samchain/econo-pairs-v1 huggingface dataset:
If policy is given the narrower goal of protecting the banks from the cycle and it proves possible to set clear rules in place (for example a simple leverage ratio) there would be no need for a further policy maker to be involved. However if policy is given the broader macroeconomic goals of stabilising credit – protecting the cycle from banks if you will – and judgement is required on the state of the cycle and whether and when to vary the rules, then it would be essential for the Central Bank to play a leading role, albeit in close consultation with the regulator. In my view that is the more likely outcome. Conclusion One theme you may have noticed in these reflections is the need for policy makers to be willing to back their judgements – whether in identifying asset bubbles or identifying firms or markets which threaten financial stability – and to take pre-emptive action. For example, if most macro-models were not giving us warning signals in recent years, our analysis of the financial sector certainly was. As I mentioned earlier, successive Financial Stability Reports did set these dangers out in 2006 and 2007 and indeed earlier. One of the lessons we have acted on already is to make more of such warnings.

A single regulator Alongside this macro framework, there was a consensus that industry and commerce was best left to the market with market failures and externalities controlled by independent regulators, like OFGEM, OFCOM and OFWAT, rather than through ownership. In the case of the financial services sector, responsibility was given to the FSA and banking supervision moved out of the Bank. The new FSA inherited from the Bank an approach to prudential supervision in particular which was based as far as possible on principles rather than a detailed rule book . There were positive and negative reasons for that move. The positive were that a single financial regulator would be more effective at a time when the lines between banking, insurance and securities dealing were breaking down. It was efficient for the firms to have just one regulator to deal with and good for the regulator to be able to look at all aspects of their business. On the negative side there was a worry that responsibility for supervision even of banks could unbalance the Bank and distract it from its monetary role. So while the Bank retained a role in promoting financial stability and monitoring the vulnerabilities in the system as a whole, it was not given any statutory objectives or powers in the new legislation. This piece of the UK system was controversial in some quarters but it definitely topped the international best buy tables in 2006.
Bandid Nijathaworn: East Asian financial markets – some thoughts on the way forward Speech by Mr Bandid Nijathaworn, Deputy Governor of the Bank of Thailand, at a high level panel on “East Asian financial markets: the next frontier” seminar organised by the World Bank and Hong Kong Monetary Authority, Hong Kong, 22 June 2006. *  *  *  Thank you Mr. Chairman, First, let me thank the World Bank and the Hong Kong Monetary Authority for the invitation. It is always a pleasure to be here in Hong Kong, and I should also congratulate the organizer for putting up what looks like another important and useful seminar. My task today is to speak on East Asian financial markets. In the recent years, I think there is no disagreement that the economies and the financial markets in East Asia have gone through an important phase of transformation and growth. So, it is ideal that we do take stock and think ahead on how things should best evolve going forward, so that the region’s economic potentials would be best leveraged, and to see what role can the region’s financial markets play. Given the limitations of time, I want to use this opportunity to make just two points. The first is the issues that are currently being discussed in the region on the areas that we need to do more in developing financial markets in East Asia. And the second is my view on the role that policy can play in supporting future developments.

The first is that, while it is agreed that more needs to be done to achieve a robust and diversified financial system, the key focus of financial sector reform in the region should remain to be the serviceability or access to finance for the majority of the region’s population. This is to say that for financial sector development to really matter, the people of East Asia across all income groups must be able to enjoy the access to and the benefits of a modern financial sector. The second is the observation that the region’s financial sector continues to be less integrated within the region than with the rest of world. And it follows that, with weak regional integration, the region will lose the opportunity to leverage on its own high levels of savings to support investment. The financing cost for corporates and SMEs will also be higher because of the round-tripping of funds. This, I think is a fair and important point, because greater reliance on the region’s own savings will help reduce the volatilities associated with capital reversals that we have seen in the recent months. The third is the concern that, despite rapid growth, the role of Asian financial institutions remains small. Their participation in the region’s finance, especially cross-border finance, is not at par with the flows of savings that need to be intermediated.
Judging from the monetary indicators of these recent years, we notice that Lek supply (M2 growth) in the internal market has been declining due to the lack of government’s privatization incomes, which the Bank of Albania converted in Lek by injecting liquidity in the market. The reduced Lek supplies, together with its increased demand (due to the high interests rates of financial assets in Lek during 2003), have been exercising pressures on the Lek appreciation during 2003. 1  4  Foreign sector forecasts belong to June 2003. BIS Review 8/2004  3. Main suppositions of the monetary program of the Bank of Albania for 2004  In designing the monetary program for 2004 particular attention was given to the Bank of Albania’s target, that is keeping up the annual inflation rate within the limits of 2-4 percent. In hitting this target, the monetary program aims the control of money supply growth so that the level of real monetary assets responds to the real needs of the economy for a 6 percent economic growth. The economy demand forecast does still rely on the quasi-constant velocity forecast of money circulation. This forecast, judging from the nominal GDP level, is the bridging gap between inflation and money supply growth (intermediate objective). The monetary program guarantees the observance of quantitative objectives set by the Bank of Albania, the level of NDA and NIR of the Bank of Albania within the limits and the control of government’s domestic borrowing at the level of 2.7 of the GDP.

