samchain/econo-pairs-v1 huggingface dataset:
This means that banks are able to lend through severe economic downturns, insurers can maintain underwriting capacity in the face of a wide range of severe shocks, and financial markets are able to function, as they adjust to shocks, including the infrastructures in markets that are at the heart of the financial system in the post-crisis reforms, notably clearing houses. Much of that functioning also relies on the second plank of resilience, namely structural measures which are not designed to vary in a counter-cyclical manner, but instead apply equally at all times. For banks, this means minimum capital and leverage ratios on top of which sit buffers which are there to be used counter-cyclically in times of stress. Consistent with the idea of resilience, there are two key questions to ask about the buffers: are they sized consistent with the financial stability objective; and are they in practice usable in times of stress? We have to keep both of these questions under almost continuous review. Post-Brexit, it is necessary that we review and, where appropriate, revise the regulatory system to make it consistent with our UK specific objectives. When I say UK, however, we must recognise – as TheCityUK does – that we are a leading global financial centre. So, our financial stability objective is a global public good, as the IMF has previously noted. We must therefore continue to be closely involved in shaping international standards, and then implement them properly. I can assure you that we are doing both of these.

Two questions in particular tend to arise: Do we only take into account inflation, or do we also care about the real economy, for instance, the employment situation? And what do we think of the rapid increase in household indebtedness and in property prices? The aims of monetary policy To understand the monetary policy decisions, it is of course essential that there is no uncertainty regarding the objective of monetary policy. There is only one statutory objective for monetary policy and that is to maintain price stability. We at the Riksbank have then chosen to specify this objective in terms of an explicit inflation target. This entails an annual change in the consumer price index (CPI) of 2 per cent with a tolerance interval of ± 1 percentage point. One might ask why we allow a certain measure of inflation when Parliament has given us the task of maintaining price stability. One reason why we have chosen not to set the inflation target at zero is that an inflation target that is too low can under certain circumstances create adverse conditions for employment. There is an inbuilt resistance within the economy to nominal reductions in prices and  1  See “Monetary policy in Sweden", Sveriges Riksbank (this document can be downloaded from the Riksbank’s website, www.riksbank.com, or ordered as a booklet). BIS Review 84/2006  1  wages and a certain measure of inflation can therefore make it easier to implement necessary changes in relative prices and wages.
In late July, the year-on-year decline in actual registrations had eased, and stood at 9% lower than the figure observed a year earlier. 6  From the standpoint of financial stability, the evidence available4 shows that the variables with the highest information content to explain the probability of default of households are becoming unemployed and a fall in household income. The same evidence shows that, as a result of the shock triggered by the coronavirus, consumer credit defaults can be expected to occur at an earlier stage than mortgage defaults by households, and that a deterioration in income and employment will adversely affect mortgage lending overall, with a slight time lag. Further, there is very notable disparity in the financial situation of the households most affected by the pandemic. According to the Banco de España’s Spanish Survey of Household Finances5, the industries that have borne the brunt of the pandemic employed a higher proportion of young and female workers than other sectors, and also a higher proportion of low-wage workers. The lower wages were partly offset by the fact that the employees concerned lived with other household members who had a higher income. In terms of household wealth, 28% of workers in the social industries lived, in 2017, in households whose financial assets amounted to less than one month's income, and around 8% had bank debts whose repayments amounted to more than 40% of their gross household income.

