samchain/econo-pairs-v1 huggingface dataset:
Apart from the reform of the Basel framework for banks (commonly known as Basel III), a basic pillar of the regulatory reform undertaken by the FSB is the new treatment of so- called “systemic institutions”. Or, in other words, the problem posed by institutions which are too big and complex to fail, meaning the authorities have to recapitalise them with public funds when they are in distress. Identifying an institution as “systemic” has consequences. They are subject to larger capital charges and to a stricter supervisory regime aimed at reducing the likelihood of them getting into difficulties. That said, if there is in fact a key differentiating factor to reduce the impact of the potential failure of a systemic institution, it is unquestionably the new resolution framework. This new framework encompasses (a) legislative reforms; (b) the requirement that institutions have resolution plans in place; (c) assessment of the effective resolution ability of the authorities of the respective Crisis Management Groups; and (d) the need for institutions to have the loss-absorbing capacity or funds to ensure that, in a situation of resolution, it can be carried out “from within”, i.e. without need for capital injections by the relevant authorities and without destabilising the financial system as a whole. Allow me to take a moment to talk about loss-absorbing capacity in resolution, or Total LossAbsorbing Capacity (TLAC). On 10 November the FSB published a proposal on the TLAC requirement to be met by systemically important banks, the final design of which is scheduled for the end of 2015.

In mid-2007, serious problems with structured products backed by sub-prime mortgages put an abrupt stop to the boom in securitisation. False incentives, inadequate control mechanisms, shortcomings in the rating system and insufficient personal responsibility on the part of investors were the main criticisms aimed at securitisation practices. What is important now, is to correct these deficiencies, so that the trust of market participants in these products can be restored. It would be wrong to ban the securitisation of mortgages, since these refinancing instruments generate substantial economic benefit and are an indispensable part of our modern financial system. The mortgage securitisation weaknesses revealed in the financial market crisis do not apply in the case of the Swiss mortgage bond. Consequently, it should definitely have the potential to play an even greater role in maturity-matched refinancing of mortgages in Switzerland in the future. In addition, banks can improve their liquidity by holding portfolios of Swiss mortgage bonds themselves. Mortgage bonds could be converted into liquidity quickly and simply, as required, by means of repo transactions – either in the Swiss franc interbank market or at the SNB. BIS Review 60/2008  1
I want to try and illustrate some of that promise of Big Data, as well as the potential pitfalls, by drawing on examples from recent Bank of England research on the economic and financial system. I will conclude with some, more speculative, thoughts on future Big Data research. 1  The Path Less Followed The first thing to say is that Big Data and data analytic techniques are not new. Nonetheless, over recent years they have become one of the most rapidly rising growth areas in academic and commercial circles. Over that period, data has become the new oil; data analytic techniques have become the oil extraction and 2  refining plants of their time; and data companies have become the new oil giants. Yet economics and finance has, to date, been rather reticent about fully embracing this oil-rush. For economics and finance, the use of data analytic techniques has been the path less followed, at least relative to other disciplines. One simple diagnostic on that comes from looking at the very different interpretations put on the expression “data mining” by those inside and outside of economics and finance. For economists, few sins are more heinous than data-mining. It is the last resort of a scoundrel to engage in “regression-hunting” – reporting only those regression results which best fit the hypothesis the researcher 3  first set out to test. It is what puts the “con” into econometrics.

