samchain/econo-pairs-v1 huggingface dataset:
What I mean here, and this is my third point, are the effects related to financial contagion emerging from interconnectedness and resulting from dynamic interactions between the financial economic agents that can embed non-linear features that could lead to fire-sales. Direct financial contagion via the interbank channel has been one of the features of the ECB top-down stress tests for some years already and we have been regularly publishing the results of the second round effects (related to possible domino effects in the interbank market) in the ECB Financial Stability Review. Yet, macroprudential stress tests should also consider the second round effects from indirect contagion, most prominently due to possible fire-sales, which could also emerge as an outcome of interactions between banks and shadow banks. We are developing agent based models that could take account of these interactions and allow for endogenous asset price determination. 14 This implies that the macroprudential stress test framework should encompass the direct stress test of shadow bank balance sheets. Recent ECB research suggests that the shadow banking sector has a natural tendency to grow until it becomes systemically important for the entire financial system and endangers the stability of the banking sector. 15 Stress testing shadow banks could unveil the  11  G. Hałaj, (2013), “Optimal asset structure of a bank – bank reactions to stressful market conditions”, ECB Working Paper Series No. 1533.

When it comes to mutual insurance against asymmetric shocks, it is clear that fiscal risks do not always stem from fiscal action, but from unsustainable economic and financial policies elsewhere. Therefore, any move in this direction should be accompanied by a new convergence process towards more resilient economic structures. Such a process would allow us to advance together towards a better-equipped EMU, outlining a clear path of reform and a commitment to a fiscal capacity. Political convergence is needed to kick off such a process, as any new convergence process can only be as effective as the legitimacy underpinning it. Conclusion Let me conclude by saying that protection against moral hazard is of course very important. At the same time, it should not be used as a strategy to relegate the move towards a fiscal capacity for the euro area to never-never land. The move towards a fiscal capacity could take the form of a gradual and conditional process that allows us to move in parallel towards restored fiscal buffers at the national level, convergence in the capacity to absorb shocks at the national level and a strengthening of institutions at the euro area level, while moving, equally gradually, towards more central fiscal stabilisation. 3  See Cœuré, B.: “Drawing lessons from the crisis for the future of the euro area” speech at “Ambassadors Week”, Paris, 27 August 2015. BIS central bankers’ speeches  3  I think we should be more ambitious in that respect.
Trends in small bank and small business lending As we evaluate the financial system and the broader economy, we regularly examine firms from a horizontal and aggregate perspective to gain insight on the trends in the provision of financial services in the Second District. Today, I’ll say a few words on trends in small business lending. Of course, looking at trends is not sufficient to identify causal relationships, but it does provide one perspective on these developments and identifies areas for future inquiry. The overall level of commercial and industrial (C&I) lending at Second District firms with under $ billion in total assets has grown steadily in recent years (Chart 1). Since the financial crisis, these loans have increased by just over 80 percent, which is somewhat faster than growth at the national level of 64 percent over the same period. 2/6  BIS central bankers' speeches  Within commercial and industrial (C&I) lending for these banks, small business lending is particularly important, given the traditional role of small businesses in job creation. While data are not immediately available on borrower size, we can look at a simple proxy for small business lending by isolating individual C&I loans to commercial borrowers that are each under $ million. These data show that while the dollar value of small C&I loans has grown since 2010, the pace of growth has not been as high as overall C&I lending growth.

And second, policymakers and regulators are clearly focusing more strongly on compliance risk management, because of recent developments in the corporate and political arenas. So, we have a situation where banks have growing exposure to compliance risk, at the very time that scrutiny of compliance management is intensifying. Inherent compliance exposure With respect to the former, inherent compliance exposure is clearly being affected by factors such as financial innovation, globalization and the impact of deregulation within individual countries. I will say a few words about each. New products (including structured products) are constantly being introduced, and are being used by an expanding set of market participants, as technology has improved and various market forces have incented behavioral changes. This has led to a number of compliance challenges: •  Questions for example can arise on how new instruments fit within existing legal and regulatory regimes,  •  Suitability issues can come up, given that new players entering the market may be less sophisticated than the historical set of market participants, and  •  Accounting and disclosure practices are likely to be lagging behind the rapid product innovation. Globalization and cross-border expansion present additional challenges, as firms become subject to a broader array of regulatory regimes. An immediate challenge is for the firm to assess whether conducting certain types or levels of business activity in a new country would cause it to become subject to various laws of that jurisdiction.
2  All speeches are available online at www.bankofengland.co.uk/speeches  2  The major Brexit contingencies include: -  The form of the new economic partnership between the EU and UK;  -  Whether the transition to that end state will be smooth or cliff-edged; and  -  How agents in the economy (households, businesses and financial markets) react to these prospects, particularly the extent to which they are affected by the uncertainty during the negotiations and the degree to which they anticipate the outcome and pull forward adjustment. As the Brexit process continues and the answers to these questions become clearer, the MPC will adapt its specific guidance and monetary policy more broadly in order to meet the inflation target. My message this evening is straightforward. From a monetary policy perspective, the Bank of England is ready for Brexit whatever form it takes. The role of guidance and the UK experience Before turning to Brexit, I would like to review briefly the MPC’s experience with forward guidance. The objective of forward guidance is to give insights into the MPC’s reaction function – in other words, how the Committee will adjust policy when the outlook for growth and inflation changes. In a perfect world, guidance would be redundant. People would know how the MPC intends to set rates over the future and how those intentions would adjust to economic developments in all eventualities – the so-called reaction function.

