firms. Activities and practices that occur outside of the core institutions are also important. For example, the activities of money market mutual funds is one area receiving close scrutiny. As you know, a run on the money market funds developed in the fall of 2008 when the Reserve Fund broke the buck when Lehman Brothers failed.

Most of these initiatives can be grouped into three major categories:   Actions to significantly reduce the probability of failure of large systemically important financial institutions.   Measures to broaden the oversight of the financial system to include activities that occur outside of the core banking system. The shadow banking system, which is composed of the wide range of financial intermediation activities that occur outside  2  BIS central bankers’ speeches  of the traditional purview of bank regulators, needs greater attention. In particular, shadow banking activities that involve maturity transformation are vulnerable to shocks because such activities do not have the support of bank deposit guarantees or access to central bank liquidity and, thus, are vulnerable to funding runs.   Steps to strengthen the resolution regime and the core financial market infrastructure to ensure that when a large complex financial firm fails, the failure doesn’t threaten to bring down the entire financial system. Turning to the first set of initiatives designed to reduce the probability of failure of large, systemically important financial institutions (SIFIs), the tougher capital and liquidity regimes that the Basel Committee has devised are probably the most important elements. On the capital side, Basel III significantly increases requirements with respect to both the quantity and quality of capital. On the quantity side, there have been two important changes.
This may result in the duration of lower coupon securities exceeding the duration of the new production coupon securities (because borrowers backing lower coupon MBS would not have an incentive to refinance their loans). BIS central bankers’ speeches  5  settlement relative to other securities.14 Another consequence of this uncertainty is that the Desk is not able to provide the same detailed guidance about the composition of its future agency MBS purchases that it does with its purchases of Treasury securities. These same factors make it more difficult to determine ex ante the total amount and pace of securities that the Committee could purchase without causing market disruptions. For production coupon agency MBS with little outstanding stock available for trading – such as the 30-year 2.5 percent contract – there is risk associated with buying more than anticipated gross issuance. In the event of an increase in mortgage rates or a decline in refinancing activity, gross issuance of these securities could decline, leaving the market with less tradable supply. For TBA contracts with sizable outstanding stock, such as the 30-year 3 percent and 3.5 percent coupons, gross issuance may be a smaller concern, since market participants can deliver existing securities into TBA contracts.

11  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  11  Figure 3: Illustrative example of graduated liquidity requirements  12  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  12
Since the crisis, cross-border banking lending has halved, and the ability of the European system to recycle the surplus savings of peripheral nations to other parts of the private sector has been severely curtailed. The good news is that European authorities recognise the need to re-found the euro area financial union on the principle of risk sharing. The current fragmentation of the system stems in part from a collapse of confidence in financial institutions across national borders. The recent Asset Quality Review and stress tests conducted by the ECB represent a major step towards restoring that confidence. Close to € of capital has been raised since January 2014 as a result. 21 The establishment of a Banking Union and Single Resolution Mechanism as well as implementation of the G20 proposal on Total Loss Absorbing Capacity (TLAC) will help break the link between sovereigns and banks and establish greater risk sharing between creditors and debtors. When combined with improved resiliency of banks, more sustainable crossborder banking flows should grow with time. It is also welcome that the new Commission has advocated the creation of a Capital Markets Union to boost cross-border flows of market-based finance. Such a union would deepen the single market, could benefit all member states, and could promote much greater crossborder risk sharing within the euro area. Had the cross-border financing of deficit countries taken the form of equity rather than debt, firms in deficit countries would have been more robust and losses would have been dispersed.