In these last three years, it was within the interval of 2-4 percent, as targeted by the Bank of Albania. 2. Monetary program of 2004  Pursuant to drafting and implementing the monetary policy, the Bank of Albania designs each year the monetary program, which is a financial plan aiming at disciplining the funds circulation in economy, in conformity with the development objectives of the country. The main objective is meeting the needs of the economy for monetary assets, without influencing the balance of demand-supply for monetary assets, generating thus inflation or shrinking the economy. The monetary program of 2004 has also been set up on the same premises. Its not a secret the fact that in the coming year as well, as in the previous ones, the two main decision-making institutions of the country in the field of economics and finances, the Albanian Government and the Bank of Albania, have agreed upon the general objectives of the country’s development, including also the so called harmonized cohabitation between the fiscal and monetary policies. This process, albeit all, was part of a constructive consultation with institutions such as IFM and the WB, enabling thus a new financial agreement between these two institutions for 2004. BIS Review 8/2004  3  Table 2.
This can be done in a variety of ways: reverse repo transactions with dealers and other counterparties, securities sales from the Fed’s portfolio or bill issuance by the Treasury, with the funds deposited at the Federal Reserve. Although our ability to pay interest on excess reserves is sufficient to retain control of monetary policy, it is not bad policy to have both a “belt and suspenders” in place. As a result, we are working out ways to drain reserves to provide reassurance that we will not – under any circumstance – lose control of monetary policy. A related concern is the question of whether the Federal Reserve will be able to act quickly enough once it determines that it is time to raise rates. This concern reflects the view that the excess reserves sitting on banks’ balance sheets are essentially “dry tinder” that could quickly fuel excessive credit creation and put the Fed behind the curve in tightening monetary policy. In terms of imagery, this concern seems compelling – the banks sitting on piles of money that could be used to extend credit on a moment’s notice. However, this reasoning ignores a very important point. Based on how monetary policy has been conducted for several decades, banks have always had the ability to expand credit whenever they like. They don’t need a pile of “dry tinder” in the form of excess reserves to do so.

This does not differ much from how the Federal Reserve has behaved historically – set the fed funds rate at a level consistent with the desired level of economic activity and inflation over time. So how does the IOER rate relate to the fed funds rate? The two rates are likely to track each other closely in most circumstances. 4 First, banks generally do not have any incentive to sell fed funds at rates below the IOER rate. Only nondepository institutions – such as the government sponsored enterprises (GSEs) – that can buy and sell fed funds but are not able to hold excess reserves with the Fed, might have an incentive to sell fed funds at rates below the IOER rate. But even in this case, the fed funds rate would not likely fall far below the IOER rate. After all, if the fed funds rate were to fall significantly below the IOER rate, banks could purchase the fed funds and hold them as reserves with the Fed, earning the difference. The ability of banks to engage in arbitrage should limit the size of the deviations between the IOER rate and the fed funds rate. Thus, through the IOER rate, the Federal Reserve can effectively retain control of monetary policy. In addition to paying interest on excess reserves, the Federal Reserve also has the ability to drain the excess reserves from the banking system.
2  BIS central bankers’ speeches  Chart 3  Total sovereign debt in advanced economies is almost as high as it was after World War II, following a period of soaring, debt-financed military spending. The long post-war boom helped to reduce debt. Experience shows that it is difficult to restore growth after a financial crisis. Necessary austerity measures can amplify an economic downturn, with falling tax revenues and rising spending on benefits, trapping both public finances and economic activity in a downward spiral. This is what we have seen in Europe. Today, economic growth is low in virtually the entire OECD area. Many countries are forced to implement fiscal consolidation measures, while there is also a need to stimulate the economy and create jobs. That is a difficult balancing act. The European crisis was acute about a year ago, at the beginning of 2012. Spanish and Italian government bond yields had risen markedly. The reason was not only the uncertainty related to sovereign debt problems in those countries. Markets also reflected fears that the construction – European monetary union – might crumble. The question of the fate of the euro was on the table. Through 2012, the European Central Bank (ECB) intervened with resolute measures to calm the markets. The banking system was offered large amounts of long-term funding. In summer 2012, the ECB declared that it was prepared to make unlimited purchases of government debt which fulfill the conditions for borrowing from the European Stability Fund. These measures seem to be working.

