samchain/econo-pairs-v1 huggingface dataset:
In effect, traders were betting that implied correlation, as modelled, would not fall. As well as being highly convex, the position’s popularity no doubt owed something to a straightforward search for yield: the big positive carry from being long high-yielding equity tranches and short lower-yielding mezzanine. This type of position did, though, leave holders exposed to so-called idiosyncratic risk; that’s to say, a deterioration in the credit of a few constituents of the underlying portfolio. This was akin to a short-option position, requiring dynamic hedgers to buy protection as spreads widened on troubled names. When GM and Ford spreads rose, these correlation positions unravelled as traders went into the market to cover themselves. In effect, the structured credit market was reminded that credit risk has a major idiosyncratic element; that even the most sophisticated statistical models can be found wanting when they are detached from fundamentals and/or based on short runs of data; that hedging can hurt when a trade is ‘crowded’; and that, in such circumstances, volatility can suddenly spike and spreads move in unplanned-for ways. There are still-more complex variants. In some instances, options are embedded into products where there isn’t a liquid market in options with quite the same characteristics or long expiry dates. PowerReserve Dual Currency Bonds may be an example,4 although not one where excess volatility has yet crystallised.

The financial sector is, correspondingly, structurally short options, which it can – and does – slice and dice in various ways in an attempt to distribute the option exposure to those who want it. But to a greater or lesser extent, a residue is left, some of it with institutions which de facto seem to have short holding periods. They dynamically hedge, either continuously or within thresholds. A rather graphic – if, ultimately, not stability-threatening – example of what I’m describing occurred a few weeks ago in the structured credit markets. I’ll spend a few moments on this as the distribution of optionality was quite complex. For some while, a wide range of regional banks, insurers and pension funds in Europe and Asia have been selling protection on intermediate tranches of credit portfolios, say on losses between 3% and 7%. Although they are effectively short an option on portfolio credit risk, they are widely regarded as passive investors who do not dynamically hedge. Their counterparts, the dealers, are initially long an option on portfolio credit risk; as spreads generally widen, the value of the bought-protection position increases non-linearly. Over time it became popular amongst short-term leveraged traders to exploit the strong supply of intermediate (or mezzanine) protection by holding a bought-protection position on mezzanine tranches as a hedge against selling protection on equity tranches. This was a so-called long credit correlation position, as its value would tend to increase with rises in the implied correlation of default risk among the companies represented in the underlying portfolios.
BIS Review 80/2007  11  Currency issuing The increase of currency in circulation over 2006, by ALL 14, 7 billion is a response to the balanced macroeconomic development of the country. The commercial bank’s receivables by the Bank of Albania during 2006 stood at ALL 105 billion, remaining almost at the same level with that of 2005. Concerning cash payments, from Bank of Albania’s cash-boxes to commercial banks, the supply was carried out according to their requests, and intending, at the same time, to maintain the currency in circulation structure within the projected limits for year-end 2006. The velocity of money circulation over 2006, for the shortened cycle of circulation, totalled almost at the same level as in 2005. However, the velocity of circulation underwent changes for certain denominations of banknotes and coins. Hence, a significant increase of velocity of circulation was proved in the 5.000 lekë, 1.000 lekë and 500 lekë denominations, respectively by 13.3 percent, 38.9 percent and 8.3 percent. Changes in banking legislation During 2006, further to the signing of the Stabilization and Association Agreement on 12 June, 2006, the banking legislation was amended and improved substantially once the Law “On the Banks in the Republic of Albania”, No. 9662 of 18.12.2006 was passed by the Assembly of the Republic of Albania, which shall become effective on 1 June, 2007.

