samchain/econo-pairs-v1 huggingface dataset:
Low policy rates can also be combined with unconventional measures designed to push down long-term interest rates.9 If the market expects the policy rate in Sweden to be significantly higher than policy rates abroad, this can lead to an increase in the demand for assets in kronor as a higher Swedish rate, all else being equal, increases the return on investments in Swedish currency. This normally contributes to a strengthening of the krona exchange rate in the short term. A stronger krona slows down any increase in import prices. For the Riksbank, which conducts an inflation targeting policy, this could be positive if inflation was high in the initial position. However, as underlying inflation is currently low, I have argued that a strengthening of the krona would, if anything, have a negative effect. Moreover, a stronger krona has a negative effect on net exports as it means that goods and services produced in Sweden become relatively more expensive. This in turn has a negative effect on GDP growth and resource utilisation. As I see it there are two reasons why recent developments abroad contributed to the decision to leave the repo rate unchanged and to revise the repo rate path downwards at the latest monetary policy meeting. The first is that weaker growth abroad has a negative impact on growth in Sweden too and this needs to be countered by providing a stronger monetary policy stimulus.

In the euro area, it is above all the state of central government finances in Greece that has been in focus in the media, but other euro countries such as Portugal, Ireland Italy and Spain have also suffered debt problems. The situation in the euro area has made the situation in parts of the European banking sector increasingly strained. For example, a number of banks, above all those that are highly exposed to the countries with weak public finances, have suffered a shortage of liquidity and are finding it difficult to borrow money. There is concern that a collapse of these banks would lead to contagion effects in the international banking system. Uncertainty about the situation  BIS central bankers’ speeches  1  in parts of the banking system has led credit rating agencies to reduce the credit rating of a number of banks. GDP growth in the United States was weak already during the first six months of 2011. The increases in corporate investment and in employment have been low – far too low to reduce unemployment by more than a percentage point or so. Household consumption has also been weak. This is because a high level of debt in combination with falling asset prices has reduced the net wealth of the households and they are now trying to counter this by reducing their debts. The continued weak development of the US housing market is also a factor that is holding back an improvement in the net wealth of the households.
The respective risk is pronounced, especially in view of the fact that most major OTC derivatives dealers are large cross-border banking groups that may be in a position to shift their OTC derivatives business to the most leniently regulated group entities. As the European Commission and the CFTC noted in their recent statement on the “common path forward”, one important open issue in this regard is the material difference in central counterparties’ initial margin coverage between the European Union and the United States, for example in terms of confidence interval, procyclicality buffers and the scope for portfolio margining. I would like to add that different coverage requirements for central counterparties’ financial resources, in terms of the liquidity and credit risk arising from the default of their largest members, are at least equally important. In addition, it would seem helpful to broaden somewhat the attention concerning the global regulatory level playing field beyond the immediate concerns regarding EU-US divergence to all relevant jurisdictions. Conclusion It’s time for me to conclude: Yes, we have come a long way and a lot has been achieved since the Pittsburgh summit. But as highlighted before, additional work will be required: In the area of data and transparency we need to remove barriers to access and provide a mechanism to aggregate data across trade repositories and jurisdictions in order to be able to have a comprehensive overview of the risks in OTC derivatives markets. This is what the G20 leaders had in mind four years ago.

There is no definitive consensus on this question, and economists have an interesting debate underway about how much of this was luck and how much was skill. Most observers seem to attribute the record to the following mix of factors. The first, of course, is technology. We experienced during this period the benefits of a powerful technology shock that made possible a revolution in the productivity of investment, in transportation and communication costs, in business methods, in computing power, etc. Given the speed with which technological advances are diffused, one might expect the benefits to have been more broadly spread among other economies, but that has not yet happened on a scale that is sufficient to narrow the growth gap. The extent of technological progress and its impact on economic growth were magnified by the openness and flexibility of the U.S. economy. The United States became significantly more open over the past decade, with imports and exports as a share of GDP rising by about 50 percent. This happened in part because of the impact of trade agreements like NAFTA and the Uruguay Round that lowered U.S. trade barriers, and in part because we stayed out of the way of the impact of technology  BIS Review 4/2005  1  and globalization and did not, on the whole, try to insulate the U.S. economy from the pressures of competition. We are by choice significantly more flexible than the other major economies. The major deregulations (telecom, transportation, finance, etc.)
Furthermore, in terms of growth [slide 3], euro area per capita GDP has improved almost as rapidly as in the United States since the euro was introduced (an annual average of 1.1% in the euro area between 1999 and 2017, compared with 1.2% in the United States), with the gap between the two only widening slightly during the 2011-12 European crisis. B - The means: independence The means employed to carry out this mandate is the independence of Eurosystem central banks. Beyond the initial example of the Bundesbank, this independence became established in economic research3 after the Great Inflation of the 1970s: governments hope that by accepting a little too much inflation they can prolong the growth cycle; but this hope is illusory as economic players rationally anticipate this “inflationary bias” – and thus amplify it. Empirical evidence4 confirms that as a country’s central bank is granted greater independence, its inflation decreases. Nevertheless, independence is still contested in our democracies, starting unfortunately with the greatest of them all. Independence only has real value if there is a clear mandate – price stability – and robust performance-based accountability to the country’s citizens and their representatives: every year the President of the ECB is summoned to four hearings before the European Parliament and gives eight press conferences (i.e. twice that of the Fed up to this year), while the Governing Council has published its accounts since 2015. At the same time, the ECB must take heed of economic and social players.

