samchain/econo-pairs-v1 huggingface dataset:
In Europe, including Sweden, many banks had borrowed dollars on the US market, where large volumes could be obtained at competitive rates. The US market for short-term funding had been highly liquid. However, when the crisis erupted, the flow of dollars quickly dried up. As is always the case when liquidity disappears from a market, this was due to uncertainty. Who wants to lend money to a bank when they are not certain they will get it back again? In this case, the basis of this uncertainty was that European banks had purchased large amounts of US mortgage securities, often packaged in various structured products, that were difficult to value and therefore also difficult to sell on the market. Where were these securities, often designated as “toxic assets”? Uncertainty also affected banks that had not bought any US mortgage securities, such as the Swedish banks. Because how could  BIS central bankers’ speeches  1  anybody be sure that these banks had not lent money to other banks whose balance sheets were full of structured products? The problem was exacerbated by the fact that a significant portion of the flow of dollars to Europe had come from US MMFs – money market funds. These are comparable to Swedish money market funds, in which firms and private individuals can purchase shares, and where the fund invests in short-term debt securities.

They needed every dollar they could get back from their European counterparts. So the European dollar problem bounced back to the United States. In this situation, the US central bank (the Federal Reserve) decided to supply the European Central Bank (the ECB) and a number of other European central banks, including the Riksbank, with dollar loans. While this had already been carried out on a smaller scale since 2007, it escalated steeply in conjunction with the Lehman collapse. This lending was conducted via what are known as currency swaps, in which (put simply) the Federal Reserve lent dollars against collateral in euros or other local currency. In this way, the ECB, the Riksbank and other central banks could provide their domestic banks with loans, not only in their own currency, but also in dollars. The flow of dollars from the private market was thus  2  BIS central bankers’ speeches  replaced by a flow of dollars from the Federal Reserve (see Figure 1). This saved a number of European banks which otherwise would have gotten into trouble, but what was probably more important from a US point of view was that it also saved a number of US banks. Figure 1. Federal Reserve’s lending to other central banks USD Billions 600  500  400  300  200  100  0  Sources: Federal Reserve and the Riksbank  The way that this drama played out in Sweden can clearly be followed by examining the Riksbank’s lending activities (Figure 2).
If contingent capital became more widespread, banks’ capital ratios would be automatically stabilised over the cycle, lowering the chances of future banking crises. As several academics have argued, the same basic principles could be applied to the debt contracts issued by households, companies and even sovereigns. Take a typical mortgage contract. A rise in the value of a property relative to the loan gives the borrower equity against which they can borrow. This provides an incentive to trade-up, raising house prices and generating further equity. This amplifier operates symmetrically, as falling collateral values reduce refinancing options and drive down prices. Economists call this effect the financial accelerator. 18 It adds to cyclicality in credit provision and asset prices. US economist Robert Shiller has suggested it might be possible to devise mortgage contracts that slow, or even reverse, this financial accelerator 19. Instead of being fixed in money terms, imagine a mortgage whose value rose with house prices. So the repayment burden would rise automatically with asset prices to slow a credit boom and fall in a recession to reduce the chances of mortgage default. Mortgages would operate like a contractually pre-committed debt-equity swap between households and banks. They would automatically stabilise household loan-to-value ratios. By reducing the amplitude of the credit cycle, they ought to benefit both borrower and lender. Governments cannot issue equity. But this does not prevent them issuing debt with equitylike characteristics.

And the pace of policy reform – in the UK, but also in the EU and globally through the International Association of Insurance Supervisors (IAIS) – is likely to be on a longer timetable due to Covid-19 being a shared and pressing priority. We recognise that there are certain aspects of the design and implementation of the Solvency II regime that do not fit so well to UK specificities. Our views on these areas are well known, and I believe shared by industry. We understand that the first priority for the industry is the Risk Margin. The current design is too sensitive to long term interest rates and this has the unintended and perverse consequence of driving a high proportion of longevity risk on new business offshore. We are committed to reform of the risk margin. The timing and nature of reform depend, like many questions of regulatory reform, on the final relationship between the UK and the EU. There is a wide range of options that could be pursued and it is encouraging that EIOPA intends to look at the design of the risk margin in the final stages of the 2020 review. Second is the matching adjustment. The PRA supports the concept of the matching adjustment. It provides the right incentives for insurers to invest in assets that are suitable for their business models. This in turn also reinforces a macroeconomic role of insurers, who provide stable, long-term investment.
Let us remember that, for example, in Bulgaria the inflation rate had topped 1,000 percent and the economy was in shambles. The introduction of the currency board was the solution which, at unavoidable social costs, brought the Bulgarian economy afloat, with inflation falling steeply and staying close to EU levels for a good couple of years. But the currency board has its limits and constraints. The BNR has constantly opposed the adoption of such a system by Romania given these limits and constraints. Actually, a country adopting the currency board is deprived of monetary policy and thus the central bank becomes a sort of an institute for statistics. Instead of a two-pedal vehicle – monetary and fiscal policies – the economy of currency board countries has only one pedal left, namely the fiscal policy. Assuming the risk of an extended comment, let us look at what happened in the four countries and what happened in Romania in the past few years in a rather unusual international context, with the euro appreciating simultaneously with the increases in farming products and energy prices. The appreciation of the euro triggered a slide of output competitiveness in the countries having their exchange rate pegged to the euro and the rises in global prices boosted domestic inflation. Currency board countries could change neither the exchange rate, nor the interest rates which are linked to euro area levels, currently standing at 4.25 percent a year.

