samchain/econo-pairs-v1 huggingface dataset:
We have seen the value of this in our own region in the 1980s and early ’90s, and, when discussing the problems created by capital flows, we should never forget that they have specific and beneficial functions. 6. The second characteristic is the sheer Volume of capital movements around the world. In April 1995 the global value of foreign exchange transactions taking place on an average day was $ trillion. In April 1998 this figure increased to $ trillion, or, to put it in more meaningful terms, to around 48 times the daily value of world trade. It is also worth stressing that these are largely private capital flows. In 1997, for example, the amount of private capital flowing into developing economies was estimated by the World Bank to be five times the size of official flows. 7. Within these private flows there is considerable Variety and fluctuation in the nature and organisation of capital. With financial liberalisation and the globalisation of financial markets, portfolio capital flows are of increasing importance compared with the more traditional foreign direct investment and commercial bank lending as a source of international capital flows. An aspect of this Variety is the growing number of complex investment tools, and different orders of derivatives therefrom, involving different degrees of leverage, available for moving money around the world, or indeed enabling investments to be made in markets without having actually to move money around. 8.

And how can we ensure that institution-specific insights of the national supervisors are best maintained and incorporated? Allow me to give you a few examples to explain the conclusions we have reached. I will focus on the specific features of the SSM. So do not be surprised if I do not mention things that are self-evident, such as a preventative, forward-looking and risk-oriented supervisory approach. 18 perspectives – one best practice Let us start with 18 perspectives and what is deemed best practice. In developing the SSM’s supervisory culture, we are in a unique starting position. Following the financial market crisis, many countries adjusted their supervisory structures. The reforms generally focused on addressing country-specific experiences of the crisis and on international recommendations. We are in a similar situation in setting up the SSM – but with one major difference: we are not just looking at the experiences of one country; we are incorporating the perspectives of 18 – soon 19 – Member States into a common European supervisory culture. For me personally, this is one of the most exciting aspects of creating the supervisory mechanism. An example of this is the weekly meeting of SSM management. Every Friday, Danièle Nouy and I meet with the heads of the four SSM business areas. Around the table we therefore have representatives of the French, German, Finnish, Spanish and even US supervisory traditions. Another colleague brings to the table many years of experience at a systemically relevant bank.
So, there is a risk that central bank may cut interest rate by too much, hence, sowing the seeds for inflation and an asset price boom down the road as well. On the other hand, sterilized intervention also entails quasi-fiscal costs, as well as adding to inflation risk from the build-up of local currency debt should there be future fiscal stresses. Moreover, international reserves accumulation can also risk damaging central bank credibility as they can incur balance sheet loss when reserves are marked to market in local currency. These are all important and delicate points for policy consideration. The second challenge is the ability of emerging market central banks or financial supervision authorities to identify and quantify risks of potential financial instability in advance. On this, we find stress testing to be a powerful tool to assess financial stability ex-ante. Unfortunately, financial institutions and regulators in emerging markets have significantly lagged behind their counterparts in advanced economies, especially on credit and liquidity risk stress testing. Therefore, regulators in emerging markets should move faster to increase the use of macro stress testing. They should also push financial institutions to invest in human resource and technology to conduct macro stress testing at least on an annual basis. And regulators and monetary policymakers must increase coordination in order to arrive at more relevant and convincing macro stress testing scenarios. The third challenge is the role of prudential measures.

