samchain/econo-pairs-v1 huggingface dataset:
But those strains have also been exacerbated by an unexpected breakdown in the technology for liquidity insurance provided by central banks. For well over a century, throughout industrialised world there has in effect been something akin to a Social Contract between the banking system and the authorities. The banking system is permitted to profit from undertaking leveraged maturity transformation in the course of intermediating the liquid savings of depositors into illiquid loans to households, firms and others. In doing so, commercial banks provide liquidity insurance, whether via demand deposits or committed lines of credit. They can do this because their deposit liabilities are  BIS Review 38/2008  3  money, which puts them at the heart of the payments system and is what makes them special; banks are at the heart of a monetary economy. In return, the authorities respond with a combination of prudential supervision, to contain the risks that banks run; deposit insurance, to protect savers; and liquidity insurance from the central bank. Smaller commercial banks can try to buy liquidity insurance from their larger brethren. Large banks cannot realistically do the same. But there is no cast iron guarantee that asset markets will remain liquid in all conditions. So since Bagehot’s day, central banks have stood ready to provide unlimited liquidity against good collateral at a rate that is higher than the normal market rate.

It has a distribution of returns which is highly sensitive to small changes in the correlations of underlying returns which we do not understand with any great precision. The risk of the entire return being wiped out can be much greater than on simpler instruments. Higher returns come at the expense of higher risk. Whether in banking, reinsurance or portfolio management, risk assessment is a matter of judgement as much as quantitative analysis. Ever more complex instruments are designed almost every day. Some of the important risks that could affect all instruments – from terrorist attacks, invasion of computer systems, or even the consequences of a flu pandemic – are almost impossible to quantify, and past experience offers little guide. Be cautious about how much you borrow is not a bad maxim for each and every one of us here tonight. Ignore the unsolicited emails that rain down on us offering unwanted credit. I received one last week that began, “We have the solution, Mervyn, for your bankruptcy”. The development of complex financial instruments and the spate of loan arrangements without traditional covenants suggest another maxim: be cautious about how much you lend, especially when you know rather little about the activities of the borrower. It may say champagne – AAA – on the label of an increasing number of structured credit instruments. But by the time investors get to what’s left in the bottle, it could taste rather flat.
We lent amounts to Swedish banks corresponding to just over 9 per cent of GDP, a measure that was intended to ensure that the financial system stabilised to allow us to conduct monetary policy and contribute to production and employment not falling as heavily as in the wake of the financial crisis. The new act means we would need to determine the main purpose of these measures, and the conditions and procedures differ, depending on the purpose. Was what we did mainly monetary policy or financial stability? Are the measures we implemented during the coronavirus pandemic mostly monetary policy or financial stability policy? In our world they are of course both, as our two core activities are two sides of the same coin. As I described earlier, the financial markets are developing rapidly, and needs are thus changing over time. It is difficult to predict how the next crisis will look, or what measures might then be needed. The fact that we have been able to take action during the pandemic is because the current legislation gives us opportunity to do so. Handling the global financial crisis 2008-2009 and the current pandemic, and also future events, requires the right tools and a flexible mandate. This is made more difficult by the proposal for a new Sveriges Riksbank Act. The proposal also limits the Riksbank’s possibilities to both build up and use its foreign exchange reserves. This is problematic, as the Swedish financial system is strongly dependent on short-term market financing, largely in foreign currencies.

