samchain/econo-pairs-v1 huggingface dataset:
AIG needed liquidity and it needed it that day. In the early days of the intervention, when we knew precious little about AIG, but knew that it needed billions of dollars, we were truly facing a binary choice to either let AIG file for bankruptcy or to provide it with liquidity. It is worth noting that this choice fell to the Federal Reserve because Congress had equipped it with an ability to lend to a non bank like AIG in extraordinary and exigent circumstances. Given AIG’s situation on September 16, 2008, and given what had transpired over the preceding days and months, how could we responsibly not have lent pursuant to our statutory authority? With authorization from the Board of Governors under Section 13(3) of the Federal Reserve Act, the Federal Reserve Bank of New York had the ability to provide liquidity to AIG by making a fully secured loan. The decision to activate the authority and lend was clearly justified on the merits but was difficult because of the collateral consequence, the moral hazard resulting from AIG’s rescue. Within hours of the policy determination, the Federal Reserve took over the term sheet originally created by a private sector consortium of commercial banks. In the aftermath of Lehman’s bankruptcy, the consortium was no longer prepared to lend to AIG.

We believe that we will receive full payment of principal and interest from AIG, much like the consortium did in LTCM. Still others have wondered why Lehman went bankrupt, while the Federal Reserve extended credit to AIG that prevented its default. The answer is that AIG presented a very different case. AIG had enough high-quality collateral to permit the Federal Reserve to extend a secured loan to provide liquidity to the firm. On September 16th, our focus was on providing liquidity so that AIG could meet its obligations and avoid default. To be clear, we were not making an investment in AIG; we were making a fully secured loan. We were not assuming management responsibility for the company; we were a lender to the company. The recently released Volukas Report shows in a thorough, exhaustive manner that an effective solution to Lehman required a strong merger partner that could provide much needed capital to ensure a going concern. While Federal Reserve and Treasury officials tried very hard to find that merger partner for Lehman, in the end we did not succeed as we had succeeded in March of 2008, when we brought in JPMorgan Chase to acquire Bear Stearns. As a liquidity provider, we did not consider conditioning our lending to AIG on a requirement that the company obtain concessions from some of its major creditors. Conditioning our lending on AIG coercing certain creditors to agree to reduce the amounts due and owing from AIG would have been to ensure failure.
Think Global, Act local Speech given by Minouche Shafik, Deputy Governor, Markets and Banking  Joint Bank of England, IMF and Hong Kong Monetary Authority conference on Monetary, Financial and Prudential Policy Interactions in the Post-Crisis World, Hong Kong 24 October 2016  I would like to thank James Benford, Ambrogio Cesa-Bianchi, Fernando Eguren Martin, Julia Giese, Sujit Kapadia, Grellan McGrath, Michael McLeay, Dennis Reinhardt, and Simon Whitaker for their assistance in preparing these remarks. I am grateful to other Bank colleagues for useful comments on an earlier draft. 1  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  Introduction  The benefits of open capital markets are clear. They facilitate the flow of finance to where it would be most productive and help ensure global resources are allocated most efficiently. They allow savers and investors to diversify portfolios beyond national borders, and they provide a greater range of funding sources to fast growing economies and businesses. Motivated by these gains from openness, greater capital mobility has been one of the defining features of the global economy since the end of the Bretton Woods era, as first advanced and then emerging market economies liberalised their capital accounts (Chart 1). However, open capital markets also come with risks. Breaking the link between domestic saving and domestic investment allowed countries to accumulate ever larger stocks of external assets and liabilities. And that has contributed to another defining feature of the global economy since the breakdown of Bretton Woods: a significantly greater frequency of crises.