See tables 4.4 and 4.5 of Scottish Government (2014), “Government expenditure and revenue, Scotland 2012-3”. 12  Exchange rate effects alone led to an improvement of £ billion to the UK’s net international investment position between 2006 and 2008, estimated in Whittard (2012), “The UK’s External Balance Sheet – The International Investment Position (IIP)”, ONS, March. 13  See Carney (2014), Speech at the 146th Annual Trades Union Congress, Liverpool. 4  BIS central bankers’ speeches  Our remit recognises that the inflation rate may, on occasion, depart from the target and that attempts to keep it at the target may cause undesirable volatility in output. That flexibility and focus meant that the Bank’s Monetary Policy Committee (MPC) could provide additional stimulus through historically low interest rates, large scale asset purchases and monetary policy guidance even when inflation was temporarily above target. Inflation has recently dropped sharply to 0.5% – equalling its lowest rate on record. So next month I will write the first open letter from a Bank of England Governor to a Chancellor explaining why the inflation rate is too low and what we are going to do about it. The why is relatively straightforward. The majority of the weakness is caused by sharp falls in commodity prices, most notably oil, which has suffered its third largest fall in the past half century. Lower energy and food prices are unambiguously positive for the UK. Temporarily low inflation will boost real take-home pay and help household finances.
Residential mortgage-backed securitisation (RMBS) was the largest part of the EU market before the financial crisis and the subsequent decline in the overall market is primarily explained by the fall in RMBS issuance. A large part of that decline may be explained by fundamentals – banks have cheaper ways to finance themselves at present. But, in the long run, I think we will need robust RMBS markets so that at least part of the risk on long-term housing lending is financed from long-term savings rather than short-term bank deposits. I prefer to focus on the long-term goal of building sustainable securitisation markets rather than reviving securitisation in the short run. Comparing current issuance with pre-crisis levels misses the point that the pre-crisis market was fragile, based on investment by leveraged funds and bank treasuries. Building a stable market will require a broader, real money investor base. The market also needs to be based on genuine risk transfer not regulatory arbitrage, such as synthetic sales of thin mezzanine tranches intended to maximise the reduction in regulatory capital at minimum cost. I hope the future will be transactions in which banks look to sell down the capital structure, subject to meeting risk retention requirements. Transferring the entire risk on a portfolio will be the only way to achieve a reduction in the exposure measure used for the leverage ratio. And the new Basel risk-weighted capital requirements announced in December also move in the direction of incentivising transfer of senior as well as mezzanine tranches of portfolios.

I also consider that one should examine the possibility to increase the instruments at the disposal of central banks so that other measures than raising the policy rate can be taken when the risk of financial bubbles is assessed as high. However, it is necessary to analyse very carefully what the consequences of such an increase would be for conducting monetary policy before one takes a stand on this issue. Measures that influence credit granting and interest rate spreads in different ways have an impact on the transmission mechanism for the actual interest rate policy, which ultimately means that the impact of monetary policy on the economy may be different, at least initially. BIS Review 162/2009  5  Do reliable “bubble indicators” exist, and what alternative means to the repo rate are available? Let me spend the rest of the time discussing both the question of whether there are reliable indicators that can warn when financial bubbles are arising, and the question of what might be suitable tools, in addition to the interest rate, to use if the need arises. In connection with the first question it is relevant to also ask why indicators of financial bubbles, if these exist, are not used already and why the market would not be better at valuing the risks than central banks. There are studies which point to the existence of indicators which can – more or less – capture bubbles that the market has not corrected, for one reason or another.
The Swiss franc temporarily appreciated immediately following the outbreak of the war in Ukraine. The trade-weighted Swiss franc exchange rate, however, was recently below its level at the beginning of the year (cf. chart 4). Adjustment of the threshold factor I would now like to discuss the lowering of the threshold factor from 30 to 28 as mentioned earlier by Thomas Jordan. With this technical adjustment, which will take effect from 1 July 2022, we will ensure that sufficient amounts of sight deposits are subject to negative interest, and that the latter is being passed on to the money market as intended. From March 2022, upward pressure built up on the short-term rates on the secured money market. This stemmed from the fact that the exemption thresholds had risen over time due to the dynamic calculation model, which meant that there were no longer sufficient amounts of sight deposits subject to negative interest. To keep the secured short-term money market rates close to the SNB policy rate, the SNB provided additional liquidity to the money market via repo transactions as a temporary measure. However, given that the increase in exemption thresholds is structural in nature, it is appropriate that we lower the threshold factor. This will result in the secured short-term money market rates being close to the SNB policy rate again without the SNB having to regularly provide larger amounts of liquidity. The SNB will continue to regularly review the basis for calculating the exemption threshold and adjust it as necessary.