2001 20  Government financial balance 15  Current account  10  5  0  -5 Iceland  US  Denmark  Sweden  Finland  Norway  Source: OECD SG 240802  Another prominent feature is that, except for Iceland, the Nordic countries have a twin surplus in the public sector and on the current account. This implies a net outflow of capital from the region. The facts I have mentioned may lead outsiders to regard the Nordic region as one group, made up of similar economies. However, there are also some striking differences. Nordic countries – institutional differences EU-membership  Monetary policy regime  Sweden  Yes  Inflation target of 2 per cent (+/- 1 percentage points)  Denmark  Yes  ERM II  Finland  Yes  Member of EMU  Iceland  No (EEA-agreement)  Inflation target of 2½ per cent  Norway  No (EEA-agreement)  Inflation target of 2½ per cent  SG 240802  2  BIS Review 70/2002  We differ in our relations to the EU and with respect to monetary policy regimes. Sweden, Denmark and Finland are members of the EU. Finland is also a member of EMU. The Danish krone is linked to the euro through a fixed exchange rate, while Sweden, Iceland and Norway have inflation targets and a floating exchange rate. Our financial markets differ in size and structure. Bonds outstanding, March 2002.
The Investment Account Platform (IAP) is another avenue for Islamic banks to support growth of SMEs and new businesses. It provides a new source and enhanced access to funding for ventures, with more competitive financing terms and variations in financing structures. It is encouraging to see increasing interest from Islamic banks to take part in the IAP, and I hope more will participate, as to create an extensive network of sponsoring banks that can cater to the more diversified needs of both investors and ventures. Moving on to the second trend – the growing interest in halal economy given the increasing demand for halal products – as the halal market is non-exclusive to Muslims alone; and has gained increasing acceptance among non-Muslim consumers. The global halal market is highly lucrative, with an estimated annual growth rate of 20% that makes it one of the fastest growing consumer segments in the world. Islamic finance can contribute more towards the growth of the global halal economy by playing a greater role in international trade facilitation. I believe our Islamic financial institutions have an advantage position to tap into this new growth area and be part of the global halal industry ecosystem – given that Malaysia is a key exporter of halal goods and services. 2/4  BIS central bankers' speeches  What are the opportunities that arise for our Islamic banking players? This is largely seen in the provision of financial support to boost the trade flow of halal products.

Similarly, no country or financial institution can adequately respond to the challenges of this changing world on its own: we must definitely join our efforts to build our future. Thank you for your attention. 1 ACPR study on the digital revolution in the French banking and insurance sector, March 2018. 3/3  BIS central bankers' speeches
We have invested in a profitable oil industry and found a balance between spending petroleum revenues domestically and saving petroleum revenues. On the other hand, it seems that both the public and private sectors are having difficulties finding profitable mainland investment projects. Taking a longer view, this is a source of concern. Should petroleum revenues shrink, our economy needs more pillars to stand on. Otherwise, we as well would have to embark on a path of adjustment towards renewed growth. Perhaps Norway is not so much an economy apart after all. Thank you for your attention. BIS central bankers’ speeches  13

This is especially the case if no other firm in their peer group is subject to these measures, creating a collective action problem: firms, acting out of perceived individual interest, may choose to restrict their lending to the real economy rather than dip into their CCoB. But actions that can seem rational for each firm individually can prove damaging in aggregate for the economy and banking system as a whole. By way of illustration: stress tests carried out by the Bank of England in the early phases of the Covid crisis suggested that the direct gain to banks of preserving capital by not lending were small – adding c. 0.1 percentage points in capital ratio terms. In contrast, they showed that the costs to the wider economy, and ultimately the banking system, from not lending could be very large: reducing aggregate bank capital ratios by as much as 0.8 percentage points due to negative feedback to banks’ credit exposures from worse unemployment and corporate insolvency outturns over time when lending is restricted.11 Finally, just before management buffers are Countercyclical Capital Buffers (CCyB) which, when non-zero, operate as an extension of the Capital Conservation Buffer and can be released during generalised stresses.12 The key issue here is that there may be stigma associated with use of a regulatory buffer.
Artificial intelligence and machine learning enable the industry to make much better use of available data than possible previously, by efficiently developing a deep understanding of the unique needs of their customers and risk profiles. Central banks and supervisors must transform alongside the financial sector, in order to maintain effectiveness in fulfilling our mission. 4 . Our central banking and supervisory mission remains unchanged. But given the rapid transformation and the changing landscape, the way we achieve our mission and objectives needs to evolve quickly. Overall, our approach must be to ensure that our toolkits and methods remain relevant and fit for purpose. To do so, we need to be informed by a deep understanding not only of the new players and their products and services, but also of the new technologies – how they work, why they are being adopted, how they better serve customers’ needs, how they are re-shaping financial services and the broader financial sector, and the opportunities and challenges they present. 5 . The technologies that are transforming the financial sector can also be used to 1/5  BIS central bankers' speeches  transform central banking and supervision. Take artificial intelligence, for example. This has been used by banks for credit scoring, and by insurers for underwriting and fraud detection. Supervisors, including MAS, have taken steps to ensure that artificial intelligence (AI) is used by financial institutions in a fair and responsible manner. Predictive analytics can also empower supervisors to be more effective.