$ trillion of global assets are held in investment funds that are particularly flighty, reflecting their promise of daily liquidity to investors despite investing in potentially illiquid underlying assets, such as EME debt.30 This structural mismatch means that these funds can behave particularly pro-cyclically. Bank of England work finds that redemptions by EME bond funds (with large structural mismatches) in response to price falls are five times those for EME equity funds (with lower structural mismatch). In turn, EME equity funds are twice as responsive as advanced economy equity funds. Under stress, investment funds may need to fire sell assets, magnifying market adjustments and triggering further redemptions – a vicious feedback loop that can ultimately disrupt market functioning and the availability of finance to the real economy. The vast majority of these funds are managed out of the US and Europe, including the UK. As is the case for banks, it is a global public good to ensure that investment funds prudently manage their leverage and liquidity. The Bank of England is acutely conscious of these responsibilities, given the City’s role as the world’s leading international financial centre. That’s one reason why we have transformed the resiliency of UKbased banks, why we are well on the path to ending too big to fail, and why we have fundamentally overhauled our liquidity facilities to support continuously open markets. And it’s why the Bank of England’s Financial Policy Committee has supported the FSB’s 2017 recommendation that funds’ assets and investment strategies should be consistent with their redemption terms.
Nevertheless, amid high uncertainty this output growth is not yet accompanied with investment increase. Consumer demand also weakens due to the slowdown in annual  BIS central bankers’ speeches  1  growth of real income of households which has contracted to 0.5%. As a result, procurement manager sentiment index in the service sector deteriorates. The situation in the labour market remains unchanged, seasonally adjusted unemployment rate stayed at 5.2% in October. Broad set of labour market indicators, including the number of working hours, number and length of unpaid vacations, and others do not bear evidence of considerable concealed unemployment. According to our estimates the labour productivity growth slowed down to 0.7% in January-October this year with persistent gap between the growth of wages and labour productivity signaling of slow pace of economic restructuring. These factors affected GDP dynamics. Our estimate of the GDP growth in 2014 has been slightly raised to 0.6%. Due to the transition to the floating exchange rate, the foreign exchange market absorbs external shocks preserving relative stability of other segments of the financial market. For comparison, during the global crisis of 2008, the volatility of the money market rates exceeded the current values ten-fold. The banking sector continues stable servicing and funding of the economy. During the previous 11 months, loans to non-financial organisations grew by 12% and loans to households by 12.7% (adjusted for currency revaluation). The financial system gradually adjusts to inflation targeting and floating exchange rate.

The “Guidelines for the Single State Monetary Policy in 2015 and for 2016 and 2017” stipulate that the removal of sanctions and trade restrictions results in certain inflation decrease and moderate acceleration of economic growth. We take this possibility into account but base our policy decisions on the forecasts providing for long-term sanctions. The baseline forecast the Bank of Russia currently applies in the decision-making approximates scenario IIIb published in the aforementioned document. We expect average oil prices to be $ per barrel during the next three years. This average price results from consensus forecast of the leading analysts. 2  BIS central bankers’ speeches  In the scenario under consideration the current account surplus remains on the acceptable level of $ billion in 2015. In 2016 and 2017, no significant changes in the current account balance are expected either. The development of import substitution will boost domestic production. The service sector will see similar trend. Conditions for diversification of the economy will be established. Contribution of net exports to GDP will be positive. According to the Bank of Russia estimates, in these conditions economic growth rates will remain close to zero in 2015–2016, however in 2017, when import substitution and increase in non-commodity exports become more apparent, we expect GDP to grow up to 1–1.2%. Higher growth rates in the next three years require structural reforms, primarily measures aimed at real improvement of business climate and higher labour productivity.
This is to ensure an inflation rate in line with the target and a balanced development in the real economy. But at the same time I considered that the changes in the economic picture were not so great that the interest rate needed to be raised immediately. Let me explain why. In February we believed that growth would continue to be good, although it was expected to be slightly lower than last year. We estimated that cost pressures would rise during the forecast period as employment was expected to increase and wages were expected to rise faster. Higher cost pressures could also lead to inflation rising, but we estimated that the favourable supply conditions would contribute to a relatively modest rate of increase. At the same time, we pointed out that the assessment of wage developments was uncertain. For instance, the rapid upturn in employment and the increased labour shortage implied more rapid wage increases, while the increase in labour supply and continued price pressures from abroad indicated slower wage growth. The assessment in the main scenario was that the repo rate should be raised at a fairly slow pace. We also presented a number of alternative scenarios and the consequences they would have for monetary policy. In one such scenario we investigated the consequences of more rapid wage increases than calculated.

