samchain/econo-pairs-v1 huggingface dataset:
By presenting our handiwork, we started a debate. It has brought us criticism and comment on all sides. Uncomfortable though that may be, the debate is positive. Over time it is important in establishing a consensus behind our targets. 8  All speeches are available online at www.bankofengland.co.uk/speeches  8  And in its annual public letter to us regarding our financial stability objectives, the Government has welcomed the level of resilience we have built in the banking system.8 With clear preferences in law, a requirement to show our handiwork to establish our goals, and a framework to debate those goals, there is little danger of us following something other than the mandate we’ve been given. The first condition for being citizens in service is met. However, a second challenge remains. Challenge 2: monitoring that the intent is being delivered Having established a target for resilience in some part of the system, how can we be held to account for then meeting it? There’s no financial stability equivalent of measuring inflation each month to see if it’s close to 2%. The real test comes only when a bad shock happens and the resilience of the system is tested. It will be clear then whether we had built in too little, or too much, resilience. But such events are rare. So we have a duty to give Parliament the means to check in real time that we’re delivering the levels of resilience that we’ve said we’re targeting.

It hardwires flexibility, allowing us to adapt as new threats emerge and the system evolves. The second ingredient was to mandate that we must show our handiwork in translating these preferences into operational goals. For each of our powers we must maintain a policy statement, setting out our approach to their use. Our actions must be supported by cost-benefit analysis. And we must report regularly on how our policies contribute to financial stability. This ensures that, when we set targets for how resilient each part of the system should be, we can be held to account for following the preferences we’ve been told to follow. And the third ingredient is a process to challenge our handiwork and force us to act on that challenge. If the targets don’t look to be delivering Parliament’s preferences, as enshrined in law, we can be called out transparently. The Government may at any time make public recommendations to us about our financial stability objectives but must do so at least annually. 7  Details of the FPC’s objectives and primary responsibilities are set out in section 9C of the Bank of England Act 1998.
In addition to being unfair, it creates greater risks to financial stability by encouraging greater size and complexity. We have made considerable progress toward ending TBTF – raising capital and liquidity requirements for the largest, most systemic banks – but there is a ways to go. In particular, to paraphrase former New York Fed President Tim Geithner, while the single point of entry concept “beats no plan”, significant barriers to achieving a cross border resolution remain, and there are still insufficient incentives in place for firms to take corrective actions early on to prevent their failure in the first place. The third challenge for the Federal Reserve is to put financial stability on par with monetary policy. As our experience from 2007 to 2009 has demonstrated, monetary policy cannot work properly when there is financial instability. When financial instability occurs, it disturbs market functioning and can impair bank balance sheets in a way that disrupts their financial intermediation function, constraining the availability of credit for households and businesses. This, in turn, can lead to further reductions in aggregate demand that put additional stress on  2  BIS central bankers’ speeches  the weakened financial system. Financial stability cannot be subordinated to any other priority. The fourth challenge is to sustain and enhance the capabilities of the New York Fed. This starts most obviously in continuing to attract, develop and retain the best people.