It could also be justified if there is a desire to avoid worst-case outcomes and the costs of crises are uncertain. 19  11  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  11  The longer timeframe better captures the prolonged build-ups in credit that precede financial crises in the data, as well as the longer implementation lags involved in setting macroprudential policy. Chart 8 uses the baseline calibration from Aikman et al (forthcoming), which sets 𝜅 = 1, larger than usual in 20  the literature given the longer timeframe, and sets 𝜎 = 0.6. A 1pp tightening in the CCyB increases spreads by 20 basis points (𝜓 = 0.2), while higher spreads have a larger effect on demand (𝜔 = 1) than supply (𝜈 = 0.4), so all else equal inflation falls when the CCyB is tightened. Absent policy, 3 year cumulative real credit growth is assumed to equal its recent UK average of 21% (𝜙0 = 0.21), which can be reduced by higher interest rates (𝜙𝑖 = −1.5) or credit spreads (𝜙𝑠 = −6). The trade-off curves in Chart 8 are derived under the assumption that there is a 5pp per year positive credit shock for 3 years, (𝜉1𝐵 = 𝜉1𝐵 = 0.15). With no policy response, such a shock would increase the crisis probability by 2.75pp. Because the shock is purely domestic, this is smaller than the effect of the global shock examined in Chart 3.
This is a reason why the central bank should act with foresight and be alert to the development of inflation expectations. BIS Review 8/1997  -2-  The potential for influencing fluctuations in activity around the trend is dependent on people’s appraisal of the central bank’s determination and ability to maintain price stability. Central bankers talk of the importance of credibility, by which is meant the extent to which people expect inflation to be in line with its targeted rate. The degree of credibility is conditioned by, for example, the historical record of inflation and the existence of government financial deficits. Weak credibility calls for caution in monetary policy, just as higher credibility confers more room in which to manoeuvre. Experience has shown, moreover, that even in the shorter run, the possibility of influencing employment and unemployment via monetary policy is very limited. Limited fluctuations around the growth trend are by no means sufficient condition for a smooth development of employment and low unemployment. Comparisons between countries and regions reveal that a similar growth pattern, even over a considerable period, can involve markedly divergent effects on employment and unemployment. This highlights the function of the labour market. It is there that measures must be taken in order to tackle problems with employment and unemployment. I want to underscore some conclusions from this discussion. Monetary policy cannot have growth as the primary objective because it is not capable of influencing growth in the longer run.

This is an important wake-up call for the financial market, and market participants are spending a lot more efforts on the transition issues, with the support of ISDA and other industry bodies. 3. But, with this growing momentum, are we all geared up? I would reply with a simple ‘no’. Clearly, much more remains to be done. Transition: A challenging process even for the deep USD market 4. Among all the IBORs, USD LIBOR is the most widely used benchmark in the global market. And the US authorities have been proactively engaging with the industry in promoting the use of Secured Overnight Financing Rate (SOFR) as an alternative. 5. Since the launch of SOFR in April 2018, the trading volume of interest rate derivatives (IRD) referencing SOFR has been growing, but it remains relatively small. According to ISDA’s Interest Rate Benchmarks Review, the total traded notional volumes of IRD referencing SOFR was $ billion in Q1 2019. This was less than 0.1% of those referencing USD LIBOR, which totalled $ trillion. 6. So, even for the USD market, which is the deepest and most liquid market in the world, the build-up of transactions based on an alternative risk-free rate could take some time. For other IBORs, this could be an even longer and more challenging process. Transition: A multi-dimension challenge Wide-ranging impact arising from the transition 7. As many speakers have pointed out, transitioning to alternative reference rates is a complex multi-dimension task.
The average private lending rate increased by 0.09 percentage point from  2  BIS Review 38/2010  the third to the fourth quarter, but the December interest rate increase will probably only feed through in 2010. Weighted mortgage lending rates have increased by a quarter percentage point since the key rate was raised for the first time in October. The fall in business investment seems to be nearing an end. Information from the regional network indicates that investment in private services will pick up this year. Manufacturing enterprises in the regional network report that investment will fall between 2009 and 2010. Corporate credit growth is still on the decline, but Norges Bank’s fourth-quarter survey of bank lending showed that banks have eased credit standards for the corporate sector. Commercial building starts have picked up slightly since summer. Housing investment fell sharply between 2007 and 2009. Turnover of new homes has increased and house prices have risen markedly. Housing starts are expected to increase ahead. Household credit growth has been stable in recent months. Growth in private consumption increased through 2009 and growth is expected to continue. In spite of a lower interest rate level, the household saving ratio increased to a record-high level in 2009. This probably reflected high household debt levels with a need for some households to consolidate, and a large degree of uncertainty owing to prospects of higher unemployment and a fall in the value of housing wealth. At the same time, household real disposable income increased.