Therefore, striking the right balance in terms of the interest rate differential is of the essence – after the substantial tightening undertaken so far, translating into money market rates increases by almost 200 bps (a normal development given the size of the inflation differential), it is probably wise to proceed more cautiously from now on. As such, the future action of the NBR is likely to depend on how the process of monetary policy normalisation will be unfolding in Europe. Policy normalisation is a question of “when”, not “if”. It will eventually gain momentum and the impact of major central banks’ policy reversals on emerging economies should not be underestimated. When the tide eventually hits, the extent of the damage depends on how vulnerable emerging economies are to external financing. A contained current account deficit, a long average maturity on public and private foreign currency debt and a proper policy mix will help limit the negative externalities. Summing up, keeping internal and external imbalances in check is the only way our economies will be able to cope with the strong volatility headwinds ahead of us. Indeed, it would be a shame if the necessary reforms were not undertaken now, while there is a window of opportunity. 14 May 2018, Bodrum, Turkey  3/3  BIS central bankers' speeches
But these possibilities are very little used, as there are other alternatives that are more advantageous for the banks. 4  BIS Review 160/2009  Something that has attracted relatively great attention internationally is the fact that the low repo rate and the application of an interest rate corridor of plus/minus 50 basis points for the Riksbank's standing facility means that the Riksbank in principle applies a negative interest rate for deposits in the Riksbank. In practice, this is of little significance, as only a very small part of the banks’ liquidity surplus is invested in the standing deposit facility. Instead, the banks invest most of their liquidity surplus at a positive interest rate in the daily fine-tuning transactions or the weekly Riksbank Certificates. Initially, the banks invested the majority of their large surpluses in autumn 2008 in the Riksbank as “fine-tuning”. As a result of the crisis the banks had a substantial need of immediate access to liquidity. More recently they have invested most of their surplus in the weekly Riksbank Certificates, which is a sign that market conditions have improved (Figure 5). Figure 5 Riksbank Certificates and fine-tuning SEK billion 400  400 Riksbank Certificates  350  350  Fine-tuning  300  300  250  250  200  200  150  150  100  100  50  50  0 Jul-08  0 Oct-08  Jan-09  Apr-09  Jul-09  Oct-09  Source: The Riksbank.