As the responsibility for structural reforms in the EU and in the euro area rests with the individual Member States, a wide variety of institutional solutions and regulatory arrangements across countries and sectors exist. In many areas I consider this decentralised approach to be an opportunity, not a disadvantage. It makes possible healthy competition between differing policy designs of national authorities and enables solutions that are tailored to the particular needs of a country or region. This fact, which is a clear advantage of the euro area economy compared with other more centralised economies, is often not recognised enough. Decentralised policies offer a unique opportunity to explore different solutions in a competitive manner, allowing the testing of various approaches and, if thought useful, selection of best practices with a high degree of confidence. Fiscal policy is a good example of a field where Europe found an efficient solution in the form of common rules which keep the advantages of decentralisation and subsidiarity. As is well-known, budgetary policies remain under national responsibility, but effective common rules have been developed in the form of the excessive deficit procedure and the Stability and Growth Pact. These rules are designed to ensure that a high degree of fiscal discipline supports the single monetary policy in its primary objective of maintaining price stability.
The Bank of England and Fintech: Public Support for Private Innovation Speech given by Dave Ramsden, Deputy Governor for Markets and Banking  UK Fintech Week 2021 21st April 2021  With thanks to Andrew Whitworth and Tom Smith for their assistance in preparing these remarks, and to Bank colleagues including Shiv Chowla, Victoria Cleland, Louise Eggett, Angus Moir, Helen Packard, Varun Paul, Andrei Pustelnikov, Will Saunt and Oliver Thew for their many helpful contributions and suggestions. 1  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  Introduction  Thank you for this invitation to speak at UK Fintech Week. Every year this event performs an important role in highlighting the strength and potential of the fintech sector in the UK. After a year like the last one, we need to be more certain than ever about the resilience of the sector. Today, I will discuss how the Bank of England delivers its role to support the safe development of UK fintech in line with our mission: to promote the good of the people of the UK through monetary and financial stability. Engaging with fintech is an important part of achieving that mission, as I emphasised when I spoke here last two years ago in 2019.1 In the three years since the Bank set up its ‘Fintech Hub’, and the two years since Huw van Steenis’ 2019 ‘Future of Finance’ report for the Bank, the UK fintech sector has grown significantly.

Thus, additional development and modernization of the Bulgarian government securities market is expected to be achieved and its further integration into the European Union’s single market to be encouraged. This will allow by the end of next year financial institutions to freely select the place where they trade in government securities issued in Bulgaria, in compliance with the requirements under Regulation 2015/61 concerning the assessment of liquid assets in the form of government securities. This would possibly provide the prerequisites for additional diversification of the investors in Bulgarian government debt instruments. These changes are conceived in line with the debt management and financial markets security policy in the context of our future euro area membership and are necessitated by regulatory reforms at EU level. Finally, I would like to mention a project successfully completed recently. On 31 May 2016 Bulgaria subscribed to the Special Data Dissemination Standard Plus of the International Monetary Fund (IMF). Bulgaria is the 11th country worldwide to adhere to this highest tier international data dissemination standard. Adhering to this standard is the result of the joint efforts of the Bulgarian National Bank as coordinator for Bulgaria, the National Statistical Institute, and the Ministry of Finance. The BNB oversaw the adherence efforts and was responsible for developing the so-called National Summary Data Page, which is already available on the BNB website. The greater part of the new statistical indicators included in the standard are compiled by the BNB.
Regarding monetary policy – even uncertain forecasts have some value When it comes to monetary policy, we are pleased at Goodhart’s and Rochet’s conclusion that the Riksbank has discharged its fundamental duty – to conduct a policy of flexible inflation targeting – well. As I mentioned earlier, we will return with more in-depth views on the evaluation during the coming consultation process, but I nevertheless intend to take this opportunity to say a few words about some of the recommendations put forward. One recommendation in the monetary policy areas is that we at the Riksbank should in future express a little more “self-doubt” when putting forward our proposed paths for policy rates. We can achieve this either by a greater emphasis on the uncertainty of interest rate forecasts, or by basing them beyond some horizon on some formula that incorporates the market yield curve. The reason given for this recommendation is that there is no real information in interest rate forecasts that extend further than a couple of quarters ahead. We at the Riksbank are well aware of how uncertain interest rate forecasts are in the longer run and we have therefore endeavoured to draw attention to this uncertainty. We have done so, for instance, by publishing uncertainty bands around the interest rate paths and by repeatedly emphasising the fact that the repo rate path is a forecast and not a promise.