However, the 1  See, for instance, the box on earlier economic downturns in the Riksbank’s March Inflation Report or the box in the IMF’s most recent economic outlook. BIS Review 32/2002  3  strong household consumption, primarily in the USA, does raise some questions with regard to the sustainability and strength of the recovery, given the initial low level of savings among US households and the relatively high indebtedness. The fact that large mistakes in forecasting can be made at turning points for economic activity is nothing unusual and the pattern we have been able to distinguish during the 1990s, with short-lived downturns and longer upturns, appears to be holding true. Economic policy has contributed to stability A number of different factors may have contributed to upturns in economic activity becoming longer, and the downturns shorter, while variations in production have declined. Various studies bring up different explanations, so I would like to point out that this is more a question of speculation than fact. One explanation could be that economic policy has contributed to increased stability. Fiscal policy in a large number of countries has been changed towards a balanced budget and avoiding an unsustainable build-up of debt, while monetary policy has been given a clearer focus on maintaining price stability. A greater emphasis on combating inflation and on institutional changes to make central banks more independent, has gone hand in hand with stabilisation policy appearing to have been more successful in counteracting fluctuations in economic activity in many countries.
Some of these risks, singularly or collectively, can lead to potential insolvency and financial instability. In more recent times, the regulators world over have introduced prudential norms on single borrower exposures, group exposures and concentration of credit risks. The underlying principles of such norms indicate some degree of compulsion on the observance of CG principles. To further augment such prudential norms, regulators may even consider introducing mandatory disclosures by banks and financial institutions. Where does good governance fit in this scenario? Obviously, Corporate Governance is now identified and acknowledged as a powerful tool to generate trust and confidence in an institution. In that context, good Corporate Governance is essentially important for banks, because such institutions (a) deal with funds raised from the public; (b) are likely to encounter greater risks including frauds and failure; and (c) if such frauds or failures occur in such institutions, it may pose issues relating to public confidence in the financial system stability itself. All these reasons have led to Banks tending to depend upon risk management practices based on principles of prudence rather than complying with only minimum requirements. It is also as a result of such realization that many stakeholders and regulators are now consciously looking towards good Corporate Governance, as one of the prime instruments in its overall effort to maintain financial system stability. In Sri Lanka, the CBSL has already issued a voluntary code of best practice on Corporate Governance to banks.

the Sarbanes – Oxley Act in the USA and similar laws and/or regulations all over the world were quickly introduced in a possible attempt to prevent such scandals and failures in future, and to soothe the nervous minds of investors, both local and international. But, while the “big stick” was being brandished and freely wielded, the modern thinking and realization that has been quickly but firmly evolving simultaneously has been that, achieving an outcome of good corporate behavior needs more than just a long list of rules, regulations, and big sticks. In fact, we all have now begun to learn and understand that corporate scandals and failures are a bit like the flu. Regulators, researchers and stakeholders regularly “discover” or “invent” new vaccines to combat the menace, but the virus mutates and surfaces again in a different form or under a different strain. In the same way, notwithstanding many initiatives of the 1990s and the early 2000s, after several rounds of corporate scandals around the globe, from Enron to WorldCom to Parmalat to Daewoo to so many others, new vaccines and treatment methods had to be quickly researched, hastily prescribed, and widely administered. After the dust has settled however, we now find, when we pensively reflect, that some treatment may have been too strong or has been causing too many adverse side-effects. Some pills may have been too bitter. Some tablets may have been too expensive. Some disease management techniques may even have been more harmful than the disease!
I therefore should perhaps say a few words on the challenges for Europe’s financial markets that may be posed by the exit of the UK from the European Union. We do not yet know what arrangements will govern the trade of financial services and the integration of financial markets between the UK and the EU once the UK has completed its exit. That will be one of many issues to be determined by governments in negotiations over the coming years. Nor do we know how the financial sector in the UK and elsewhere in Europe will respond to the process and outcome of those negotiations. There are many possible answers to both questions. What I think is clearer is that this is not a zero sum game. 10  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  10  It is certainly possible – indeed some would say likely – that some wholesale financial market activities currently carried out in London and elsewhere in the UK are in future carried out elsewhere in Europe. But as I have discussed earlier this evening, the re-emergence of London as the world’s leading financial centre over the past 50 years, despite the decline in importance of the UK in the world economy, is the product of many factors. It may in part be due to London’s role as Europe’s financial centre.