Jerry, of course, was instrumental in working with then Chairman Alan Greenspan in devising a response to provide liquidity to the market, and an episode that could have ended in financial crisis soon passed. Jerry also tackled many other difficult issues during his tenure, including the Latin-American debt crisis and the development of the first Basel accord. We also have Bill McDonough, the eighth president of the Bank, who built on the accomplishments of Jerry’s tenure, and made great strides in connecting the New York Fed to the broader region. At the same time, he helped ensure that the Federal Reserve was prepared to face new, salient challenges presented by developments in the global economic and financial landscape. During his tenure, the city, the country and the Bank experienced a very significant crisis on September 11, 2001. Under Bill’s leadership, New York Fed staff worked tirelessly on Liberty Street, supporting the efforts of first responders, while ensuring that financial markets continued to operate and serve their vital function in the U.S. and global economy. A number of the members of our Board of Directors, including Chairwoman Rafferty, are with us, as is one of the Federal Reserve’s friends from the international central banking community: Mervyn King, the recent head of the Bank of England. Mervyn and his wife recently moved to New York City, so we should extend a warm welcome to them.
In addition, the interest rate structure of CBC instruments shows, by and large, the possibility of a gradual closing of gaps and inflation approaching the target. In the highly uncertain times at the end of 2008 and beginning of 2009, the CBC’s and fiscal fixed-income bonds played the role of a haven for investors and individuals, pushing down the related interest rates. This marks a difference with other economies with weak financial situations, and even with ourselves in the past, when increases in global uncertainty used to coincide with an increase in these rates. We must thank the soundness of our economy and the solvency of our fiscal accounts. This process probably intensified with the aggressive cuts to the MPR early this year, and has tended to reverse with the reduction in uncertainty in international financial markets. Furthermore, the proper functioning of our capital markets has provided good alternatives for corporate financing (Figure 12). A working assumption that is central to this Report’s macroeconomic scenario is the MPR path defined to be consistent with attaining a 3 percent annual inflation over the usual policy horizon around two years. This time the baseline scenario assumes that, in the short term, the MPR will follow the path similar to the one implicit in the financial asset prices in effect on 8 May 2009, after the latest cut agreed on in last week’s monetary policy meeting. However, towards the end of the projection horizon, the MPR path runs below the aforesaid assumed trend (Figure 13).

The lessons learned from the Great Depression and the commitment on the part of policymakers around the world to ensure that the misery that it caused will not replicate itself this time have prevented the current situation from causing even more severe disruptions. One particular aspect of the current crisis has been the synchrony among different countries. The financial earthquake that devastated developed markets last September and October and its aftershocks that swept over the financial systems of every economy, over output prospects in the world, over income and wealth, just to name a few, propagated to expectations which deteriorated across the entire world. The Chilean economy has not been absent to this phenomenon. As we said in the very beginning, our economy is not and cannot be immune. You can see it in the latest figures and projections contained in this Monetary Policy Report. The channels and mechanisms through which the crisis is transmitted to our economy are varied, and the severe international shock that hit us during the fourth quarter of last year has had damaging repercussions locally, even more so than we foresaw in January. A question that arises naturally is, why the big impact on our economy? Unfortunately, no single answer exists and only time and the gathering of information will allow us more certainty.
On the heels of this a different dialogue began to emerge between the Bank and those institutions it supervised, with the Bank pointing out deficiencies to the firm, the firm coming up with a remedial action plan and subsequent close monitoring by 24  the Bank to ensure delivery . By this point, the Bank was supervising almost 600 institutions: 291 recognised banks and an equal number of licensed deposit-taking institutions – all serviced by an 80-strong division within the Bank. This resulted in a two-tier system in which recognised banks enjoyed a superior status and a lighter supervisory touch. Whilst this did not rub especially well with the licensed deposit-takers, there was scope for them to progress to the lofty heights of “bank” status, and at least the new set-up had the advantage that all deposit-taking institutions were now subject to Bank oversight. It is fair to say that the new focus on supervision was not solely driven by domestic developments. Indeed, the importance of supervision was enhanced by the increasingly international flavour of the City, following the Big Bang and a wave of overseas investment (particularly from the US). The Basel Committee was established in 1975 and the US and UK were the first to cooperate on the ‘US/UK Accord’, which laid the 25  foundation for a common assessment of firm capital in both countries .