How quickly to remove monetary policy accommodation—is a gradual path of removal still appropriate now that the unemployment rate is 4.1 percent? 2. How far to go in removing monetary policy accommodation—will monetary policy have to move to a somewhat restrictive setting in the years ahead? 1/7  BIS central bankers' speeches  3. How should the FOMC factor fiscal policy and trade policy developments into its monetary policy decisions? I will take each of these in turn. As I see it, a gradual path of interest rate increases remains appropriate. Even though the unemployment rate is low, inflation remains below our 2 percent objective. As long as that is true, the case for tightening policy more aggressively does not seem compelling. My conclusion is reinforced by the fact that we do not know with much precision how low the unemployment rate can go without prompting a significant rise in inflation. We do not directly observe the nonaccelerating inflation rate of unemployment, or NAIRU. Rather, we only infer it from the response of wage compensation and price inflation as the labor market tightens. Also, the U.S. labor market may have more slack than the 4.1 percent unemployment rate suggests. Over the past six months, the unemployment rate has remained steady despite robust payroll gains. As the labor market has improved, more people have been actively seeking employment. As a result, the labor force participation rate has flattened out despite the ongoing aging of the workforce population.
As I have said before this is an area of potential vulnerability that has developed alongside the rapid globalisation of markets and of firms operating within them. I personally feel that it has been somewhat overshadowed in recent times by work in other areas such as capital adequacy. We feel that we can make a particular contribution here – both owing to our position in such a major global financial centre and because, in sterling at least, we are a potential provider of liquidity. So we justify devoting significant resources to the analysis of liquidity issues, and the development of potential risk reduction strategies for liquidity problems – nationally and in particular internationally. At the other extreme, whilst we feel strongly about the desirability of robust and widely applied accounting standards – and are prepared to express our views on the big picture aspects of this from time to time – we do not devote significant resource to analysis, or lobbying in this area. c)  Preparation for a Financial Crisis  And finally, tail event territory though it may be, we need to undertake preparation for financial crises. We need to think forward to being “in-event” where instability has actually been triggered, whether by a business failure of a firm or firms or by a terrorist or other disruptive event. We need to prepare now, in advance, to enhance predictability at what would be a time of great uncertainty.

And it means we have to understand the dynamics and interrelationships of markets; how new products work; and the possible behaviour patterns of intermediaries, investors, and borrowers. Above all we need to be focused on where major risks are most likely to emerge and the market dynamics if those risks start to crystallise. And we need to distinguish those which are systemic from a myriad of fascinating developments, many of which are just “noise” but which could otherwise distract us. b)  Risk Reduction: Oversight of Payment Systems  The second area where we, and typically other central banks, are required to perform is oversight of payment systems. Payment systems facilitate economic transactions of goods, services and financial assets and are an essential component of a well functioning financial system. So reduction of risks in these systems, for example through the introduction of our Real Time Gross Settlement system, is clearly a priority from a systemic perspective. c)  Provision of Liquidity and Preparation for a Financial Crisis  And thirdly the MoU stipulates that we need to be in a position to inject liquidity at all times. This means that we must be able to provide liquidity in normal times, as well as in times of stress or crisis. This puts an increased onus on well developed and tested crisis management plans, and a particular focus on ensuring that we are able to undertake a range of official financial operations in exceptional circumstances. 4.
And, as second-round effect, this could also impact the profitability and creditworthiness of financial institutions, and, if insolvency problems affect a significant proportion of firms, it could potentially trigger negative financial loops. Second, a high level of corporate debt, even if not leading to defaults, can still be a drag on investment in the years to come, lowering productivity and economic growth. The experience from the global financial crisis indeed shows that highly indebted firms are less dynamic in terms of capital investment and employment. And these two implications of high indebtedness can feed back into each other. The contraction of investment reduces future profitability and repayment capacity, and higher default rates make it more difficult to obtain additional financing, thus reducing investment. 1/2  BIS central bankers' speeches  These considerations can provide a rationale to use public resources to support firms with a high level of debt resulting from an exogenous shock, as has been the case with the pandemic, but which are nonetheless viable based on their medium-term perspectives in terms of profitability and productivity considerations. In this regard, the design of public support programmes to help viable firms improve their solvency position poses at least two fundamental challenges, related, first, to the selection of the firms targeted by the aid; and second, the design of a structure of incentives for those firms participating in these programmes.