22  All speeches are available online at www.bankofengland.co.uk/speeches  22  Chart A: Divine coincidence has continued to reign in the euro area and US post-crisis but not the UK A1) UK Great moderation  Inflation (%)  6  Financial crisis and after 4  Inflationary, with trade-off  Inflationary, no trade-off  2 -6  -5  -4  -3  -2  -1  0  1  2 3 4 Excess demand (%)  0 Disinflationary, no trade-off  Disinflationary, with trade-off -2  Sources: ONS and Bank calculations. A2) US Great moderation  6  Financial crisis and after  5  Inflation (%)  4 3 2 -8  -7  -6  -5  -4  -3  -2  -1  0 1  1  2  3  4  Excess demand (%)  0 -1 -2 Sources: Bureau of Economic Analysis, CBO and Bank calculations. Notes: The measure of inflation is the four-quarter change in the personal consumption expenditures (PCE) deflator. The output gap is calculated using the CBO estimate of potential output. 23  All speeches are available online at www.bankofengland.co.uk/speeches  23  A3) Euro-area Inflation (%)  5  Great moderation Financial crisis and after  4 3 8 2 -4  -3  -2  -1  0  1  1  2  3 4 Excess demand (%)  0 -1 Sources: Eurostat, IMF and Bank calculations.
Fortunately, the gap between perceived and actual price developments is narrowing down again significantly. We are responsible for ensuring price stability for 306 million people in the euro area, who use the euro and make economic decisions every day. So it is essential, absolutely essential, that we preserve and enhance their trust in our single currency. They know they can rely on us to preserve their purchasing power over time. We are an anchor of stability created by the Treaty to ensure low inflation, in line with our definition of price stability. Let me conclude on a more personal note. 4  BIS Review 5/2005  The times when central banks were rather reclusive and closed institutions administering interest rates with some dedication to surprise observers and markets have gone. One of the main goal of a responsible central bank now is to have a reliable communication guiding expectations in a rapidly changing environment. In this respect one has to fully realize that the ECB has unique challenges to cope with. First, when we start the press conference the Vice-President and I know that we are speaking in quasi real time, through all of you, not only to European market participants, investors, savers, economic agents, entrepreneurs but also to all our European fellow citizens to whom we are accountable as a last resort. This is already a demanding and exciting task taking into account the fact that we are the only major central bank embarking on a press conference immediately after the monetary policy meeting.

One element of the strategy is to quantify what the ECB is aiming at in terms of price stability, namely an increase in consumer prices of below, but close to, 2% over the medium term. This provides guidance for inflation expectations. At the same time, it serves the purpose of accountability, for it sets a benchmark against which the ECB’s performance in maintaining price stability can be measured. The ECB’s monetary policy strategy also provides a clear and coherent framework for structuring analysis and our discussion in the Governing Council, and it has a remarkable role in structuring our external communication. From the start, it has helped to achieve the consistency between internal analysis and external communication which is the essence of transparency. It is also important for the ECB and the Eurosystem to clearly communicate what monetary policy can, and cannot, achieve. For example, monetary policy cannot offset short-term changes in the inflation rate which are caused by economic shocks, such as sharp oil price increases or higher administered prices. It is thus a permanent challenge to explain any deviations in inflation from the definition of price stability. At the same time, it is essential for the public to be confident that such shocks do not call into question the determination and ability of the ECB to deliver price stability over the medium term. Already the detailed public display of our monetary policy strategy as such is a very useful communication device.
Moreover, their liquidity ratio has exceeded 100%, three years ahead of the Basel III deadline. The French insurance sector too is robust, and has swiftly adapted to Solvency II. New assessments are under way, but using the previous standards, France’s major insurance groups cover their own funds requirement by around 230%. Clearly, financial stability is a priority for us; and by the way that is why financial regulators – including Banque de France and ACPR – pay close attention to the proposed merger between the London Stock Exchange and Deutsche Börse. ***  Let me draw a parallel to illustrate the situation. In France and in Europe, we have the raw materials – savings. We have the processing industry – the financial sector. But we are missing two links in the economic chain: downstream, we need to open up new opportunities in productive investments via a broader range of processed savings products; and upstream, we need stable and legible rules to allow the industry to conduct its business. Therefore, I see two ways forward. First, better channel our abundant savings towards productive investment. As I said, the core challenge for increasing innovative investment is to boost equity financing, both in France and in Europe: –  In France, this means new savings products and an appropriate trade-off between risk and return. Indeed, the share of households wealth invested in risky assets is more than three times lower in France than in the US: 77% of GDP versus 241% of GDP.