News conference  Berne, 16 June 2022 Andréa M. Maechler  Introductory remarks by Andréa M. Maechler I will begin my remarks with a review of developments on the financial markets over the past half-year. I would then like to discuss the lowering of the threshold factor mentioned by Thomas Jordan. Situation on the financial markets Volatility on the financial markets has increased again significantly since the beginning of the year (cf. chart 1). This was driven by the sharp rise in inflation abroad and by attendant expectations regarding a speedier tightening of monetary policy – especially in the US. Indeed, the Fed has already raised the target range for its federal funds rate in several increments and signalled its intention to increase rates further. In addition, the war in Ukraine and the associated sanctions have exacerbated existing supply bottlenecks and led to surges in energy and commodity prices. These developments have dampened growth expectations and increased uncertainty on the financial markets. On the government bond markets, the change in monetary policy direction has had a pronounced impact. In the US, nominal ten-year Treasury yields have risen almost 2 percentage points since the beginning of the year and most recently were standing at well above 3%. Shorter maturities were particularly affected by this revaluation, with a narrowing of yield differentials between long and short maturities. Such a flattening of yield curves is typical in a period of rising inflation and interest rate expectations.
I know that many members of the IIF have accepted that choice as prudent for now, but you have also cautioned us that this decision is incompatible with the existing treatment of market risk and the emerging practices in operational risk management. We know that some banks are making commendable progress in thinking about ways to estimate the value of diversification. Nonetheless, we remain concerned about the degree of confidence one might have in those estimates, given the relative lack of data available on which to base them. Furthermore, we are concerned that it would be difficult for third parties to validate any estimates at this time. Finally, we are not convinced about the consistency of application of these diversification effects. For example we are not certain that any leading bank today consistently adjusts the value of all of its assets based on each asset’s contribution to diversification. Portfolio theory suggests that an obvious next step to further enhance the risk-sensitivity of the capital framework would be to incorporate calculations of diversification benefits into the framework. In the coming years, and we can start very soon, we look forward to working with banks, with banking associations such as the IIF, and with academics and researchers to find ways to move Basel in the direction of full credit risk models, and to harness other improvements in risk measurement and management practices.

Creating the right incentives, consistent with good market practices and sound risk management, appears to be an important way of promoting the safety and soundness of the financial system and therefore a good way of sustaining both the stability and growth of the economy. This is not only relevant for prudential regulation; other areas such as accounting should also be consistent with this broad perspective. This consideration underlines the importance of taking seriously certain concerns such as procyclicality. In my view Basel II goes in the right direction. I am convinced that when banking systems are adequately capitalised, well-managed and risks are correctly assessed within the appropriate time horizon and the financial system becomes more stable, less procyclical, better able to promote sustainable growth, and more resilient during periods of distress. My second reflection is that one of the most significant conclusions of the analysis of the recent economic and financial evolution of the world economy has been the resilience of banking systems in most countries. In my view, this resilience has been the result not just of the presence of sufficient capital in the system, but also of improvements in banks’ risk management systems. I think we owe the industry a special vote of congratulations with respect to the latter, but we also owe it a commitment on the part of supervisors to continue to support such developments. This is exactly what we are all trying to do with the proposals for a new Capital Accord, which I would like to address now.
Returns on shares are usually negatively skewed; that is, there is a greater chance of a return below rather than above its expected value. During the course of this year, the degree of negative skew has fallen in the US, suggesting that market expectations of further sharp falls is share prices have diminished. Of course a reappraisal of the future growth of productivity could yet occur. The recent fall in IT spending will, at least in the short run, reduce the contribution to higher productivity growth from capital deepening. It is never easy to detect changes in underlying productivity growth because a large quantity of data is needed to distinguish clearly between changes in trend and cyclical movements. Nevertheless, there is no evidence to suggest that the rate at which computing processing power is increasing – doubling every eighteen months according to Moore's Law – has diminished. Indeed, there have been suggestions that the pace of doubling of processing power is now closer to twelve months. But there is one reason for caution about estimates of higher future productivity growth, and that is the conventions used to measure output and hence productivity. It might seem obvious that a higher level of gross domestic product, produced by the same number of person-hours, is an improvement in productivity. But gross domestic product, GDP, is not value added.

The council should comprise members who do not represent a political party, but a particular field of expertise: business, banking or economics.” One example of an existing body of this type is the Swedish Fiscal Policy Council, which was established in 2007 as an agency under the government. In the UK, an interim Office for Budget Responsibility (OBR) was recently set up. And in the euro area, the budgetary surveillance of the European Commission is referred to as the “preventive arm” of the Stability and Growth Pact. But, as highlighted by the commission itself: “In order to function effectively, it requires a common understanding of the economic and fiscal policy challenges in the European Union, and a strong political commitment to addressing them.” How to enforce a strong political commitment to address the fiscal bias is still very much an unresolved question. BIS Review 113/2010  7  The second question is how to secure adequate international coordination in both crisis prevention and crisis resolution. International coordination is important  As the chart shows, foreign banks’ share of the market in Norway is approximately 1/3. In some countries, foreign banks’ share of the market is higher or even 100%, with no domestic banks at all. Today a bank’s regulation is laid down and supervised by the authorities in the bank’s home country. When foreign banks’ share in a market is large, this challenges the concept of a level playing field insofar as national supervisory authorities do not coordinate their work.