samchain/econo-pairs-v1 huggingface dataset:
Recent research, for example, analysed more than 120 million mortgages in the US written between 1995 and 2014 and identified significant non-linear relationships between risk factors and mortgages becoming non-performing. These ‘jumps’ in the chance that a loan defaults – sometimes with just a small change in circumstances – are precisely the kind of non-linear relationships for which machine learning models are well suited.4 ML is also starting to influence how wholesale loans are arranged. In contrast to retail lending, the idiosyncratic risks and limited data available for corporate lending make typical automated underwriting more difficult. But ML can still be used to improve the quality of underwriting by making use of nontraditional data. For example, natural language processing of annual reports and social media can give firms useful information on the quality of the credit.5 But the increased use of ML and AI may also increase some risks to the safety and soundness of firms. Implementing ML and AI at scale is likely to require considerable investments by firms in their data and technology capabilities. While in the long-run these investments could increase revenue, in the shortterm they are likely to increase costs. They will also amplify execution and operational risks. And even if firms eventually are successful in embedding new tools and techniques, these may make their businesses more complex and difficult to manage.

One solution is to make the data reporting process better tailored to the needs of supervisors. Digital regulatory reporting (DRR) is the automation of regulatory data collection, and could potentially lead to significant improvements in both the cost and timeliness of data. The idea is based on machine readable reporting requirements that firms’ systems could automatically interpret and satisfy via a secure regulator-firm digital link. This would allow regulators to collect data on an ad hoc basis from firms as required, in close to real time without any manual intervention at either end. That would enable 6  Amadxarif, Z, Brookes, J., Garbarino, N., Patel, R., and Walczak, E (n.d) [forthcoming] 4  All speeches are available online at www.bankofengland.co.uk/speeches  4  supervisors to specify the data they needed to solve a particular puzzle – exposures to a particular country, for example – and transmit that data request to firms in a machine readable form. The data would then be ‘grabbed’ directly from firms’ systems and sent back to supervisors automatically. The FCA and Bank of England are currently undertaking a DRR pilot with participants from a number of regulated firms. It is too early to say what the outcome of this early pilot will be, but initial findings suggest it is feasible. There remain significant technical challenges to be overcome. And regulators would need to guard against the moral hazard that could arise if firms perceived that responsibility for the accuracy and congruence of data had transferred from regulated entities to regulators.
The Supervisory Capital Assessment Program (SCAP) in 2009 required the large banks to have a capital buffer consistent with achieving a Tier I common ratio of 4 percent under a stress environment considerably worse than what was anticipated (or did, in fact, occur). Banks that fell short of this were forced to raise additional capital. On top of this, Troubled Asset Relief Program (TARP) repayment terms provided strong incentives for banks to issue common equity to repay the TARP preferred stock. In addition, several banks converted preferred stock into common equity. Roughly speaking, the 19 banks subject to the SCAP generated more than $ billion of common equity via share issuance and $ billion via conversion of preferred stock into common equity in 2009. Second, as noted above, the standards are being phased in slowly. For example, in 2013, the tangible common equity standard will be only 3.5 percent. In 2013, there will be no conservation buffer requirement and banks will still get credit for items that will ultimately be deducted from common equity, such as deferred tax assets. The Federal Reserve, as the consolidated supervisor of the largest and most complex banking companies, does not expect these banks to meet the fully phased in standards today. Instead, the Federal Reserve will require firms to develop an adequate capital plan to meet the Basel III requirements as they become effective and will track progress toward meeting those plans over time.

But, at the same time, this must be done in way that ensures the financial system retains sufficient dynamism so that it can allocate capital efficiently to support innovation and economic growth. The crisis revealed a number of significant weaknesses in the global financial system. First, many leading financial institutions at the core of the system did not have enough high-quality capital to be able to retain access to private funding markets in the face of the large credit and mark-to-market losses. In particular, they often held grossly inadequate capital against their trading book exposures and the counterparty credit risk generated by activities such as their over-the-counter (OTC) derivatives business. Second, individual firms and the system as a whole had inadequate liquidity buffers to withstand marketwide disruptions. Indeed, there was widespread overreliance on short-term funding to finance long-term illiquid assets. This was especially evident among the major securities dealers, which depended on tri-party repo funding to finance much of their securities inventories, and in the so-called shadow banking system, in which entities such as structured investment vehicles and conduits were dependent on short-term funding to finance their long-term assets. Banks that had provided liquidity guarantees to these shadow banks were in turn exposed to runs on those entities. Third, a lack of transparency exacerbated uncertainty about the creditworthiness of many institutions. Some of this was due to the complexity of the assets – collateralized debt obligations (CDOs), in particular, were very hard to value even in normal times.
12  BIS central bankers’ speeches