Additionally, the globalization of financial markets led to difficulties in auditing cross-border transactions mainly due to lack of cooperation between supervisory authorities. However, in recent years, care has been given to overcome inter-country problems and increase cooperation. Success of countries in integrating into the global financial system and in fulfilling the requirements of globalization will depend on deeper international cooperation between national and international agencies. At present, there exist several countries and nations that are not yet benefiting from the globalization. Many obstacles stand in their way towards integration into the global economy. In an increasingly globalized world economy, financial sector stability is most likely to be achieved when prudent international standards are met and when markets operate competitively, professionally and transparently, according to sound principles and practices. Strengthening the supervisory and regulatory framework towards achieving a sound and efficient global banking system should be a universal goal. In this sense, the works that have been  5  BIS Review 79/2000  accomplished by the Basel Committee, FSI, Financial Forum, etc so far should be regarded as innovative and constructive in the process of harmonization of rules and standards internationally. In my opinion, effective supervision combined with a multi-dimensional study of past experiences and all the micro and macro level indicators, will help us to find ways to handle what globalization brings us. I certainly believe that studies on platforms like the one we have here will help us to develop new ideas and ways for responding promptly and correctly to the challenges of globalization.
Mario Draghi: Sovereignty in a globalised world Speech by Mr Mario Draghi, President of the European Central Bank, on the award of Laurea honoris causa in law from Università degli Studi di Bologna, Bologna, 22 February 2019. * * * It is a great honour to be speaking here today at the University of Bologna. As Europe’s oldest university, it has been at the heart of education and learning in Europe for over 900 years. It has a long history of welcoming students from across the continent, including Thomas Beckett and Copernicus. Erasmus studied here in 1506, and the University of Bologna is today a leading participant in the student exchange programme that bears his name. The Erasmus Programme is one of the many examples of the benefits of the close cooperation within the European Union that enjoy widespread popularity. But we know that other elements of European integration are more contested today. At the root of this debate is the inherent tension between the clear gains of economic integration, and the cooperation that is necessary to bring it about, which can sometimes be politically difficult to achieve or explain. I would like to argue that, in many ways, this tension is illusory. Rather than taking away countries’ sovereignty, the EU offers them a way to regain it. This does not mean we need the EU for everything. But in the face of globalisation, the EU is more relevant than ever today.

After a period of low and stable inflation, it normally becomes more common and more generally accepted that prices and wages not only can be raised, but also can be lowered. In addition striving after absolute price stability with margins of error that are in all likelihood valid will sometimes lead to price increase rates that may be negative. Such a situation is not entirely free of risk, since it may be difficult to get out of a deflationary situation. Should inflation then not be allowed to be higher than 2 per cent? The basic argument against this assertion is that the disruption in the economy will be greater the higher inflation is allowed to rise. In practice the fact that other countries in Europe, especially Germany, have a criterion of 2 per cent for price stability has understandably had a decisive influence in Sweden. Moreover corresponding assessments have also been made by the majority of the countries outside Europe that work with explicit inflation objectives. BIS Review 14/1998  -7-  Question 5: Can’t the Riksbank do something about unemployment? Sometimes the view is expressed that low inflation is indeed good, but that it leads to a very one-sided direction for monetary policy; the Riksbank should also have an objective for employment. From what I have said thus far, I hope that it has been clear that there is no long-term conflict of interests between inflation and employment.
These geopolitical risks leave an imprint on the economy as businesses put off hiring and investment decisions until the air has cleared. Moving away from the global context, back to the United States, the tightening of financial conditions that occurred late last year will likely restrain consumer and business spending this year. In fact, we have already seen a sustained slowing in housing construction, in part reflecting less favorable financing costs. Now, I know this talk of slowing growth is causing uncertainty, some hand-wringing, and even fear of recession. But slower growth shouldn’t necessarily come as a surprise. For quite some time, the economic fundamentals have pointed to GDP growth much lower than what we saw in the 1990s, for example. In fact, my 2 percent growth forecast is right in line with g-star. That means slower growth isn’t necessarily cause for alarm. Instead, it’s the “new normal” we should expect. And, it’s important to remember that this is happening at a time when the labor market is very strong. From the perspective of monetary policy, the overall picture of the economy is about as good as it gets: very low unemployment, sustainable growth, and inflation just about at our 2 percent goal. 2/4  BIS central bankers' speeches  Given this favorable situation, when you look at monetary policy, things are looking pretty normal as well.

One of the strengths of the UK monetary policy framework is that MPC members are individually accountable for their decisions and votes. The resulting expression of different views, and implied necessity for debate among them, guards against the emergence of ‘group think’ and thereby helps improve the robustness of final policy decisions. Given different appraisals of the economic situation and outlook, these different views reflect different assessments of how the MPC should act to achieve its common goal. Because, even if MPC members are individually accountable for their decisions, they don’t get to choose the MPC’s objectives. They are individually responsible for the means, but not the ends, of monetary policy. The ends of monetary policy are handed to the MPC in the form of its remit, which achieves democratic legitimacy through its roots in legislation approved by Parliament. [4] That remit has three main elements. First, it establishes the primacy of price stability in the mandate for UK monetary policy. Second, that primacy takes concrete form in the 2% inflation target, which holds at all times. And third, the remit requires the pursuit of the inflation target to be achieved sustainably in the medium term, while avoiding excessive and undesirable volatility in output and employment. Given the current situation, pursuit of this remit faces risks on both sides.