And it is key to the  1 2  www.bankofengland.co.uk/-/media/boe/files/record/2017/financial-policy-committee-meeting-september-2017.pdf www.bankofengland.co.uk/financial-stability-report/2018/june-2018 2  All speeches are available online at www.bankofengland.co.uk/news/speeches  2  Bank’s objectives – risk free rate transition is a core part of the Bank’s strategic goal to catalyse reforms in financial markets to make them fairer and more effective. The good news is, transition is happening. There has been real progress in establishing SONIA as the successor to sterling Libor. In the past 6 months there have been a number of positive developments in the sterling cash market. From a zero base this time last year, SONIA linked floating rate note (‘FRN’) issuance now dominates sterling floating rate financials issuance and there is clear momentum towards using the compounded SONIA rate across bond markets. The first 5 months of 2019, have seen 21 different banks, sovereigns, and supranationals issue FRNs referencing compounded SONIA, with a total value of about £ We’ve also now seen the first move by a bond issuer to switch their outstanding Libor linked bond to reference compounded SONIA instead. They are currently going through a bondholder Consent Solicitation process, with the deadline next week. This is a development which is being closely watched. We have also seen the first SONIA linked securitisations issued. In other areas, we are seeing progress. One UK firm has announced it has switched the basis of its balance sheet over to SONIA.
But there are also costs: a loss of seignorage; constraints on liquidity management, including the provision of lenderof-last-resort support; and substantial costs associated with the transition process. In the case of Hong Kong, we would also face important legal issues regarding the provisions of the Basic Law, as well as how to provide an efficient US dollar clearing and settlement system in Hong Kong. We will continue to study these issues because, at the very least, research into all possible options helps us to clarify and refine our existing policies. I am, however, confident that the measures taken last autumn to strengthen the currency board arrangements, and the additional credibility gained from weathering the storm of 1997-98, have put the existing system on an even more solid — and sustainable — footing. Conclusion To recap the main arguments in this presentation, let me reiterate that exchange rate policies must meet the needs of the economy they serve if they are to be more than mere empty promises. They must also be compatible with broader policy choices and capable of sustaining the external shocks that arise in an increasingly globalised financial environment. In particular, as the Asian financial crisis has demonstrated, the exchange rate regimes devised for small and open economies must be able to deal with ‘hot’ capital flows, which are not only the conductors of external shocks, but increasingly the main agents of volatility and instability. This is no easy matter, as the collapse of one exchange rate policy after another has shown.

By ‘all parties’ I mean both the industrialised countries and the emerging market economies. Countries that perceive that they have little at stake in improving the system from their own perspective may be underestimating the implications on their own growth of sound growth in emerging market economies. And emerging markets that have been through the crises of the past two years have valuable experience to contribute and special needs to address. The path taken by Hong Kong Let me now turn to Hong Kong’s experience in the light of the general points I have made above. As you may know, Hong Kong had only a relatively brief experience with floating exchange rates, from 1974-83. This episode was not very satisfactory: inflation rose to rather high and volatile levels, and the period ended in an exchange rate crisis triggered by uncertainties about the objectives of monetary policy and about Hong Kong’s political future. Against this unfavourable background, the linked exchange rate system was reintroduced to restore confidence and stabilise expectations. In addition to these psychological factors, there was - and still is - a strong case for believing that a fixed exchange rate regime was appropriate from the point of view of Hong Kong’s fundamentals. Hong Kong is a very externally oriented economy, with a completely open capital account and a large financial sector. These factors leave us heavily exposed to financial shocks stemming from volatilities either in domestic confidence or in external markets.
In recent years, long-term interest rates have gradually fallen to historically low levels, which has led to a search for yield, investors seeking new asset types, which initially also benefited the hedge funds. Hedge funds and the financial markets Hedge funds fulfil several valuable functions in the financial markets; they provide liquidity, they improve pricing and they increase transparency. The fact that hedge funds contribute to better liquidity is particularly noticeable in new and more complex markets, such as the market for credit derivatives, where the hedge funds currently account for an estimated 25 per cent of the activity among primary dealers. The hedge funds that have specialised in identifying mispriced assets – that is, classic arbitrage – often contribute to more correct market pricing, which in turn leads to a more efficient  4  BIS Review 116/2006  allocation of resources and better risk management. This is an important contribution to the efficiency of the financial markets. However, as I observed at the beginning of my speech, the rapid growth in hedge funds has created an international debate on the risks entailed in their operations and potential negative effects on the financial system. There is concern both for the role of the hedge funds as counterparties to other agents and for the hedge funds’ own activities. With regard to counterparty risks, these mainly concern the banks’ exposures to hedge funds and indirect risks through contagion effects in the markets. Large and complex positions in certain markets may make the contagion risks difficult to distinguish.