The history of advance in many scientific disciplines has involved a two-way process of learning between theory and empirics, with theory motivating measurement at some times, and measurement motivating 12  theory at others, in a continuous feedback loop. One example of this approach, discussed by Governor Carney at the time the Bank’s own data analytics 13  programme was launched, concerns the dynamics of planetary motion. It was Sir Isaac Newton (a fellow  money-printer, as former Master of the Royal Mint) who developed the physical theory of celestial motion. But this theory was built on the empirical shoulders of another scientific giant, Johannes Kepler. When it comes to planetary motion, empirics first led theory, the inductive led the deductive. The same has been true, at times, when understanding the motion of economies and financial markets. Keynesian and Monetarist theory were both built on empirical experience during the Great Depression. The Phillips curve began life as a Kepler-esque empirical regularity, which was only subsequently given a Newtonian theoretical basis. Many puzzles in finance, which have taxed theorists for decades, began as 14  empirical anomalies in asset markets. In each case, empirics led theory, the inductive led the deductive. My lesson from all of this is clear. If that iterative learning process between empirics and theory is to continue to bear fruit in economics, then deductive and inductive approaches may need to share a broadly equal billing.
Their overarching objective should be to create a favourable policy environment for growth and wealth creation. But they should also bear in mind equity considerations. In that regard, the IMF, the European Commission and the World Bank provided valuable advice and support to Latvia. I am convinced that we Europeans can and should also step up our technical assistance to countries in need. The Fiscal Compact and the two-pack can provide a good basis for that. To be effective, they should be implemented in a spirit of mutual trust by the Member States and the European Commission. Last but not least, an important lesson from the Baltics relates to the existence of a broad consensus in society. In my view, beyond economic specificities, the key difference between, say, Latvia and Greece lies in the degree of national ownership of the adjustment programme – not only by national policy-makers but also by the population itself. I cannot but emphasise this again: national ownership and public support for the adjustment programme – these are key lessons from the Latvian experience which are of the utmost relevance to the current situation in Greece. In that regard, the communication policy of the government plays a crucial role.

A recent Banco de España’s research paper documents that this programme also had a positive side effect on the access of SMEs to funding given that banks reallocated the credit previously granted to bond issuers to smaller firms that do not have access to financial markets.7 Among the more permanent factors that could have contributed to the recent trend of financial disintermediation is the introduction of the new global banking regulation as a reaction to the financial crisis. The new regulation aims to improve primarily the resilience of banks to shocks and will have a positive impact on overall financial stability. However, as it has been documented in some papers, these regulatory measures might also reduce somewhat the ability of banks to compete in the intermediation of some financial flows8. But going forward, it is still under debate at the global level to what extent elements of the new regulatory framework should be also applicable to some non bank financing channels, as long as they might share with banking activities similar underlying risks to financial stability, such as maturity transformation and high leverage. If finally applicable, this might imply a more level playing field between banking and non bank intermediation. Another permanent factor that is contributing to the development of capital markets in the EU is the launch of new markets such as the alternative stock and fixed-income markets aimed at attracting medium-sized companies, although the size of these markets is still relatively small.
14 [18]  weight to “green assets”34 or perhaps avoid “brown” assets? If climate change is seen as a threat to financial stability, it may seem unreasonable that central banks themselves should hold bonds, the market pricing of which does not take into account the climate-related risk that the company contributes to. An alternative to the purchase of green bonds could be to refrain from buying bonds from companies that create carbon emissions over a certain level. I do not have an answer to the question of what action the Riksbank will take in this issue if we are faced with a scenario where we need to decide whether to extend and broaden our bond purchases. My message today is that we are participating in the ongoing international work to analyse and draft recommendations on an appropriate way forward. These questions are extremely complex. They require analysis of legal frameworks, of how green and brown assets are defined, any potential side-effects, how effective the measures would be compared with other types of measures, and the effects of policy tightening, i.e. selling assets if the economic cycle turns.35  Central banks are taking the climate issue seriously The Riksbank constantly faces new challenges that affect price stability and financial stability. Climate adaptation is one of many changes currently affecting the Swedish and the global economy. Digitalisation, a greying population, trade conflicts and, most recently, the coronavirus are other important issues that also create new challenges for us and for other central banks.