As they stand, the current technical proposals put forward for consultation by the Basel Committee do not respect this commitment: they must therefore be revisited. Second, we should be careful not to oversimplify the regulatory framework and loose the risk sensitivity. Adjustments to the internal models approach should not amount to imposing the standard approach on all, either explicitly, or implicitly by applying poorly calibrated “output floors”. *** Let me conclude with some words on the strengths of the Paris financial centre itself: robust banks and insurance companies, a dynamic asset management industry, strong financial market infrastructures, a highly skilled labour force. And you can be assured of three points: 1. First, French authorities, including the Banque de France, attach utmost importance to making sure Paris is one of Europe’s strongest financial centres. This is crucial for employment, for investment, as well as for the strength of the euro area economy as a whole. 2. In addition, we are already making every effort to build an innovation ecosystem: through the recent and efficient ACPR-AMF cooperation on FinTechs; through our support for the development of new tools – such as ESNI on securitization and Euro GC+ on repos, or our upcoming project to test interbanking information sharing processes based on blockchain technology; and also through our partnerships with many French universities renowned for their excellence and their Masters in Finance. 3.
It has long been known that real interest rates have shown a falling trend around the world over the last few decades. The “global” real interest rate, i.e. an average of real rates for risk-free assets (here measured using ten-year government bonds) in the major economies, has shown a falling trend of just over 4 percentage points since the end of the 1980s and is currently slightly below 1 per cent (see Figure 3(a)). The global real interest rate is important for small, open economies. In a world with the free movement of capital, it is difficult for a small economy to have real interest rates that deviate a lot from the global real interest rate level. This does not mean, however, that the real interest rate in Sweden always has to correspond exactly to the rate abroad. Deviations can exist both in the short- and long-term for various reasons. In the short-term, economic activity can develop differently in Sweden and abroad, which can affect real interest rates. Deviations can also take place over longer periods, depending, for example, on different trends in population development or productivity growth. But just as in other countries, there has been a downward trend in the real interest rate in Sweden. The real interest rate for two-, five- and ten-year government bonds has fallen from around 6 per cent at the end of the 1980s to almost -2 per cent today (see Figure 3(b)). 6 [23]  Figure 3.

William J McDonough: Update on the major initiative to revise the 1988 Capital Accord  Speech by Mr William J McDonough, President and Chief Executive Officer of the Federal Reserve Bank of New York, before the 4th Annual Supervision Conference of the British Bankers Association, held in London, on 19 June 2000. *  *  *  I am pleased to be with you to provide an update on the major initiative to revise the 1988 Capital Accord. Last June the Basel Committee on Banking Supervision, which I have the privilege of chairing, released a Consultative Paper proposing a new capital adequacy framework. My comments today will focus on the industry’s response to the proposal and the areas that will require the Committee’s attention going forward. Given the progress already achieved, it is my belief that the Committee will be prepared to release a second Consultative Paper early next year. I will also briefly discuss three essential aspects of the safe and sound operation of any banking organization - good corporate governance, rigorous internal controls and effective risk management. I will conclude with some thoughts on the critical role of banks’ board of directors and senior management. Current Accord The primary tool of capital regulation currently is the set of minimum ratios that were devised in 1988 by the Basel Committee. The 1988 Capital Accord has truly become a global standard for banks worldwide.
In November 2011, the Riksbank, the Ministry of Finance and Finansinspektionen announced that the four major Swedish banks would meet the capital adequacy requirements of 10 per cent of the risk-weighted assets from 1 January this year and of 12 per cent from 1 January 2015. All of the four major banks now have CET 1 ratios that are higher than 10 per cent according to the definition in Basel III. Three of the banks are also above 12 per cent. The Swedish authorities have also said that the banks should meet the short-term liquidity measure in Basel III (the LCR) both in total and separately for the euro and the US dollar. This requirement has been compulsory for the eight largest Swedish banks since 1 January this year.3 The Riksbank has also recommended the banks to improve their public information on liquidity risks and the degree of encumbered assets. This is because greater transparency increases both confidence and market discipline. I am pleased to say that the banks’ public  3  These are Nordea, Swedbank, Handelsbanken, SEB, SBAB, Svensk Exportkredit, Kommuninvest and Länsförsäkringar Bank. 8  BIS central bankers’ speeches  reporting has improved in line with the Riksbank's recommendations, although some work still remains to be done (see Table 1). Table 1 The banks’ public information on liquidity risks  These measures have contributed to the relative stability of the Swedish banks. But I don’t think we have finished yet.