We have now concluded that there is not normally reason to indicate prior to the monetary policy meetings in speeches and press releases how our views of the repo rate path have changed. Our assessment is that it is enough to signal our intentions clearly in connection with the seven monetary policy meetings held every year. In connection with three of these meetings we will publish our own forecast for the future repo rate, and our Monetary Policy Report will show clearly why we have chosen this particular path. On the other four occasions we will make a qualitative assessment of how the most recently published interest rate forecast relates to the new information received. Even if the interest rate path forecast is only a forecast and not a promise, a central bank can hardly be clearer than this with regard to its views on economic developments and the consequences for the interest rate. There may also in exceptional cases be justification for some signalling between two monetary policy meetings. If, for instance, something occurs to radically alter the economic situation, while there is a long time until the next meeting, it may be necessary to make a comment in order to avoid the risk of unnecessary uncertainty in the financial markets. It should then be clear whether the entire Executive Board supports this view or whether it is the opinion of an individual member.
The priority is to examine key impediments to the development of bond markets and to bring together all participants - market practitioners, government agencies, and international financial institutions, to tackle these impediments and clear the path for developing Asian debt markets. The obstacles are large but not insuperable. There is the lack of an objective credit rating system in a position fairly to assess borrowers in the region. There is also a lack of benchmark yield curves for pricing debt. Tax regimes also tend to provide unequal tax treatment for international and domestic bond issuers, and usually favour international issuers, even though they have no intention of recycling funds back into the domestic economy. Finally, the regional infrastructure for clearing and settling debt needs to be improved. Some of these impediments can be dealt with through domestic initiatives, and Hong Kong, like many other jurisdictions in the region, is taking action on many fronts. Others, such as harmonizing tax treatment of debt or taking forward the “AsiaClear” network for linking financial systems, need concerted regional effort if a really solid regional debt market is to emerge. Conclusion To summarize: the solutions to the turmoil in this region require immediate remedial measures and long-term preventive strategies: they must comprise efforts by individual economies to put their houses in order -and concerted, collective action within the region and throughout the international community. All of these diverse approaches are vital if we are to pull ourselves out of the crisis.

The first school, usually identified with Professor Paul Krugman of MIT, is best summarized by the two fashionable phrases “crony capitalism” and “Asian values.” The emphasis here is on inept domestic policies, inefficient resource allocation to politically connected individuals, unrealistic speculation - particularly in real estate - and imprudent public spending, all fuelled by over-borrowing, poor bank supervision, extreme moral hazard, and a hubristic attitude generated by several years of fast growth. The trends were unsustainable, and the Nemesis came with a loud and very messy bursting of bubbles throughout the region. Asia’s downfall, says Professor Krugman, “was a punishment for Asian sins, even if the punishment was disproportionate to the crimes.” The second school, led by Professor Jeffrey Sachs of Harvard, sees the crisis in less moralistic terms. The turmoil, he says, was a classic financial panic: a run on the banks and mass capital flight exacerbated by the maturity mismatch of many Asian banks and the currency mismatch of many Asian borrowers. This was accompanied by speculative attacks on currencies and the collapse of asset values. While this approach stresses the fragility of many of the banking systems in the region, it maintains that the Asian economies were in relatively healthy shape according to the usual indicators, and that the magnitude of the crisis far exceeded the faults and errors of individual jurisdictions. Both the Sachs and the Krugman schools have much in common. But their logic points in different directions.
Experiences during the pandemic with historically low defaults will also not be representative for the present downturn because of the unprecedented role that monetary and fiscal policy support played during the pandemic. Indeed, the health and resilience of banks has increased significantly as they have built on the regulatory reforms and supervisory efforts that followed the great financial crisis. This has enabled them to support households and firms through the economic hardships stemming from the pandemic. We need banks to be able to do the same in the context of the current macroeconomic and climate challenges. We want banks to thrive. And we need them to play their role in the economy, now and in the future. This is why we continue to push them to assess whether their risk management tools and practices are still fit for purpose, and to improve them where necessary. And it's why we insist that banks should remain prudent and not take favourable developments in net interest income for granted. Let me conclude. As banking supervisors, much of what we have to do echoes the mindset of monetary policymakers. We have to remain on our guard. We are committed to delivering on our mandate of keeping the banking system safe and sound. We will make sure that the banks under our supervision remain mindful of and resilient to the risks that may emerge. And we will use all the instruments at our disposal. This goes beyond our formal supervisory measures.