Looking back, it seems inevitable that the increasing breadth of financial activities undertaken by single firms would create an impetus for increased consolidation in the oversight of such activities. Of course this was the view in the late 1990s. At other points in time, indeed just over a decade after the FSA was created, it was decided that the most appropriate way to structure supervision was along separate prudential and conduct lines – the so-called “twin peaks” model. Moreover, some supervisory authorities like the PRA sit within the central bank given (in the case of the UK) the Bank’s longstanding interest in overseeing the banks that settle in its money – the clearing banks – out of which was born a system of supervision over banking and payment systems. 37  Gower, L.C.B. ’Review of Investor Protection’, Presented to Parliament by the Secretary of State for Trade and Indutstry, January 1984, p.13 38 Ibid, p.25 39 Hansard: http://hansard.millbanksystems.com/commons/1997/may/20/bank-of-england-and-financial-regulation 13  All speeches are available online at www.bankofengland.co.uk/speeches  13  Beyond the UK, we can observe many different types of institutional arrangements. In the United States, the organisation of supervisory agencies reflects the federal system of government with supervisors at both central government and local state level. Another difference lies in the fact that many US state commissioners are publicly elected, unlike other countries where supervisors are unelected. Indeed, undertaking a stint as an insurance supervisor at the DTI during the 1980s was just another rotation for those enrolled on the government-wide civil service scheme.
These spreads narrowed continuously from mid1995 onwards and their volatility was also noticeably reduced during this period. Factors contributing to this favourable pattern included increased convergence towards low rates of inflation across the euro area during Stage Two, the gradual reduction and finally the disappearance of exchange rate risks, the commitment of governments towards improving the sustainability of public finances, and the increase in the depth and liquidity of government bond markets. As I have already said on a previous occasion, I believe that the interest rate markets of the euro area will increasingly provide an accurate reflection of the differences in credit quality between various issuers as well as differences in liquidity between bonds, while divergences purely related to the location of market participants within the euro area will become less and less relevant. It seems highly likely that the capital markets of the euro area will become even deeper and more liquid over time, and hence more efficient. The number of market participants is likely to increase as the cost of financial market transactions is lowered, and the sophistication of position-taking activities is likely to increase further as market participants equip themselves with more refined methods of adjusting their portfolio exposures. One particular area of the capital market in which the markets in euro area countries have traditionally been a lot less active than in the United States is the corporate bond and commercial paper market.

Economies of scale and scope may have been changing in different areas of banking and even taking different directions. For example, the rapid development of information technology has made the collection and processing of information considerably cheaper, but at the same time technological investments are taking a larger share of banks’ resources. Therefore, economies of scale in some aspects of the collection of information may have been reduced, but at the same the time investments in more sophisticated technology have increased economies of scale and scope in some areas of banking. While I do not wish to go into detail on this matter, the general picture that emerges is that the banking industry has to be in a position to adjust to a new situation and take these factors into consideration. Indeed, in the course of the last few months, a number of bank mergers in the euro area, including mergers between relatively large institutions, have been announced or are being contemplated. Such “high-profile” mergers are likely to contribute to an acceleration of the pace of both the consolidation and integration of the banking systems of the euro area. However, it should be remembered that the recent pattern of consolidation represents part of a longer-term trend in the European banking industry, as is highlighted by the large decline in the number of credit institutions in the euro area countries over the past decade or so. In the mid1980s there were more than 11,000 credit institutions in the euro area countries; today they number around 8,000.
Without a regulatory framework designed for digital currencies, regulators in United States are reacting to abuses instead of proactively addressing risks. As an example, the Commodity Futures Trading Commission (CFTC), the agency in the United States that regulates futures and derivatives contracts, used its enforcement authority over fraudulent purchases or sales of commodities to stop an alleged digital currency scheme.25 Organizers of the scheme claimed that the digital currency in question—My Big Coin—was backed by gold and actively traded, but the CFTC concluded that neither was true, that payouts to customers were funded with money fraudulently obtained from other victims of the scheme, and that the organizers misappropriated approximately $ million in customer assets.26 My Big Coin appears to have been a modern wildcat currency, but the scheme was detected only because the CFTC could regulate it as a commodity. We are fortunate that, today, the CFTC has this market-based authority to combat fraud in U.S. commodities markets that was not present in the wildcat era.