Most of the selling pressure has come from foreign real-money investors seeking to hedge their portfolios from currency devaluation, Brazilian companies hedging their foreign exchange liabilities, and foreign companies hedging their exposure to local assets. There is no foreign currency shortage in the domestic spot market, which the Central Bank monitors continually. And therefore, at the Central Bank of Brazil, we responded to the change in global financing conditions in a classical fashion, through policy tightening, exchange rate flexibility and using accumulated buffers to reduce volatility, avoiding abrupt changes that potentially threaten financial stability. Accordingly, by mid-August, we announced a program of daily FX interventions through foreign exchange swaps and dollar credit line auctions, totaling in 2013 nearly USD 100 billion equivalent and scheduled through the end of the year, providing currency hedge for the private sector. Here the picture is mixed for emerging markets. Some are certainly feeling more the volatility than others. It depends on fundamentals, resilience, position in the cycle with its associated policy response, credibility of the buffers and willingness to use them timely and with a clear unambiguous communication. In sum, while the prospect of interest rate normalization as economic growth recovers in core economies is a net positive, it does create transition risks. The lesson I take from the last few months is that emerging market policymakers need to show that they are ready and capable of stepping in and providing the public goods of financial and price stability.
It is too early to declare the problem solved. The longer term bank funding markets remain relatively illiquid, many securitisation markets remain effectively closed (Chart 4), and general market sentiment remains fragile. Only a part of the total losses on sub-prime have yet been declared and not all the questions about the future of SIVs or the capitalisation of monoline insurers have yet been answered. The sub-prime chapter will not be closed for some months yet and there are still risks of re-ignition of the acute money market conditions we saw last month. But there are grounds for hope that we are reaching the end of the beginning at least and that the key challenge is moving from stabilising the financial markets themselves to dealing with the impact on the wider economy. 3  Structured investment vehicles are funds that issue short-term securities in order to invest in longer-term securities. The latter have typically comprised mainly of mortgage-backed securities and other asset-backed securities. Banks sponsored SIVs are managed by banks. 2  BIS Review 7/2008  Macroeconomic impact Judging that impact is not easy. Banking crises have typically reflected macroeconomic difficulties at home. Banks have lent too much and too cheaply at the top of the cycle and have then suffered from defaults when policy tightened and unemployment and failures increased.

In periods of zero interest rates, such purchases help to counter the risk of deflation. The Swiss economy faces an exceptionally difficult year in 2009. Economic activity is set to pick up again gradually over the course of 2010, thanks to the extremely expansive monetary policy. This is, however, conditional upon an economic recovery by our main trading partners, as well as a return to stability on financial markets. The SNB measures are also aimed at reducing the risk of deflation in Switzerland. Despite the creation of massive amounts of liquidity, the SNB remains committed to ensuring price stability in the future. We will use all means at our disposal to reduce liquidity again in good time, so as to prevent any upsurge of inflation in Switzerland once the crisis has ended. BIS Review 33/2009  1
That said, and while acknowledging the low default levels in the Spanish banking system, it seems clear there is no further room for further reductions in the ratio. Looking ahead, against a background of slowing credit growth, these ratios will conceivably tend to rise, converging at levels that may be considered as more normal in such a setting, while similar to those prevailing among our European partners. Moreover, both past experience and the findings of various studies show that risk tends to emerge with some delay in relation to the time it is assumed. In any event, a rise in the doubtful assets ratio should not in itself be viewed as a cause for alarm; it should rather be understood as another of the various indicators needed to assess institutions’ financial capacity. Although deposits trended more favourably in 2006 than in previous years, institutions had to resort to securities issues, subordinated financing and asset securitisations to meet the growing demand from households and firms for funds. Going to international markets in search of funds may make Spanish institutions more sensitive to external difficulties while exerting additional pressure on their operating margins, although it is true that resort is mainly to the euro area markets. Indeed, the fact that Spain has joined this area of stability has meant that our institutions have been able to finance an expansionary process like the one we have experienced.

Developments in the Swiss housing market have been relatively steady, despite the strong demand pressures discernible in certain regions. At present we do not detect any obvious signs of a speculative bubble that might culminate in a sudden fall in prices. The main explanations for the rise in real estate prices in the past few years have been higher expectations and good financing conditions. Around Lake Geneva the pressures on the limited available space and the fast growth in the residential population have acted as special stimulants. Thus there have been no speculative developments as witnessed at the end of the 1980s. Now that the business cycle has peaked in Switzerland, it is very likely that we will move into a phase of more moderate price increases. BIS Review 73/2008  1
However, I am not saying that changes in the monetary policy strategy, for instance in the way suggested by Giavazzi and Mishkin, will never be considered. But we do need further analysis and debate before this can be considered in Sweden. Monetary policy and house prices Another point where I have some doubts is whether house prices should be taken into account in monetary policy. The specific recommendation given in the evaluation is that the Riksbank should clarify that house prices, like other asset prices, are not independent targets for monetary policy. In my opinion, this is a message that we have tried hard to convey recently, which has also been noted in the evaluation. I and other members of the Executive Board have explained, for instance, in several speeches that if prices in the housing market have had an effect on our interest rate decisions, this has not been a reflection of the inflation target being downgraded in any way or that we now have a special target for house prices. The reason is that we believe this the best way to safeguard what we have been set to safeguard – stability in the real economy and inflation. It is claimed in the evaluation that the Riksbank was initially unclear with regard to the reasons for allowing house prices to affect interest rate decisions and that this meant some people had interpreted it to mean that we had introduced a further target in addition to our inflation target.