Given the disappointing fiscal developments in some countries and the challenges which have emerged to the EU fiscal framework, we welcome the moves to correct or prevent excessive deficits, i.e. the implementation of excessive deficit procedures in the case of Germany and Portugal and the early warning issued to France. Countries with remaining imbalances are urged to prepare sufficiently ambitious consolidation plans for their forthcoming stability programmes. Emphasis should be placed on a growth-oriented consolidation policy that strengthens the productive forces of the economy. The Governing Council considers the recent Commission communication to be a good starting point for rebuilding confidence in the budgetary framework. As already reflected in the Statement on the Stability and Growth Pact of 24 October 2002, we fully support the Commission's main objective, namely to improve the implementation of the Pact within the existing framework of rules. Finally, I should like to stress again that there is still an urgent need to implement decisively the structural reform agenda. We note with some concern the slow progress in many euro area countries and call on governments to take determined action. The medium-term impact of these reforms on the economic growth potential of the euro area is likely to be substantial. A prompt implementation of structural reforms in the labour, product and financial markets is particularly important at this juncture since it would contribute to strengthening confidence in the euro area, thereby also supporting economic activity in the short term. We are now at your disposal for questions. 2  BIS Review 72/2002
The new budget process — with a moving budget ceiling and a budget surplus of 2 per cent of GDP as a medium-term target — means that the Government and the Riksdag have set up a clear set of rules to show that Sweden has no intention of relapsing into earlier habits. There is nothing fortuitous about these rules. But the purpose of the budget ceiling and the budget target as confidence-enhancing instruments does presuppose that they are observed consistently and continuously over the business cycle. Changes in fiscal policy also affect monetary policy through their direct impact on demand. The debate in recent weeks has focused not least on these effects. An adjustment of income tax or of transfers to households alters disposable income and thereby private consumption. Similarly, a change in corporate tax or transfers to firms affects company profits and thereby investment and other economic decisions. Activity in the economy may also be affected if the government decides to spend more on public sector consumption or investment. This makes fiscal policy a factor of importance when assessing economic activity and future inflationary pressure. At the same time, the changes that are generated do not lend themselves to mechanical calculations. Part of the reason is that the path of inflation is determined by other factors besides fiscal policy. A third important aspect of fiscal policy’s interaction with inflation has to do with fiscal effects on potential output.

This is a basic tenet of economics, yet to judge from the public debate it still seems to be misunderstood. Various attempts have been made to estimate the NAIRU for Sweden. If this could be done with some certainty, it would obviously be of interest. Insights into when a reduction of unemployment risks boosting inflation would be a useful guide for monetary policy. The matter is unfortunately not that simple, mainly because equilibrium unemployment is something that cannot be observed directly. Registered and structural unemployment Per cent 10  10 Registered unemployment  9  9  8  8  7  7 6  6 Structural unemployment  5  5  4  4  3  3  2  2  1  1 0  0 1990  1991  1992  1993  1994  1995  1996  1997  1998  1999  Source: The Riksbank  Assessing the level of the NAIRU for Sweden is presumably particularly difficult at present. We still do not know all that much about the long-term consequences of all that has happened in the past decade. After fluctuating around a low level for decades, possibly with a slight upward trend, with the crisis in the early 1990s, unemployment shot up in just a few years. Moreover, policy has been realigned and focused successfully on low inflation. This is likely to influence wage formation and hence the NAIRU.
• Retail CBDCs – which are issued by the central bank to the general public; they would be the digital equivalent of today’s notes and coins. MAS sees much promise in wholesale CBDCs.They have the potential to radically transform cross-border payments. But since wholesale CBDCs by definition are not meant to be used as currency by the general public, they are not money. So let me focus on retail CBDCs for now. Retail CBDCs are essentially digital versions of cash.Interest in retail CBDCs has risen sharply in the last two years. According to a survey by the Bank for International Settlements, six out of ten central banks are experimenting with retail CBDCs. MAS has been carefully studying the economic merits and implications of a retail CBDC in the Singapore context. We have just released a detailed paper outlining our current thinking. There are three possible reasons for MAS to issue to the public a digital Singapore dollar. First, a digital Singapore dollar would make available the benefits of using central bank money in the growing world of online transactions. Like notes and coins, a digital Singapore dollar issued by MAS will be safe, widely accepted, and bear the authority of the state. Cash is the ultimate risk-free asset, and means of final settlement. The rapid displacement of cash in favour of electronic payments based on bank deposits or e-wallets is one of the chief motivations for countries like Sweden and China to consider retail CBDCs.