The foreign banks do not themselves usually have any natural access to Swedish kronor. They therefore fund part of their lending in kronor by borrowing kronor in the short-term from other Swedish banks. However, the risk is that foreign investors will leave the Swedish market if problems arise, as the Swedish krona is a small currency. There are also reasons for believing that the number of foreign banks that act as counterparties to the Swedish banks is limited. Moreover, participating in the swap market is often not a central part of the operations of the foreign banks. This in turn has consequences for liquidity and pricing on the swap market. We saw an example of this when the last extraordinary loan that the Riksbank had offered the banks during the crisis matured in the autumn of 2010. Uncertainty then arose on the money market, and consequently swap counterparties abroad who had acquired short-term funding in kronor through Swedish banks became less willing to enter into swap agreements with Swedish banks. It thus became both more expensive and more difficult for Swedish banks to convert foreign currency into Swedish kronor at long maturities. To a certain extent, Swedish banks also act as counterparties to each other in the swaps. However, from the perspective of the Swedish banking system this is really only a matter of redistributing the maturity risk. The fact that the banks act as counterparties to each other also forges the links within the Swedish banking system even tighter.
Different agents’ expectations of inflation two years ahead Per cent  4  4  3  3  2  2  1  1  0  0  -1 1995  Labour market organisations Purchasing managers M oney market agents  1996  1997  1998  1999  2000  2001  2002  -1 2003  2004  Source: Prospera  BIS Review 11/2005  9  4. Inflation with and without energy prices Annual percentage change 4  4 UND1X UND1X, forecast Inflation Report 2003:2 UND1X excluding energy  3  3  UND1X excluding energy, forecast Inflation Report 2003:2  2  2  1  1  0 Jun-02  Dec-02  Jun-03  Dec-03  Jun-04  Dec-04  0 Jun-05  Sources: Statistics Sweden and the Riksbank  5. A schematic outline of inflation developments with and without energy prices Per cent  4.0  4.0 3.5  3.5 3.0  UND1X UND1X excluding energy  2.5  3.0 2.5  2.0  2.0  1.5  1.5  1.0  1.0  0.5  0.5 0.0  0.0 Year0  Year 1  Year 2  Year 3 Source: The Riksbank  10  BIS Review 11/2005  6.

For reasons unrelated to the domestic situation, but reflecting a prolonged period of low inflation in the euro area, the ECB is using both conventional and unconventional measures to stimulate aggregate demand. Hence interest rates are extremely low: consider that the domestic 10-year bond yield is now below 1%. Such low rates stimulate aggregate demand. One could also argue that, in the absence of the ECB’s monetary policy measures, the euro would also be much stronger than it is today. This would have had adverse implications for external competitiveness and, hence, Maltese exports. Over the last two years, the economy also benefited from exceptionally strong government investment - with a key role played by EU funds - as the administration made sure that available entitlements were absorbed to the fullest extent possible. This capital spending has both a temporary and a permanent effect. While the projects themselves are under way, investment boosts aggregate demand as seen in the levels of activity in the construction sector. Once the projects are completed, the additional capital stock that has been put in place enhances efficiency and allows the economy to continue growing into the future. This brings me to a crucial concept in the analysis of Malta’s underlying economic performance: potential output. Potential output can be understood in many ways. Intuitively  Page 3 of 8  it can be seen as the maximum output an economy can produce without generating imbalances that show up in inflation. Potential output is a conceptual measure.