Now let me come to the risks that a generalised move towards universal banking could entail, and the ways and means of containing them. The main risk, of course, is the emergence of conflicts of interest. One such potential conflict of interest may arise within any bank, between the bank’s own risk-taking activity and risk-taking for its customers. The classic example of this is the potential conflict of interest between credit-granting and securities underwriting, but this is only one example. The traditional way of avoiding the misuse of such conflict-creating situations is (a) to devise an organisational structure with clearly distinguishable lines of responsibility, (b) to avoid flows of “inside” information between the various activities, (c) to attribute to each activity costs, income and profits, and (d) to entrust external auditors with the surveillance of the systems put in place. The end-result will, of course, never be entirely safe. Moreover, the building of “Chinese walls” inside a multi-polar banking organisation may weaken, or even destroy, the synergy between those poles, i.e. it may undermine the rationale of a multi-polar organisation. I would not want, however, to overstate the internal conflict of interest argument. In the long run, the kind of conflict to which I have referred is unlikely to be very strong. In a longer-term perspective, no bank can afford to favour its own risk-taking activity at the expense of its customers - especially if auditing makes it certain that any misuse of the bank’s powers would come to light. 3.
And it could do this without actually solving the problem of system risk externalities that aren’t related to balance sheet size. 8  BIS central bankers’ speeches  Evaluating the socially optimal size, scope and organizational structure of financial firms is a complicated business, and so is establishing a viable transition path to a system of much smaller firms. It would be helpful in this regard if advocates of break-up solutions would put a bit more flesh on the bones and develop detailed proposals that address essential questions of how such downsizing or functional separation would be accomplished, and what benefits and costs could be expected. Such an analysis should answer several questions: How would you force divestiture (in good times and bad)? Should firms be split up by activity or reduced pro-rata in size? How much would they have to be shrunk in order for the externalities of failure to no longer create TBTF problems? How would global trading and investment banking services and network-type activities be supported? Should some activities be retained in natural monopoly form, but subject to utility type regulation? How costly would it be to replicate support services or to manage liquidity and capital locally? Are there ways of designing size limits that cannot be arbitraged by banks via off-balance-sheet structures and other forms of financial innovation? So far, advocacy for the break-up path has been strong, but without the detail to assess whether this is indeed superior to the course we are currently following. But, I’m openminded.

Following the bankruptcy of Lehman, contagion spread by many channels, including prime brokerage, OTC derivatives positions, money market mutual funds, tri-party repo and wholesale funding markets. The loss in confidence disrupted the flow of credit throughout the global financial system, generating a global economic downturn and the worst contraction in the United States since the Great Depression. Recognition of the costs generated by the Lehman failure led to extraordinary interventions to prevent further catastrophic failures. These included the rescue of AIG, the FDIC’s TLGP program, the ring-fence of Citigroup’s poorer quality assets, and the TARP injection of capital into the largest U.S. financial institutions. Because this solidified in investors’ minds that TBTF firms – after the Lehman debacle – would be protected, this worsened the TBTF problem. The problem was exacerbated during the crisis by the acquisition of weakened firms by stronger firms, a development that was actively promoted by policymakers in a bid to avoid or temper the consequences of their failure. J.P. Morgan absorbed Bear Stearns and Washington Mutual and its assets grew from $ trillion in 2007 to $ trillion today; Wells Fargo purchased Wachovia and its assets increased from $ billion in 2007 to $ trillion today; and Bank of America purchased Countrywide and Merrill Lynch, increasing its assets from $ trillion in 2007 to $ trillion today. This, of course, made the surviving firms even bigger and more complex. When the smoke had cleared, the situation was clearly untenable.