Of course we can make further efforts to point out the uncertainty of these forecasts if necessary, but we believe that the market and the general public have already understood that the forecasts are uncertain in the longer run and should therefore be taken with a pinch of salt. One indication of this, which Professors Goodhart and Rochet also point out, is that “the market seems to have retained a, healthy, scepticism whether the official projections would be realised” during the period we have been publishing a repo rate path. This applies in particular to the period following the global financial crisis, when there was extreme uncertainty surrounding all of the forecasts. However, the fact that interest rate forecasts in the longer run are uncertain does not mean that we should not make such forecasts. And when we make our own interest rate forecasts we should also publish them. By publishing these forecasts we can explain more clearly to the general public and the market how we view future developments and how we reason when making our monetary policy decisions. I find it difficult to see how this could be harmful. To instead base long-term forecasts on market expectations of the policy rate is a method we have already tried and decided to abandon. If we use market expectations of the policy rate as a starting point, it may be difficult to determine how the interest rate is connected to other developments in the macro economy.
But we have to ask what sort of operational risks might be involved. What sort of governance framework will banks need to ensure proper accountability? Could it lead to new ethical or other issues? For example, could the use of AI in credit scoring result in unfair treatment for certain groups of customers? Will AI output require additional “human” perceptive oversight? 25. To help banks, the HKMA recently issued two circulars, one on high-level risk management principles on the use of AI, and the other on the related consumer protection issues. We tried not to make these overly prescriptive, as this is a new area. The fact is that banks and ourselves are learning together. We all still need to explore exactly how technology should be implemented and overseen in practice. 26. The HKMA is conducting research in AI applications to help everyone. We are publishing some results today, in the form of an information sheet of facts and figures from an industrywide survey. One key finding is that almost 90% of our retail banks have already implemented, or are planning to implement, AI in their business applications. We will publish a series of reports in the coming months to provide more insights into the application of AI in the financial services industry. 27. We also want to work more with banks and the technology sector on developing regulatory technology, or RegTech. We all know that data analytics and machine learning can help the industry perform compliance work more accurately and more cost-effectively.

When we look at successful examples of technology adoption, it’s not just about state-of-the-art technology. It’s about how you manage the change – especially changes to mindsets. It takes time and effort to convince people that a new technology is worth the cost, the effort or the potential risk. 16. This is often the case with larger organisations, especially official institutions like the HKMA. We set up the FFO in early 2016 precisely to serve as a dedicated agent to drive changes and take practical steps to turn ideas into reality. 17. The FFO has contributed to a number of Fintech initiatives in the past three years – from cybersecurity to supervisory sandbox, open API, the FPS, and the rest of the seven Smart Banking initiatives. But I must stress that the FFO is not working in isolation. Other parts of the HKMA must work alongside it, and of course it must work with the banking, technology and even legal sectors. 18. The FFO has essentially served as the coordination point of this collective effort. This has enabled a “change” mindset to spread throughout our organisation and among our partners. And the result is the impressive Fintech developments we have seen in the last few years. 19. A change agent does not have to come from within. Sometimes, competition is an effective driver for innovation. One good example is the imminent entry of virtual banks in Hong Kong.
13  That’s one reason why the Bank of England’s Financial Policy Committee has commissioned an in-depth review of how the use of derivatives in the non-bank financial system may be shaping the dynamics of markets. 14  12  Investors who base decisions on value-at-risk (‘VaR’) and assess those risks using market measures can be guided into thinking their portfolio is safer. In some cases, this general behaviour is an explicit investment strategy: some investment funds explicitly try to keep the implied volatility of their portfolio at a fixed level. 13 See the market monitor of the Office of Financial Research for the second quarter of 2017: ‘The volatility paradox: tranquil markets may harbour hidden risks’. 12  All speeches are available online at www.bankofengland.co.uk/speeches  12  We need to keep pace. And investors should too. Accidents can be avoided if driving speeds are based on the road conditions ahead rather than the price of insurance. ii) Liquidity mismatch in corporate bond markets The second development raising questions about market resilience is actually a combination of two changes in recent years. First, market-makers (‘dealers’) have become less active in their market making. This matters because they play an important role in warehousing bonds between the time a seller wants to sell and the point at which a willing buyer can be found. Our research suggests that, in response to asset sales by bond funds, dealers are less willing to see their inventories of corporate bonds increase.