Tail risks with counterparty risk correlation The first category of contracts falls under the broad headline of “wrong-way” risk in tail events, and is purely statistical in nature. The particular issue is focussed on contracts that can be perceived of as providing insurance yet, in a stress scenario, when the contract is sufficiently in the money to be worth calling, there is a significant conditional probability that the insurance provider is no longer in business to pay out. In what follows, we look how such problems arise using practical examples and consider what lessons should be drawn. 1  For example, the Squam Lake Working Group on Financial Regulation, July 2009, “Credit Default Swaps, Clearinghouses, and Exchanges”. BIS central bankers’ speeches  1  When investor “A” decides to buy protection from bank “B” on exposure to a third company “X,” she may or may not explicitly take into account that in the event of default by X, B may in fact also be in trouble. Whether or not she does so would depend on the reason for the trade. If A wants default protection then that default correlation certainly should be taken into account2. But if, for example, the goal is just to reduce the price volatility of holdings of a certain corporate bond issued by X, this default correlation may not be seen as that relevant. As a practical example, take the case of a pension fund managing its corporate bond portfolio.
In Exter’s opinion, such interests would lead to money creation, generate conflicts of interest and prevent making investment decisions based on hard-core economic principles. As such, Central Bank’s involvement in economic activities would be sub-optimal. 2  BIS Review 20/2007  A central bank, by nature, is in a position to acquire assets by creating liabilities. These liabilities take the form of new money issued by a central bank. Hence, any asset acquisition by a central bank is done at the expense of its main objective, namely, price stability. As such, a central bank should not pursue profit making as a goal. Technically, profit seeking has no meaning, because a central bank could make any amount of profits by inflating the economy. Hence, profits may arise from the central bank’s activities as a side product, but they do not form the main business of a central bank. As a result, a special procedure has to be adopted for the application of the profits of a central bank. Exter knew this requirement very well. In the Exter Report, he has argued that the Central Bank’s profits deserved special attention because of the inflationary or deflationary effects which their payment or non-payment could have on an economy. He has recognized that when such profits are paid out and spent by the government, they would find their way into the reserves of commercial banks raising their multiple credit creating capability.

Unlike in most industries, however, low margins for a mutual are very unlikely to result in shareholder revolt or a missive to management to gear-up or get-out. They are a reflection of corporate governance working for stakeholders, here defined broadly to include depositors and borrowers. In this way, mutuality reduces the scope for misaligned incentives between shareholders and depositors which might otherwise arise in a joint stock bank. This is not to suggest that mutuality is a panacea. For example, it does not address the potential incentive problem between stakeholders and the public sector. Indeed, it could even potentially worsen this problem as shareholders and depositors are one and the same under mutuality and so must rank equally in the event of a payout from the public purse. Moreover, profit margins in the building society sector are currently under some pressure as a result of low Bank rate and increased competition for prime residential loans. Some building societies have also hit bad loan problems. Although painful in the short-term, these margin pressures ought in time to abate. So in the heartland of mutuality, I am happy to say that reports of the death of the building society sector are greatly exaggerated. Indeed, mutuality may do a better job of aligning stakeholder incentives than some alternative forms of corporate governance. It is a depressing but telling fact that, of the demutualised former UK building societies, none is today in independent ownership. Thrift, mutuality and relationship-building have long underpinned banking in Yorkshire.
The linking pin is membership in both policy boards by central bank’s senior management, which makes it possible for information and knowledge in one area to be usefully employed in performing the other, without compromising the mandate of each policy board. For example, detailed supervisory information about banks’ changing risk appetite and exposure to different economic sectors and markets – as well as how these risks are being managed – can provide useful early warnings about the health of the economy and potential systemic problems down the road. This can be a very important input for monetary policy board. On the other hand, central bank’s oversight of monetary policy and economic stability can strengthen and provide context to its supervisory responsibilities, for example, in identifying potential macro factors that may affect the health of financial institutions. Decisions about the stance and timing of prudential and supervisory policies in general can  BIS Review 32/2009  1  also be more appropriately made with the full knowledge of macroeconomic conditions and monetary policy. As can be seen, the two policies are essential to each other and hence it is useful or even desirable, in my opinion, for central banks to supervise at least the core financial sector, whether under a separate or integrated supervision model. This is most evident in times of systemic crisis where central banks’ last-resort lending is likely to be called upon and prompt decision is vital.