Somewhat unexpectedly, it has also turned out that the CCP provides a comprehensive national picture of total outstanding student loan balances and delinquency rates that heretofore did not exist. It was in a Quarterly Report, for example, that we first reported that student loan debt exceeded credit card debt, in early 2010. Our findings helped bring the surge in student debt and delinquencies to the attention of the public. Our research also highlighted its potential implications for consumption growth, showing a strong association between the increase in student loan debt and the decline in mortgage and auto loan origination rates over the past few years. Coming back to the broader issue of data innovation, it is interesting to note that dataset merges have been behind a growing number of important academic studies and research findings in recent years. While showing how the value of datasets can be greatly enhanced by linking them, these studies underscore the need for creative thinking to maintain anonymity and representativeness of the matched sample. We are currently pursuing various ways to enhance the value of the Consumer Credit Panel further by linking to property deed records, employer payroll records, small business credit data, and student college records. The CCP shows how existing data – in this case credit reports – can be re-purposed to serve new public policy and research uses. But sometimes existing data sources just can’t provide the answers we need, and in those cases data innovation requires creating something completely new.
from pension funds looking to maturity-match their longterm liabilities). What this means is that it is difficult to separate moves driven by changes in market liquidity, investor mandates or preferred habitat from moves driven by changes in underlying inflation expectations. For me, the inflation swaps market, which has grown and deepened in recent years, gives a more reliable read on underlying market participants’ views of inflation expectations than the gilt market data. Those swaps suggest that there has been little change in medium-term inflation expectations for some time (Chart 11). Chart 11 Medium term inflation expectations derived from inflation swaps(a) Per cent  5  4  3  2  1 2005  2006  2007  2008  2009  2010  2011  Sources: Bloomberg and Bank calculations. (a) Based on the 5-year, 5-year forward. Policy In these remarks, I have tried to explain how I personally read the main forces acting on the outlook for GDP growth and CPI inflation over the next few years. The final step is to explain my policy vote based on those views. At the moment, I see the risks to CPI inflation in the medium term as broadly balanced, around the 2% target. In particular, I expect that the upside risk from any deterioration in the level of potential supply is broadly offset by the downside risks to consumer spending. While there are certainly upside risks to the outlook from higher inflation expectations, those are not of immediate concern.

•  Additional work is also needed on the concept of liquidity buffers, with some firms continuing to rely too much on uncommitted sources of liquidity. •  And stress testing and scenario planning remain areas of continued focus, with challenges in designing scenarios that are sufficiently extreme. Beyond liquidity, additional work is needed in the area of capital planning. While this is not an area that financial market utilities have spent considerable time and resources on in the past, it is an area we will continue to focus on in our reviews and expect continued development and improvement over the coming year. As the industry continues to build resilience to future shocks, by enhancing the management of and the amount of capital and liquidity, as two important elements of resilience, the financial system will continue to grow stronger. It’s essential, though, that all parts of the financial system – banks, non-bank financial firms, market utilities – achieve enhanced resilience. Simply having one part of the system robust to future shocks, with other parts – connected and linked within the system – less robust, leaves the system vulnerable to future shocks and instability. Management I’d like to turn now to the second element of our supervisory framework: management. In addition to our focus on resiliency as an essential element in strengthening the financial system, we see enhanced risk management and corporate governance as a complement to resiliency and necessary to achieve stronger firms and a stronger system.