If we do so, perhaps others too, could replicate some of those efforts which  BIS Review 133/2008  1  have been proved to be successful. Hence, there is an urgent need for us to create the awareness. We also have to enact the necessary laws. Sri Lanka has already passed the necessary laws for this purpose: so have many other countries. That is very important. Because, without the legal framework and the legal backing, our efforts will not succeed. Then, we have to build our own capacities. We have to have people who are trained and competent to deal with these challenges. Because, unless you have the competence, and the ability to recognize certain disguised transactions, the ability to see through the clever facades, and the ability to anticipate the next move of the terror financiers or money launderers, we would not be able to progress. Therefore, we have to diligently follow rules and detection principles. That is why this kind of conference is very important. My dear friends, we have to realize that money launderers and terrorist financiers are also smart. Your Lordship, they may also be having conferences of this nature, in their own way, to see how best they can be a step ahead of all of us, to ensure that they will be able to perform their own dastardly deeds more successfully. They will take advantage of calamities. On many occasions we have seen how that has worked. Earthquakes, droughts, civil strife, tsunamis, etc.
As a percentage of world GDP. 2000 – 2010 The crisis was preceded by a build-up of global imbalances. Large and growing deficits in the US were driven by high consumption and a large appetite for debt among US households. In the US, domestic spending had outpaced domestic production for a long period. Private debt  BIS central bankers’ speeches  1  increased in the US, but also in Europe, matched by high saving in Asia – primarily in China. Asia’s willingness to purchase US bonds allowed the imbalances to grow. Global trade imbalances have been reduced somewhat over the past two years, but there is a considerable risk that they will persist. They must be corrected through structural changes in the real economy. This may weaken growth in the world economy in the coming decade. Asian economies, however, have fared well through the crisis. Emerging economies are now sufficiently large so that growth in their economies provides impetus to production in other regions. Chart 2: GDP. Constant prices. Index, 2000=100 The financial crisis hastened the pace of change in the world’s economic geography. If GDP is set at 100 in the year 2000, it would have grown to 112 for the euro area and 118 for the US up to last year. The figure for Brazil is 143 and 271 for China. If the trend continues China could outgrow the US to become the largest economy in the world in the course of the next 10–20 years.

At the same time, all desirable spending programmes must be prioritised within an overall budget framework. Fund structures or other forms of financing outside the ordinary budget are only a way of avoiding budget constraints. This would weaken the credibility of the fiscal rule, which in turn would affect interest rate setting. Again – policy rules and words must be followed up by action. In the words of former Norges Bank Governor Hermod Skånland: Once the authorities have charted a course, they should not embark a different path. 5  National Budget for 2003. BIS central bankers’ speeches  7  Lessons from the financial crisis – financial stability and supervision Chart 14: Household debt. As a percentage of GDP. 2000, 2005 and 2010 I have described how Norway differs from other European countries after the financial crisis. While many EU countries are in the economic doldrums and are facing high government debt, Norway has made use of its fiscal leeway and has fared well. However, there is one area in which Norway differs from other countries in a manner we perhaps do not like: Norwegian households are among the most heavily indebted in Europe. Rising debt and property prices are mutually reinforcing. Higher asset prices lead to higher collateral values for loans. Easier access to credit also leads to increased purchasing power when property is offered for sale. This increases risk in the financial system.
And even as they impact the economy, the appropriate policy response may not be obvious because it may be difficult to assess in real time the probable duration of the shock and whether it is demand driven or supply driven. Even at a one-year horizon, which for policy purposes is not a very long time, there is considerable uncertainty surrounding forecasts of GDP growth. For example, the Survey of Professional Forecasters reports that on average 50 economists attach a 90 percent probability to an outcome for real GDP growth for 2007 that ranges from 1.0 percent to 5.0 percent. The width of this band of confidence or uncertainty is similar to that in the published forecasts of many central banks. The types of fundamental uncertainty I just reviewed are always present, but their impact on the appropriate near-term trajectory of rates, and hence on the degree of confidence the central bank can convey about that trajectory, may vary substantially over time. I want to mention a few other concrete examples of the uncertainty we currently face. The latest wave of global economic integration has influenced inflation and output dynamics around the world in ways that may be hard to understand fully in real time. Technological progress, along with the transition to greater labor force participation in emerging and developing economies has probably served to keep inflation low in many other countries and has served to increase the rate of growth in potential output globally.

But they also need to convey the limits to their knowledge and avoid providing a sense of certainty they do not, or cannot, possess. Uncertainty strengthens the case for being open about what we do not know, and exploring the robustness of our decisions to a range of alternative scenarios. But uncertainty also reinforces the case for clarity in communications about the objectives that guide policy and the rationale for our decisions. Perhaps most crucially, this means preserving confidence in our commitment to keep underlying inflation low over time, and for retaining the capacity to respond with flexibility to the challenges we face in this uncertain world. Thank you. 4  BIS Review 54/2006