In the long run, however, inflation cannot be explained solely as a function of nominal exchange rate movements, as it reflects, on the one hand, rises in wages and prices in excess of those in other countries and, on the other, changes in the real exchange rate, which stem from developments in underlying economic conditions such as terms of trade. Inflation that remains above target levels for a protracted period can only be explained by weaknesses in economic structure and policy, particularly monetary policy. In the short run, however, under- or overshooting of the nominal exchange rate can cause swings in the inflation rate, particularly if inflation expectations are poorly anchored to the target and exchange rate movements are significant. In trade-weighted terms, the króna has fallen by 5.8% year-to-date and just over 7½% since November, when it last peaked. The depreciation seems to stem from several causes. It appears that net foreign currency inflows from trade in goods and services have been at a low ebb in recent months. While seasonal factors are at play here, it could also be that foreign currency subject to repatriation requirements is not being returned to Iceland in full. This situation is being investigated by the Bank’s Capital Controls Surveillance Unit. In addition, firms and municipalities have been paying down foreign debt. In many instances, they are forced to do so, as they have no access to refinancing from abroad and would otherwise default on these loans.
For Bank A, not knowing the links in the chain means that judging the default prospects of Bank B becomes a lottery. Indeed, in some ways it is worse than a lottery, whose odds are at least known. In this example, Bank A faces uncertainty in the Knightian sense, as distinct from risk, about the true network structure. Counterparty risk is not just unknown; it is almost unknowable. And the higher the dimensionality of the network, the greater that uncertainty. It is possible to formalise this intuition with some simple numerical examples. 17 Consider two states of the world, pre-crisis and crisis. And consider the impact of network complexity on CDS pricing. Once we introduce Knightian uncertainty, asset prices are no longer determinate; they are defined by a range rather than a point. So the range of equilibrium CDS spreads can be taken as a metric of the uncertainty, and hence distortion, arising from different network structures. Chart 4 plots a pre-crisis world where it is assumed that counterparty default probabilities, and the uncertainty around them, are low. Subject to those assumptions, it illustrates how the range of CDS spreads is affected by Bank B’s number of counterparties. Larger numbers of  17  The following is based on work in progress at the Bank on asset pricing under network Knightian uncertainty, by Sebastiano Daros and Kemal Ercevik. 8  BIS Review 53/2009  counterparties are marginally beneficial. There is a “law of large numbers” benefit.

Hora’s business thrives, Tempus’s dies. In other networks, hierarchy is the result not of natural evolution but human intervention. For example, the optimal distribution of trees has been shown to comprise contiguous patches separated by firebreaks. 36 The firebreaks created by man generate hierarchy in this system. The same man-made firebreaks are present in epidemiological networks, such as the imposition of travel bans following the SARS outbreak in Asia or the prohibition of animal movement during the foot and mouth epidemic in the UK. 37 All of this has relevance to the future structure and design of the financial network. What is second nature to the watch-maker needs to become second nature to the watchdog. Four topical examples can be used to illustrate the importance of these structural issues for financial network design. First, the past decade has seen an explosion in the dimensionality, and thus complexity, of the financial web. Among others things, that has exacerbated the system’s robust-yet-fragile characteristics and uncertainty about counterparty pricing within the network. Both have been much in evidence recently. Yet there are structural means of addressing these combined problems at a stroke. The stroke is infrastructure. Central counterparties (CCPs) are intended to deal with precisely these problems. They interpose themselves between every trade. In this way, a highdimension web is instantly compressed to a sequence of bilateral relationships with the central counterparty – a simple hub-and-spokes. The lengthy network chain is condensed to a single link.
Through spill-over, these tensions are also affecting non-financial corporations and, more broadly the financing of the economy. They also have spilled over to emerging market economies, which had until the autumn 2008 remained largely unaffected. The crisis also emerged as a crisis of securitisation. Securitisation is an old and successful technique used to refinance a range of loans. What was new about it is that it got used extensively in highly unstable financial structures. These were financing short-term illiquid and complex assets whose value proved to be uncertain and contingent upon models. The instability of such structures was largely masked. Indeed, cheap money allowed easy refinancing of poor quality debt and of assets with uncertain value. Also, favourable ratings and credit enhancements artificially boosted the quality of loans underlying structured products. The rise in defaults on such loans, first on subprime mortgages, triggered a chain of reactions whose consequences are still unfolding now. Credit protections proved illusory. Liquidity dried up much more quickly than it had appeared. Rating agencies massively, suddenly and sharply downgraded products which until then were deemed of the highest quality. The demise of the “new” securitisation chain highlights two fundamental realities. The first one is that far from being spread across the whole system, credit risk was implicitly or explicitly concentrated in the hands of specific institutions, foremost among which were the major investment banks.