To me, both types of institutional setup may have one important common weakness, that is, there does not seem to be the notion of a lead supervisor in either model. Allow me to elaborate on this point. In the case of separate authorities, it would be normal for each authority to assume that every authority is doing its job according to its mandate. Therefore, one would tend to focus only on its own mandate. This can be a problem if some authorities fail to do a proper job, others may not be able to take note. Worse still, if there are supervisory gaps, the chance of any one authority identifying potential adverse impact from areas outside of one’s own mandate is even smaller. Take the US as an example, the authorities and investors did not  2  BIS Review 32/2009  realize that credit rating agencies were not doing an adequate job in their rating of complex structured products. If there were a lead supervisor, would the whistle have been blown earlier? I believe that there would have been a better chance if there were a lead supervisor with a clear mandate to take the lead responsibility and who is risk focused. There would have been more dialogues through which weaknesses may have been identified and corrected. The idea of a lead supervisor has gained widespread support in the area of cross-border supervision, as it contributes to better coordination, which in turn could help to prevent or identify problems at an early stage.
Fourth, a stronger and better system of FMI governance and oversight can help to ensure that those systems that support a global market are subject to consistent standards regardless of the jurisdiction where they operate. Relying solely on a patchwork of differing national standards in a global world would not work well. It would encourage business to migrate to the lowest standard. Without establishing a global floor, there would otherwise be a “race for the bottom.” These are the major reasons why CPSS and IOSCO took on the task of strengthening and broadening the standards for FMIs. There are two major goals of this effort. The first goal is to strengthen the current standards by: 1) raising the bar for existing standards such as for governance, credit risk, liquidity risk, collateral and margin requirements; 2) including requirements for new areas such as segregation and portability, general business risk, links, tiering and disclosure; and 3) extending coverage to include trade repositories. As proposed in the consultation document, the Principles will significantly strengthen existing requirements for an FMI’s governance and financial resources. One way the Principles do this is by requiring FMIs to take a more comprehensive and proactive view of the roles they play, the risks they face, and their potential to support the stability of the broader financial system.

Transparency into counterparty risk should be greatly improved via disclosure requirements and the ability to aggregate trade information in trade repositories, and end user trading positions should be much better protected by segregation and portability requirements and a more robust financial market infrastructure. Although there is still much to do as part of this process, I’m optimistic that we are on the right road. We just need to continue to push ahead and not forget the lessons learned from the financial crisis. Thank you for your kind attention. I would be happy to take a few questions. BIS central bankers’ speeches  7
BIS central bankers’ speeches  3  •  In the future, we may not have to remember complex passwords or worry about password compromise. •  Fingerprint, iris, facial and voice recognition, and even palm vein and heartbeat recognition systems are being explored for authentication purposes. •  Biometric ATMs have been deployed in several parts of the world, including the UK, Japan, China, Brazil, and Poland. •  Banks in Singapore have launched mobile applications that utilise the TouchID function of the iPhone for fingerprint authentication. •  Some have also been exploring the use of voice biometrics in their phone banking and call centre services. For users who are concerned about their privacy or have physical challenges, token-based authentication offers an alternative means of security: •  Tokens embedded within mobile devices, or perhaps on wearable technology, are viable options. •  And where stronger security is required, these could be used together with biometrics to provide multi-factor authentication. Third, block chains and distributed ledgers. Digital currencies – like Bitcoins – have attracted much interest. •  Payments using Bitcoins are much faster and potentially cheaper than conventional bank transfers and, its advocates argue, just as safe. •  Whether digital currencies will take off in a big way remains to be seen. •  But it is a phenomenon that many central banks are watching closely, including MAS. •  And if they do take off, one cannot rule out central banks themselves issuing digital currencies some day!

There is reason to believe that this time is different: that technology will indeed transform financial services in a way that has not happened before. It has much to do with the concept of mobility. First, mobility of technology. •  Mobile devices, such as smartphones and tablets, have become common-place. •  People do not just connect and surf from their home computers anymore – they also do so from their mobile devices, while on the go. This has profound implications for how financial services are offered and consumed. Second, mobility of ideas. •  Today, online platforms provide a variety of social networking and peer-to-peer services. And people are increasingly comfortable using these services. 2  BIS central bankers’ speeches  •  These services have compressed time and space: interaction is real-time and information exchange transcends physical boundaries. •  They allow information, knowledge and ideas to be shared widely across communities and geographies. Third, mobility of payments. •  In the past, it used to take several days and cost quite a bit to pay someone in another country or currency. •  Today, online payment services have made it possible for people and businesses to transfer funds safely at very low cost. •  This has not only allowed e-commerce to flourish, but also enabled faster and more efficient cross-border financial services, like lending and borrowing. We are looking at a financial services industry that will be increasingly driven and powered by technology.
But with an inflation target of 4% or even more, we cannot exclude that mechanisms that automatically recover purchasing power are going to be developed. It is not difficult to picture a scenario in which we could end up having more wage inertia due to indexation. In addition, inflationary expectations could become more volatile. This, in turn, will significantly reduce the gains of having a higher inflation target in the first place. A credible commitment to stable inflation also generates greater stability of the business cycle, allowing less costly unemployment fluctuations. Indeed, a reason for the great moderation the global economy experienced for an extended period of time was in part due to a better management of monetary policy and not only to good luck. 3 Therefore, a credible commitment to price stability increases welfare by reducing both, inflation and unemployment volatility. Despite the big consensus regarding the need to preserve price stability as a central goal of monetary policy, some analysts have argued that such a concept should be expanded to include asset prices. By allowing significant deviations of asset prices from their “fundamentals”, central banks planted the seeds of financial crisis. Therefore, it has been argued that monetary policy should respond to asset prices. I think this approach is too narrow. As I already mentioned, the financial crisis was not only related to the burst in asset prices but mainly to its interaction with financial fragility. Asset price bubbles and financial fragility are part of a more complete (and complex) concept: financial stability.