That is supplemented by three operational objectives, including “protecting and enhancing the integrity of the UK financial system” which is in turn defined in the legislation to include “its soundness, stability and resilience”. This is in line with Principle 6 of IOSCO’s objectives and principles for securities regulation: “the Regulator should have or contribute to a process to monitor, mitigate and manage systemic risk, appropriate to its mandate”. 10 See Tucker (2011), “Building resilient financial systems: macroprudential regimes and securities market regulation”, International Council of Securities Associations. 11 This was highlighted by the Bank of England in 2006 Financial Stability Review p. 8: “Many may have believed that the price of certain assets had become too high and the premium for taking risk too low. But there are business risks associated with acting on that view when others are not; it may not only reduce profitability in the short run, but may also risk losing market share or failing to establish a foothold in a rapidly expanding market. These concerns often seem to have outweighed the risks to balance sheets associated with potentially overpriced assets. As a result, in the early part of this year, there appears to have been an extension of risk-taking activities by financial institutions, including some UK banks. “  BIS central bankers’ speeches  7  the system safe and sound has made real progress in recent years, but it is not complete and absolutely must continue with energy.
However, in avoiding excessive reliance on models, we must be mindful not to “throw the baby out with the bath water”. We should examine carefully the impact of these proposals on two areas, namely trade finance and SME finance. This is of particular significance for emerging economies. •  Across much of emerging Asia, where capital markets are relatively undeveloped, banks are a major source of funding for trade and SMEs. •  Trade and SMEs are major engines of growth in many emerging market economies. Let me start with trade financing. •  Being short-term and self-liquidating in nature, trade financing is probably one of the safer forms of bank lending. •  But the proposal to move bank exposures completely to the Revised Standardised Approach could result in imposing significantly higher capital requirements for trade finance, more punitive than justifiable by its historical losses. BIS central bankers’ speeches  5  •  While the availability and cost of trade finance have so far held up well in the face of Basel III implementation, the latest set of proposals could have the effect of discouraging banks from trade financing. •  This is not what we need at a time when trade is growing more slowly than income in many parts of the world. Second, SME financing. •  I would say we are broadly on the right track.

•  But banks have held up well. − In the US, nearly all the largest banks have passed the Federal Reserve’s most recent annual stress test. − In Singapore, an industry-wide stress test conducted by the MAS indicates that Singapore’s banking system will be resilient against severe economic stress scenarios in the major economies and Asian region. •  And beyond the stress tests, the global banking system has remained relatively resilient through actual episodes of market stress in recent years: − the May 2013 US taper tantrum; − the Oct 2014 US Treasury “flash crash”; − the Jan 2015 Swiss franc de-pegging; − the Aug 2015 “Black Monday” selloff; and most recently − the Jun 2016 UK referendum. Third, bank lending to the real economy has been stable. •  Overall provision of credit to the economy has been maintained even as banks met higher capital and liquidity requirements. − According to the FSB, by the end of 2014, bank lending growth had resumed in all regions of the world. •  The cost of financing has not increased, although I suspect that this has had more to do with highly accommodative monetary policies. •  There has been no material shortage in the supply of long-term investment financing in most countries surveyed.
However, as I have argued in a number of recent speeches, these business survey indicators do not support the view that firms currently have a significant margin of spare capacity – particularly in manufacturing industry.7 And there also appears to be less slack in the labour market than we saw in the aftermath of the recessions of the early 1980s and early 1990s, as I noted earlier. Changes in demand conditions clearly do affect inflationary pressures. In a climate of stronger demand, firms will expect price increases to stick more readily than in weak demand conditions when discounting will be much more prevalent. But this pressure of demand is not well captured by simple “output gap” type measures which are too crude and prone to measurement error. Indicators of the growth of demand or changes in employment may be more useful, as they remove the need to make judgements about the sustainable level of economic activity.8 But it is probably unrealistic to try and capture the pressure of demand on inflation in any one single measure, particularly in an open economy like the UK where both domestic and international factors have a bearing on the rate of increase in costs and prices.