Ajith Nivard Cabraal: Sri Lanka and its battle against money laundering and terrorist financing activities Keynote address by Mr Ajith Nivard Cabraal, Governor of the Central Bank of Sri Lanka, at the Commonwealth Secretariat Programme on Financial Investigations Training, Colombo, 22-26 January 2007. *  *  *  Your Excellencies, Ladies & Gentlemen, It is a great pleasure that I welcome you to the inaugural ceremony of this conference and extend to all overseas participants and representatives a very warm welcome to our country. I am also very happy to be able to share a few thoughts with you at this Forum about the progress Sri Lanka has made in its battle against Money Laundering and Terrorist Financing activities. Sri Lanka has given serious recognition to the need for preventing money laundering and combating the financing of terrorism in view of their adverse consequences both economic and social. In fact, Sri Lanka has been a victim of terrorist financing and suffered immensely by its consequences. As we all know, money laundering and financing of terrorism promote criminal activities, endanger financial system stability and misallocate resources into non-productive investments. The Central Bank of Sri Lanka has a special concern about these adverse consequences, as it has a mandate to maintain financial system stability together with economic and price stability.
If they are seen as credible backstops, these programs can increase confidence and move financial conditions back toward normal levels. This feature was discussed earlier in the context of the TALF, in terms of the sizable market impact relative to the amount of risk taken. Second, liquidity programs designed in this manner have a good chance of generating positive income for the central bank. The reason is that financing is offered at a time when market risk premiums are very high. The central bank therefore captures a high expected return relative to the actual risk it is assuming, especially when the lending is adequately collateralized to limit such risk. Indeed, the Federal Reserve is likely to make substantial  returns from the liquidity facilities launched during the financial crisis. 5 Achieving these returns, of course, was not an objective of the programs, but it does suggest that the Federal Reserve was prudent in the way in which it established these programs. Third, this approach gives the facilities a self-liquidating property. Loan rates are set at penalty levels that are not attractive in normally functioning markets. Given the scarcity of liquidity and the extreme movements of risk premiums during a crisis, the penalty rates are readily accepted by market participants in those circumstances. However, as the market gains confidence and returns to normal functioning, users of the facility have an incentive to stop borrowing from the central bank and to pursue better rates in private funding markets.

Risks in the payment system  • Legal risk - Uncertainty in agreements and division of responsibility  • Settlement risk – credit and liquidity risk - Credit risk is the risk of loss when the payer is unable to meet his obligations  - Liquidity risk is the risk that the counterparty is unable to meet his obligations at the agreed time  • Operational risk - Problems or interruptions in computer systems or communication lines or insufficient routines  Risk in the payment system is often divided into four categories. Legal risk is related to uncertainty about agreements and the distribution of responsibility. The Payment Systems Act shall contribute to an organisation of the systems that promotes financial stability. The act also transposes the EU Directive on settlement finality into Norwegian law. The Directive protects approved payment and securities systems against legal risk associated with the insolvency of a participant. Norges Bank has notified all important settlement systems to the EFTA Surveillance Authority, ESA, thus providing them with legal protection. The legal risk as defined above should therefore be eliminated for these settlements. Settlement risk consists of credit risk and liquidity risk. The banking industry’s transition to crediting after settlement has eliminated most of the credit risk. Liquidity risk is also limited because Norges Bank offers liquidity through the day which is only limited by the collateral furnished by the banks.
In order to meet these challenges, it is imperative that this ecosystem transforms to accommodate changes in demand for financial products and services, the increased competition that is driving down profitability and the fast-growing need for operational resilience. In this context, a thriving, creative and efficient FinTech ecosystem may be a key element in the transformation of the financial system towards greater efficiency and resilience to shocks. This is why, as central banker and supervisor in charge of ensuring monetary and financial stability, I feel it is important to support this FinTech ecosystem and facilitate its smooth integration into the broader financial ecosystem. Naturally, I would like to make it clear that this integration does not,in my opinion, mean a convergence of players, a “harmonious” cooperation or a coordinated approach: the various players have different, sometimes even opposing goals, and that is how competition works. However, we should not systematically pit FinTechs against established players: there is a great variety of relationships between these two worlds, as we see every day. The potential for enriching the financial ecosystem and making it more efficient and resilient lies in strengthening the relationships between players and their diversity. What do we want to do and what are we doing at the Banque de France and the ACPR to support this development of the FinTech ecosystem?

In this respect, I would like to commend the ambitiousness of the European Commission’s recent Digital Finance Package and its priorities, in particular those to fight against the fragmentation of the digital single market for financial services and to address the new challenges and risks associated with the digital transformation. With regard to these risks, I think it would be appropriate for the Commission to address the complex but currently unavoidable issue of the oversight framework to be applied to critical IT service providers, including cloud service providers, and the equally important matter of the supervision of issuers and distributors of stablecoins, whether they be single or multi-currency coins. I will not go into detail on the Commission’s proposed legislation, which still requires careful examination on our part and which will, of course, have to be improved by the negotiations that are about to get underway. I simply want to say here that the regulations’ proposals aimed at critical IT service providers and stablecoins include promising provisions: for the former, a dedicated framework that does not exempt financial intermediaries from their responsibilities and their obligation to use European service providers, and for the latter, a strict supervision that involves and associates national and European authorities.