While intra-regional trade has been growing fast, a further reduction in trade barriers should help promote deeper regional trade integration and facilitate more efficient resources allocation. A wider use of local currencies in trade settlement and financing would also help diversify sources of trade financing and reduce currency risk and transaction costs. Lastly, regional economies need to deepen financial market reforms and promote greater financial integration within the region to better channel Asia’s surplus savings to meet its own investment needs; to support growing trade integration; and to enhance the absorptive capacity of our financial markets to capital flows. Further liberalisation of the financial sector and improving financial infrastructure such as establishing credit information sharing system and microfinance institutions should also help some regional economies to allocate credits more efficiently. Over the years, ADB has contributed to financial sector development in the region through its own programmes and through supporting regional initiatives such as the Asian Bond Markets Initiative under ASEAN+3, and we welcome the Bank’s continued commitment in this regard going forward. It is noted that a number of the above structural reform areas have been identified as strategic priorities in the Bank’s midterm review of Strategy 2020. With its expertise, we believe ADB has an important role to play in helping the region to tackle the challenges arising from the highly uncertain global environment, and embark on structural reforms to raise its long-term growth potential.
The author-narrator has embarked on an expedition to a South Pacific island with six companions. On the island they experiment with different forms of social organisation. After the group tries despotism, anarchy, democracy, etc., Loe concludes that enlightened despotism has much to recommend it: “Of course it very much depends on who the ruler is and how enlightened he or she is, but at its best this is probably one of the more sensible forms of government.” 16 Martin, one of the other members of the expedition, also thinks that this system might work well. He stresses, however, that the form of despotism must be a truly enlightened one: “Not just moderately enlightened, but ultra-enlightened. The ruler needs to be highly educated, plus be well travelled and have lots and lots of varied interests (…) Just find an exceedingly likeable individual, someone you trust, someone who is warm-hearted and good-natured, and ask him or her to manage things as best they can.” 17 Most people would probably argue that despite certain benefits, enlightened despotism would not be very robust. As you may have noted, a number of assumptions underlie Martin’s conclusion, and these assumptions are not always satisfied. Delegating decisionmaking responsibility to a group may help to guard against situations where the individual’s weaknesses and vested interests come to dominate. It can also provide some insurance  attending the IMF meeting). The business card revealed the date and magnitude of the British devaluation. It was a busy night.

3  See inter alia Report No. 29 (2000–2001) to the Storting, Guidelines for economic policy, Ministry of Finance, and the Regulation on Monetary Policy of 29 March 2001. BIS Review 147/2010  1  That it is tempting, but dangerous, for a government to focus on short-term gains was a lesson Greek politicians learned this spring. Government spending exceeded revenues over a long period. Accounts and official statistics were fudged. Politicians may have hoped to secure a quick admission for Greece into the euro area, with the advantages this would bring. They may have also believed that high government spending and low taxes might help their re-election prospects. Instead, they now have to steer the country through harsh reforms and substantial cuts. 4 The Norwegian economist Finn Kydland received the Nobel Prize for economics in 2004 for having shown that on the whole, monetary policy decisions are better if policymakers delegate interest rate setting to an independent central bank under a clear mandate. 5 As a central bank we must adhere to the mandate we have been given and be able to set the key rate based on a professional assessment. 6 This is a system that lays a solid foundation for making good decisions. 3. We make decisions under uncertainty  Independence alone does not guarantee good decisions. Even if an independent central bank is better positioned to avoid having short-term expediency and changing preferences dictate interest rate policy, its decisions must be made under considerable uncertainty.