We will enrol eligible applicants in Deal Fridays, a programme jointly organised by MAS and Enterprise Singapore, where they will gain access to the investor community. 7/8  BIS central bankers' speeches  Conclusion The future of Money, Finance, and the Internet will have far-reaching effects on economies and societies. It is important that public authorities and the financial and technology communities work together to shape that future, so that Money, Finance, and the Internet can be forces for good, helping to expand economic opportunity, enhance social inclusion, foster stability, and protect our planet. Ultimately, Money, Finance and the Internet must serve the people who use them. MAS is committed to partnering you on this exciting journey. Have a great FinTech Festival! 8/8  BIS central bankers' speeches
Deliver the right message at the right time. 18. Third, we will provide more avenues for people who are in difficulty or financial distress, to seek help. We must do everything we can to prevent people from getting into a worse situation, or getting into a debt spiral. CCS, with the help of ABS, runs a very useful debt management programme for those who cannot re-pay their borrowings from banks. We can do more, using our social workers and counsellors. 19. MoneySENSE, through the new institute that I talked about, the Institute of Financial Literacy, is now conducting a pilot training programme to help social workers and counsellors, to equip them with financial literacy knowledge so they can provide advice to low income households, or those who come and see them for help. It may have to do with cutting down on utility bills, or it may be about spending wisely in weekly marketing, without compromising on health and wellbeing. 20. MoneySENSE will continue working with the social service sector with the objective of training social workers and counsellors, so they can expand our outreach to Singaporeans. BIS central bankers’ speeches  3  Conclusion 21. This is what we plan to do for the future. I think we have done good work for the first ten years, but there is a lot more work ahead to help Singaporeans.

Over the last 10 years, MoneySENSE has reached out to Singaporeans through many  2  Prelec and Simester, “Always Leave Home Without It: A Further Investigation of the Credit Card Effect on Willingness to Pay”, Marketing Letters 12, no. 1, February 2001. 2  BIS central bankers’ speeches  channels – schools, community events, workplace talks, newspapers, TV, radio, and now increasingly the internet – to reach out in every way we can to as many Singaporeans as possible. 12. We set up a new institute last year called the Institute for Financial Literacy (IFL) which was set up jointly by MoneySENSE and the Singapore Polytechnic. This institute has helped to bring financial education to working adults, who don’t have much time, but they can attend lunchtime talks and workshops free of charge at their workplace. To date, IFL had reached out to 12,000 people. Translating knowledge into action 13. What will be our focus for the next 10 years? First, we have to recognise that financial education is not just about knowledge, but also about inculcating the right values from young, and encouraging everyone to be pro-active rather than passive about their finances. At every income level and for every family, it really pays to prepare for the future. 14. Many think that they don’t have enough time, or just say they are not interested, or that there’s too much to plan for because it’s too uncertain. But it’s precisely because life has uncertainties that we need to make plans for the future.
The recent forecasts by various international organisations indicate that, in fact, we are in a very serious worldwide recession, from which neither the euro area nor the Spanish economy have been spared. In general, according to the available forecasts for developed countries, the problems will be acute in 2009, although it is expected that at some point during 2010, taking into account the current high uncertainty any forecasting exercise entails, an incipient recovery may become discernible. The Spanish banking system, as is inevitable when faced with a global financial crisis, has not been immune. Nevertheless, the impact has been no less than in other banking systems, where public authorities have had to take control of very large institutions, as I have said. This better relative performance can be explained by at least two factors. Firstly, the business model of Spanish credit institutions is based on traditional retail banking and is founded on long-term relationships with customers and creditors. This type of banking model has enabled credit institutions to acquire in-depth knowledge of their customers, reducing the perverse effects linked to asymmetrical information present in any banking business model. Similarly, since it does not use asset securitisation as a risk transfer mechanism but only as a means of obtaining liquidity, the origination and acquisition of complex structured products has been avoided, which have proved to be substantially opaque and the cause of hefty losses for many institutions in various countries.