On the other hand, authorities like Finansinspektionen may need to take the same type of measure for their task of protecting the consumer. Their proposal for a ceiling for loan-to-value ratios, for instance, is based on consumer interests. The question of how responsibility and roles should be divided between the different authorities will probably be discussed in detail in Sweden and abroad in the coming period. And it is important to find a system that works efficiently. Some of the criticism of the strategy of “leaning against the wind” with the policy rate also applies to alternative measures. If the central bank or another authority takes such measures, one must have a good understanding, as with the policy rate, that the measures are really being implemented at the right point in time. Otherwise there is a risk that the fluctuations in the banks’ credit granting will be greater rather than smaller. Monetary policy and house prices Credit volumes and house prices are not targets for monetary policy. They are indicators that should affect monetary policy if they are expected to affect inflation and resource utilisation in the economy. But my assessment is that there may also be occasions when indicators such  6  BIS Review 70/2010  as house prices and credit growth contain information on future economic developments over and above what we can capture in our quantified forecasts.
It will also expand the options for investors and borrowers and thus, contribute to more efficient allocation of financial resources across borders. In addition, the development of the capital markets in the Asia region will have the important role in channelling part of the sizable savings of Asia back into productive investments in the region. With greater liberalisation of the financial sector and the capital account, and the increased linkages of the national payments systems in Asia, and the greater presence of regional institutions in the individual domestic financial systems, the trend for increased financial flow within the region will continue. Given Asia’s favourable economic prospects and more developed financial market, Asia is already attracting volatile capital flows. The route that Asia is taking to forge greater financial integration will however be different from that of Europe. Unlike in the European Union, Asia has not ventured to have centralised institutions to coordinate financial integration. Rather, it has leveraged on existing regional groupings and existing networks to forge greater collaboration in areas of common interest. Secondly, a common currency is not on Asia’s medium term agenda. To minimise exchange rate risks and facilitate intra-regional trade and investment, countries have ventured into arrangements to use domestic currencies for trade settlements. Let me touch on policy and strategies adopted in Asia. Asia has tended to not adhere to rigid ideologies but rather focus on institutional building and financial market development, strengthening of the payment systems and the regulatory and supervisory framework.

Zeti Akhtar Aziz: Vision of Asia Speech by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the Official Monetary and Financial Institutions Forum (OMFIF) – “Vision of Asia Award Acceptance Speech”, London, 30 June 2010. *  *  *  It is my great honour to be here today to receive this Vision of Asia Award from the Official Monetary and Financial Institutions Forum (OMFIF). I would like to thank Lord Desai, for his generous introduction and the advisory board of OMFIF for this recognition. As a policy maker from an emerging economy in Asia – for almost three decades – it has been both exhilarating and most rewarding. While being challenged to the limit, in particular, during the Asian financial crisis, the Asian economies have now emerged stronger and more resilient. This decade has seen a dramatic change in the nature of the globalisation process. As this process intensifies, Asian economies have demonstrated their flexibility to adjust and respond to the opportunities and challenges that have emerged. The initial wave of globalisation was in the form of trade. This was followed by the globalisation of corporations and more recently by the globalisation of financial flows. The recent global financial and economic crisis has called for the globalisation of policy given the limits for policy at the national level and the need to address cross border developments that have implications on the domestic financial system and hence the domestic economy.