So if services prices continue to rise at a 3–4% rate, and goods prices continue to be pushed up by external factors and the weakness of the pound, it is very difficult to see how the MPC will be able to return inflation to the 2% target, even over a number of years. BIS central bankers’ speeches  13  As a counter to these arguments, it is frequently suggested that a low rate of pay increases will help deliver low UK inflation, and pay freezes and low pay settlements negotiated during the recession may be a helpful factor in helping businesses to contain cost increases in the short-term. But I question how long we can sustain low pay settlements in the medium term when headline measures of inflation continue to run at such a high level and companies find that they can pass through cost increases to the consumer fairly readily. The most recent report from Income Data Services indicated that pay settlements had risen from 1.3% to 3% over the past year. And while pay increases are being held back in the public sector, the trend in the private sector is in an upward direction.
Accordingly, when we were at the zero lower bound, we weren’t able to rule out the possibility that initial increases in the policy target might not translate one-for-one into increases in money market rates, as reduced uplift from the zero lower bound could have offset some of the policy tightening. In addition, one might have also worried that various money markets might not move together as rates rise, meaning that, for example, a larger spread might emerge between secured and unsecured rates, or between overnight and term instruments, than had historically been the case. I will discuss some evidence on these issues later on. The second development, in October 2016, was the entry into force of new SEC rules for money market funds. These new rules require, among other things, a floating net asset value for institutional prime money market funds, provide for liquidity fees and redemption gates for prime funds, and establish more stringent rules for portfolio diversification and financial reporting for all money market funds.11 Many of these reforms are aimed at least in part at enhancing financial stability, and in particular at addressing the potential for runs on prime funds to intensify financial stress. They could also make prime funds, which can hold a broad spectrum of money market 3 / 13  BIS central bankers' speeches  assets, less attractive to investors who desire an investment opportunity with a fixed net asset value or who are concerned about redemption fees or gates.

During the financial crisis, this spread rose and fell with changes in investors’ perception of bank credit risk. In contrast, its recent moves are related to money market fund reform: term rates rose considerably as prime money market funds both shrunk in size and reduced their maturities to remain highly liquid, and have recently come back a bit as the market has stabilized and markets have adapted to the new industry structure. Shown in (Figure 15) are customer-to-dealer versus dealer-to-dealer Treasury repo rates. The customer-to-dealer market consists primarily of cash investors like money market funds lending to dealers, while the dealer-to-dealer market reflects dealers lending amongst themselves.31 The 8 / 13  BIS central bankers' speeches  spread between these two rates is thus a proxy for the cost dealers with ready access to cashinvestor financing charge to act as intermediaries between these two markets. Since all the lending is secured by Treasuries, this intermediation entails very modest risk. U.S. versus currency-hedged 3-month interest rates, as reflected by foreign exchange basis swaps, are shown in (Figure 16). U.S. and foreign money markets are linked together by a dealer-intermediated foreign exchange derivatives market, which allows firms to essentially convert money market loans and borrowings from one currency into another. A dealer that intermediates this spread can be thought of conceptually as making a secured loan, in which it lends out dollars and takes in foreign currency cash as collateral.
Each of us will help in coordinating regional Y2K forums or conferences and will publicly promote the goals of the Joint Year 2000 Council in speeches and on conference programs. The Joint Year 2000 Council will also maintain extensive world-wide-web pages that can be accessed freely over the Internet.3 These pages are being maintained through the support the Council has received from the Bank for International Settlements, in particular from the General Manager, Andrew Crockett. These web pages will maintain current information on the activities of the Joint Year 2000 Council. The most extensive aspect of the Council’s web site will be a series of country pages, one for each country in the world. For each country, the page will contain contact information for government entities (including national coordinators), financial industry supervisors and regulators (including central banks, banking supervisors, insurance supervisors, and securities regulators), financial industry associations, payment, settlement and trading systems, chambers of commerce, and major utility associations or supervisors. For each of these organizations, a name, address, phone number, fax number, electronic mail and web site address will be provided. Other relevant information on an organization’s Y2K preparations may also be included, for example, whether it has a dedicated Y2K contact or has taken specific action with respect to the Y2K problem. The motivation for developing these country pages is to increase awareness of the work that is being done to address the Y2K problem and to enable market participants to easily find out more information about the state of preparations worldwide.