In this respect, from the standpoint of income statements, credit institutions have limited room for manoeuvre. Nevertheless, they should avoid imposing indiscriminate rules on customers when they grant new loans; further, they should select borrowers more cautiously and appropriately differentiate the interest rates applied to each of them. Against this background of moderate lending growth and higher loan loss provisions, it does not seem that fees or gains on financial transactions can offset the pressure on the income statement. First, as I just mentioned, because it is unlikely that growth rates will be very high in this more sluggish economic environment in which financial market difficulties persist. And second, because, even if they are, given the weight of these items in income statements, they would be unlikely to act as offsetting mechanisms because of the sheer size of the pressures mentioned earlier. The most effective course of action, and that on which institutions' efforts should focus, is operating expenses. And homing in on operating expenses means not only limiting their growth, but should also lead to reducing those expenses which, because of their nature, are more variable. It is essential to exercise utmost care in taking on overheads, which are difficult to reverse. At a time like the present, it is preferable to have flexible cost structures which enable greater room for manoeuvre. The effort needed is formidable, and will undoubtedly require operating structures to be accommodated to the new competitive reality of the sector.
Assessing the effective degree of leverage in an ever-changing financial system is far from straightforward, and the liquidity of the markets in complex instruments, especially in conditions when many players would be trying to reduce the leverage of their portfolios at the same time, is unpredictable. Excessive leverage is the common theme of many financial crises of the past. Are we really so much cleverer than the financiers of the past? Concerns about the rate at which credit is being created extend to monetary policy. As I said last week in Cardiff, it would be optimistic in the extreme to suppose that the rapid growth of money and credit could be dismissed solely as a positive shock to the demand for money. The spread between interest rates paid by households and businesses and interest rates available in the money market has fallen. This has been one of the factors behind the strength of demand in the UK economy over the past  2  BIS Review 69/2007  year. Despite greater availability of labour, businesses have not expanded employment sufficiently to prevent stronger demand from increasing capacity pressures. Such pressures encourage businesses to raise prices. And that is exactly what the business surveys suggest has been happening. That underlying upward pressure on inflation has in part been hidden by the volatility of domestic energy prices. But it is why we have raised interest rates four times and by 1 percentage point in all over the past year.

Our central view remains that inflation will fall back this year as the rises in domestic gas and electricity prices last year drop out of the annual comparison, and the recent cuts in prices feed through to household bills. But it is important to look through those temporary effects to the outlook further ahead. The discussion within the Monetary Policy Committee is explained in the minutes of our June meeting which were published this morning. As ever, there is room for differences of judgement as to the appropriate level of Bank Rate – as shown by the differing views within the MPC. But every member of the Committee is determined to bring inflation back to target and keep it there – or as close to the target as possible – indefinitely. In the long run, it is of the utmost importance that the right institutions to secure both monetary and financial stability are in place. I believe they are. Chancellor, you are now moving on. Our country continues to benefit from the institutional arrangements you introduced in 1997. As that great political commentator Niccolo Machiavelli noted, “nothing brings a man greater honour than the new laws and new institutions he establishes”. I encourage you to be equally bold in your next job. Institutions outlast us all. Over time, they are adapted as we learn the lessons of the past in the light of a changing present to meet our future needs.