And it is this tradition that has enabled the Banco de España to continue promoting economic history research. Many of these figures were my predecessors as governors or directors general of what was then known as the Research Department. 3/5  Others, who collaborated with them, then went on, in many cases, to pursue brilliant careers in academia and research. Indeed, some are here with us today. For the sake of brevity, and so as not to run the risk of missing anybody out, I will not mention in detail those who continued the work of the pioneers Mariano Rubio, Ángel Madroñero and Joan Sardà back in the 1960s. As a tribute to their work and following in their wake, I shall, without being exhaustive, set out some of the projects that our Bank currently has under way or on the drawing board in terms of promoting economic history studies. Firstly, the Banco de España regularly organises conferences focusing on the discussion of aspects relating to economic history. This year, for example, on the occasion of the sixtieth anniversary of the Stabilisation Plan, the Banco de España will, next October, be organising a conference in Barcelona focusing on the analysis of the Plan. It will likewise pay tribute to the figure of Joan Sardà. I trust you will be able to join us at this conference. Also, since 2015 the Bank has organised annually a top-level international economic history conference aimed at academia.
In a post-crisis scenario, the excess gold would have to be retained on the balance sheet for ever due to the sales ban, and the SNB would have to sell some of its foreign exchange reserves in order to effect a liquidity reduction. Consequently, this prescription regarding the percentage of gold to be held, as well as the ban on sales, could ultimately lead to a situation in which the SNB’s assets consist almost entirely of gold, but in which it is unable to perform balance sheet reductions required for monetary policy. In the long term, the passing of the gold initiative could therefore threaten price stability in Switzerland. Even with regard to security, the demands made by the backers of the initiative are misguided. Insisting that the SNB hold a higher proportion of gold on its balance sheet even though this gold cannot be deployed in an emergency is counterintuitive. In such circumstances, the SNB’s gold would lose its significance as a currency reserve; the notion that gold should be held even though it cannot be utilised quickly and freely runs counter to the very raison d’être of currency reserves. We may even go so far as to say that gold which cannot be sold in a crisis no longer meets the definition of a reserve and thus offers no security at all.

The new global landscape of growing cross-border financial flows between regions that have national and cultural differences also underscores the need for enhanced recognition and understanding of practices in the different jurisdictions. This imperative translates into high demands on the use of standardised documents and agreements among Shariah compliant financial market players. Standardised documents and agreements increase market efficiency, transparency and uniformity, as well as reduce the cost of transactions as we strive towards seamless global interlinkages. The fourth prerequisite is the catalytic role of Shariah scholars in expanding cross-border Islamic financial transactions. Given the prominence of Shariah in the industry’s advancement, greater internationalisation will require the capacity and capability of Shariah scholars in offering practical solutions to Shariah issues faced by various global participants. Equally important is the efficiency and agility of Shariah scholars in responding to these matters. This calls for continuous discussions and active dialogues involving scholars across the globe. Of importance is also the need for mutual respect and common understanding within the international Shariah fraternity to enable productive and effective deliberations that will facilitate cross-border businesses. Many can indeed benefit from learning and leveraging on these country reports. To better disseminate the information, an idea is for the IDB Regional Office here in Kuala Lumpur to act as a focal point for member countries seeking further information or clarification on the reports. As a measure to further develop Islamic finance, the Regional Office can also expand its scope to include capacity building programmes for member countries.