This differs from the natural rate when macroeconomic shocks affect the rate of inflation corresponding to any degree of excess demand in the labour market. Since the NAIRU represents the current reduced-form relationship between inflation and unemployment, it is possible to calculate the prospects for inflation without any need to refer to such a variable as the NAIRU. It is a convenient shorthand concept for purposes of exposition, but not a necessary tool for operational decisions on interest rates. Second, the contribution of monetary policy to employment objectives is to promote economic stability in its broadest sense. I referred at the outset to Keynes’ view that the “triple evils” of an unequal distribution of income, instability of expectations and unemployment were all related to an unstable and unpredictable monetary standard. The solution, Keynes suggested, was to set monetary policy to hit a target for prices, or a low and stable inflation rate. He argued 75 years ago that monetary policy should be devoted to regulating the supply of money so that “the index number of prices will never move far from a fixed point”. Keynes went on to say that: “The Bank of England since the war has always done exactly the opposite of what the latest science recommends. I conclude from this that their opposition comes, not from mere obstinacy BIS Review 103/1998  – 10 –  or conservatism, but from their not yet understanding the point.
The job is to promote a financial system that can serve households and businesses not just in the good times, but also in the bad.3  The financial system of 2007 was totally unable to do that. It was too weak. Banks, in particular, had too little of their own capital on the line. As the UK and world economies turned down, major UK banks faced losses of £ But they had only £ of their own money – their shareholder capital – on the line.4 So as losses mounted, banks buckled. Credit was crunched, bringing the economy to its knees. And because there was no way to deal with failing banks without harming their depositors and the economy, the taxpayer was forced to step in with a bailout of more than £ So it’s not surprising that our efforts focussed initially on fixing these fault lines in the system. A resolution regime for dealing with failing banks is in place and banks are much stronger. They now have three times as much of their own capital on the line for the risk they take when they make a loan or a trade. 1  Based on OBR forecasts and ONS data. Financial crises often lead to a long run reduction in GDP, with a persistent decline in output relative to pre-crisis trends.

Brexit  Nowhere has that been more obvious than Brexit. On June 24th 2016, we started contingency planning for a ‘no-deal’ Brexit. With our focus on making sure finance can serve the wider economy, our work has had two elements. First, checking that, whatever economic disruption arises as we leave the EU, major banks have the capacity to keep lending through it. We know from our stress tests that banks can withstand an economic scenario for the UK that is worse than the financial crisis. That stress test scenario encompasses even a Brexit scenario based on the very worst case – ‘disorderly’ – assumptions, including: severe disruption at the border, acute economic uncertainty and financial market instability, and sharp increases in inflation requiring interest rates to rise. On that basis, we’ve been able to judge the core of the UK banking system to be able to continue to serve through Brexit, whatever form Brexit takes. The second element of our work has been to ensure that households and businesses using services from EU financial companies can continue to draw on those services after Brexit. 70 branches of EEA banks operate in the UK and provide services to both EU and UK end users. UK households and businesses hold 16 million insurance policies with EU insurers.8 UK investors invest in funds based in the EU. And clearing houses based in the UK sit at the centre of EU and global derivatives markets, helping the financial system to manage and distribute risks.
As we move further into a period in which the external environment, characterised by unusual monetary and financial developments in the United States and the Mainland of China, presents increasing risks to monetary and financial stability in Hong Kong, such confidence and credibility will be crucial for us to stay the course and not be derailed. 6  BIS Review 139/2007

Without further reforms, and depending on the nature of the next crisis, we may well be forced to test the limits of our mandate – a concern that has been voiced by Germany in particular. I offered three “lines of defence” that any well-functioning monetary union depends on: flexible markets, adequate national fiscal buffers and a common fiscal instrument to cope with large shocks. The logic is simple and compelling. Flexible markets for goods, services, labour and capital reduce the need for costly macroeconomic stabilisation and curb contentious debates about 1/3  BIS central bankers' speeches  crisis management. They reduce both the likelihood and impact of shocks and allow economies to bounce back more quickly. And they save much of the precious political capital governments had to spend on acrimonious crisis discussions. But flexible markets come at a price. In a downturn, they often impose economic hardship on workers through job losses or wage cuts. Governments can mitigate these effects. Unlike the United States, however, the European Union is not a federation. This means that – as a rule – stabilisation needs first to take place at Member State level. Building and maintaining adequate room for action at national level is therefore essential. This is what our fiscal rules are about.