One key driver is the rapid development of Fintech. While the HKMA has done a great deal in the past few years in promoting Fintech, there is still room to further apply new technology in finance in the coming years. This includes, for example, fostering a better ecosystem for Regulatory Technology (or RegTech) and Supervisory Technology (or SupTech). We are also aware that any new risks associated with the increasing use of technology have to be managed. These include for example cyber and data security. We will work with the industry to address these risks. 6. We are also committed to promoting market development opportunities, especially in strengthening the role of Hong Kong as the gateway to the Mainland’s capital markets, in the Greater Bay Area development, and also in green finance. 7. These are rough times. But my colleagues and I will continue to discharge our duties in a professional manner and do our best to serve the people of Hong Kong. 1/1  BIS central bankers' speeches
Fourth, the question has been raised whether the agencies rating the securities issued by special purpose vehicles are independent enough. Growth in these agencies’ earnings in recent years has to a large extent derived from rating these securities. Rating is requested and paid for by banks. High ratings result in sales to more investors. Without high ratings, this market would be far less attractive and the agencies would lose some of their earnings. This may have generated incentive problems. In addition, the agencies, which have specialised in the assessment of corporate bonds, may have lacked the expertise to rate asset-backed securities. Fifth, there have been shortcomings in the supervisory system. As mentioned above, some German banks have taken substantial off-balance-sheet risk. In the US, neither agencies nor lending institutions have been subject to federal supervision, and the various lending institutions and brokers have operated under different regulatory and supervisory regimes with varying intensities of enforcement effort. 1 Both supervisory authorities and banks have underestimated liquidity risk. Special purpose vehicles and banks have invested in long-term assets and taken out short-term loans. The problems in the US mortgage market and the contagion effects in other financial market segments have had negative consequences for many financial institutions and banks. One US bank has gone bankrupt so far. Several US mortgage institutions have had to close or have been bought by other institutions.

As a result, the household sector’s financial condition today is in unusually good shape for this point in the economic cycle. In relative terms, household indebtedness is low, and—thanks in part to low interest rates—debt service burdens relative to household income have fallen to levels not seen since at least the early 1980s. As we will show in today’s presentation, compared to 2008, a greater proportion of overall debt today is now held by older households that have higher and more stable incomes and more experience as borrowers, on average. Consequently, a much larger proportion of debt is currently held by borrowers with higher credit scores. The resulting higher overall debt quality is reflected in historically low overall delinquency rates. Transition rates into new delinquency are below the levels of the early 2000s, and foreclosure and bankruptcy rates in 2016 are the lowest since our data series began in 1999. Notwithstanding this overall rosy picture, the improvement in aggregate debt quality and performance conceals important underlying changes in debt holdings that could be consequential, with implications for the housing market and for consumer spending over the longer term. While older borrowers hold more debt of all types, there has been a significant shift among younger people toward student debt and away from mortgage and other debt. Student debt has increased more than fivefold over the past 14 years, with more young adults taking out loans and borrowing larger average amounts. And, while debt delinquency rates overall have fallen, those for student debt have remained elevated.
In addition, as I mentioned earlier, fiscal policy can play a decisive role in the economy’s adjustment to shock, through its taxation and expenditure systems. The government’s economic policy arsenal also contains labour market policy, which can play an important role in both facilitating adjustment and maintaining demand for labour in the short term within individual sectors or regions. There is reason to continue looking for ways to develop policy in all of these fields and to make it more effective. However, in practice there is a risk that the potential for allowing automatic stabilisers to take effect or for putting in more extensive labour market policy measures is limited unless public finances are sufficiently strong. This is a conclusion that I share with the LO economists, if I have understood correctly. However, in practice the LO economists have rarely manned the barricades and argued in favour of stricter policy even during good times. Although a change may be under way here. But what the question of whether monetary and fiscal policy should be developed probably refers to is whether there is reason to modify the allocation of roles between monetary and fiscal policy that has prevailed since the introduction of the new stabilisation policy regime. This is based of course on LO’s suggestion that the Riksbank should “receive assistance” from discretionary fiscal policy in stabilising the real economy.

The idea is, if I have understood correctly, that the Riksdag Committee on Finance or some part of it – a special stabilisation policy committee – would be given a greater role, with an analysis function and the authority to implement discretionary fiscal policy decisions when necessary. I have no faith in this idea, for several reasons. One fairly obvious reason is that a stabilisation policy committee would of course face the same difficult problems as the Riksbank and the government with regard to predicting the future. The fact that inflation is currently low is largely due to surprisingly positive surprise shocks that were not predicted by any analysts, rather than to the Riksbank making assessments that deviated from others or holding back demand. Difficulties in predicting and fine tuning the economy are something that everyone entering this field will face and scarcely a good reason for establishing a new public body. Another important reason for my doubts towards this proposal is connected with the leading principle for reforming monetary policy, namely that it should be formulated "at arm's length" from the current party politics. From what I understand of the proposal, the idea is that these problems will be managed by setting rules in advance that will indicate the situations in which discretionary fiscal policy measures shall be implemented and phased out. Of course, one can have different opinions as to how successful this might be.