samchain/econo-pairs-v1 huggingface dataset:
Figure 4 Mortgage failure in U.S.  Mortage deliquency  Mortage in foreclosure process  (% of total credit)  (% of total credit)  8  21  6  14  4 3 2  4  7  2  0  98  00 Total Prime  10  02  04  06  Subprime  08  1 0  98  00 Total Prime  02  04  06  08  Subprime  BIS Review 124/2008  Figure 5 Monetary Policy rates in G3 (percentage) 7 6 5 4 3 2 1 0 01  02  03  04  US  05  06  EU  07  08  Japan  Source: Bloomberg. Figure 6 Spreads between LIBOR and Overnight Index Swaps (OIS) (basis points) 160  Spread Libor/OIS 1 month Spread Libor/OIS 3 months Spread Libor/OIS 6 months  140 120 100 80 60 40 20 0 -20 Jan.07  Apr.07  Jul.07  Oct.07  Jan.08  May.08  Ago.08  Source: Bloomberg. BIS Review 124/2008  11  Figure 7 Real interest rates (percentage) 6 5 4 3 2 1 0 -1  92  93  94  95  96  97  98  99  US (1)  00  01  02  03  04  05  06  07  08  OECD (2)  (1) 10 year nominal bond return, minus same period expected inflation.

First I will review the harmful effects that the ongoing crisis will have on the future development of financial markets. Next I will discuss financial bubbles and booms in monetary policymaking, and the nature of the present crisis and possible consequences, to wrap up with the implications of the world growth scenario on the Chilean monetary policy. In the present turmoil, authorities have acted as lenders of last resort providing liquidity to ensure proper market functioning. Nonetheless, regarding financial bailouts two costs have to be balanced: averting a financial collapse with catastrophic consequences on the one hand, and the negative signals that come from said bailouts, on the other. Not only have the too-big-to-fail institutions been rescued, but also entities whose connections with the system are such that if they fail the whole financial system may be shaken. Troubled companies’ shareholders should not be bailed out, because it is important that risk evaluation is done more diligently in the future. Care must be taken in rescuing debtors of defaulted firms, because it may relax borrowing and repayment discipline, and punish good creditors by comparison. The tradeoff between these two objectives is clearly illustrated with the developments of the past week. Allowing the demise of Lehman Brothers was a sign that bailouts would not be up for grabs and even the downfall of a large investment bank would be accepted, but this may have accelerated the devastating chain of events that followed.
This calls for a revision of this view.2 In my remarks today, I would like to start by discussing some general issues regarding the linkages between price and financial stability and the linkages between monetary and macroprudential policy. In the second part of this talk, I will refer to the context of international capital flows and policy responses in a small open economy with inflation targeting, and the relation that monetary policy has to have with macroprudential policies in that context. Interactions between Monetary and Financial Policies Most central banks care not only about price stability, but also about financial stability. The goal for price stability is usually the main mandate of central banks, and is widely understood as maintaining low and stable inflation, which also reduces the deviations of output from its potential. However, the central bank’s mandate for preserving financial stability is less explicitly defined; probably in part because there is less agreement on what is financial stability and what should be considered an indicator of it. Broadly understood, it encompasses a stable and fundamental-driven credit and asset price growth, as well as the absence of large mismatches in the financial sector. It is not the purpose of my talk to narrow the definition of financial stability, so I will use the term in a broad sense. There is also the key distinction between micro and macro financial stability, and in most of what follows I will be focusing on the systemic aspects of financial stability, unless noticed otherwise.

Of course, this policy is not free of cost, since holding reserves is costly, and therefore its use is limited.4 It is difficult to recommend a particular strategy, since realities are different across countries, not only on the nature and impact of capital flows, but also on the overall macroeconomic policy framework and deepness and strengths of financial systems. However, the general principles discussed above should be taken into consideration. Final remarks The connections between price and financial stability suggest that the central banks should consider the cross effects of financial policies and monetary policy. In countries like Chile, the central bank has an explicit mandate on financial stability, and many other countries are moving in this direction as the interactions among policies have been recognized. But also, it is important to have a close and continuous coordination among all authorities with responsibilities on the financial system. This coordination becomes also more needed in times of crisis or extreme distress, since the central bank has to implement its LLR functions. In normal times, the pursuit of price stability in a small open economy is not in contradiction with financial stability in the presence of capital flows. In this context, the potential vulnerabilities to high exchange rate volatility can be handled with prudential regulation. However, in episodes of capital surges that may affect macroeconomic and financial stability a close coordination of monetary policy and prudential policies is required. References Bernanke, B.S.
The importance of state and local governments manifests itself in different ways, which are really different sides of the same coin. First, the sector directly produces a very large amount of economic activity. In 2014, state and local governments generated output valued at about $ trillion. This represents over 11 percent of total U.S. GDP and is more than 50 percent higher than the federal government’s contribution. And, even after years of retrenchment following the financial crisis, state and local governments employ almost 20 million individuals – nearly one in seven American workers. Clearly, a successful and stable state and local government sector is a vital contributor to overall output and employment. On the other side of the coin, we find the real effects of this activity: the provision of public safety, education, and health; as well as water, sewer and transportation services. These are the core public services that our citizens need, and which are absolutely fundamental to support private sector economic activity. So, as a central banker, I recognize the essential role that state and local governments play in the economy. Without successful state and local governments, the Fed’s dual mandate of maximum sustainable employment with stable prices would be much more difficult to attain. A final important dimension of the state and local sector – and the one that is perhaps most obviously front and center for today’s discussion – is its debt. The municipal bond market is very large, with outstanding issues totaling over $ trillion.

Now this large dollar amount in and of itself is not a problem. When governments invest in long-lived capital goods like water and sewer systems, as well as roads and bridges, it makes sense to finance these assets with debt. Debt financing ensures that future residents, who benefit from the services these investments produce, are also required to help pay for them. This principle supports the efficient provision of these long-lived assets. Unfortunately, as the Volcker-Ravitch task force emphasized, issuing debt to finance infrastructure investments is not the only reason that states and localities borrow from the future. Governments have also borrowed to cover operating deficits, and this kind of debt has a very different character than debt issued to finance infrastructure. Let me take a moment to explain what I mean and why I think this distinction is important. BIS central bankers’ speeches  1  When a jurisdiction borrows to invest in infrastructure, the cost of the debt to local residents – and those considering locating in the jurisdiction – is offset by the value of the services that the infrastructure provides. This tradeoff is part of the “fiscal surplus” that a jurisdiction offers: the value of the services minus the tax price that residents have to pay. A well-run capital budget will match these costs and benefits over the life of each project to ensure that the jurisdiction remains attractive to current and future residents.
In other words, the implementation of reforms and changes in the banking sector after a banking crisis – in respect of business practices, regulation and supervision – has the potential to strengthen the foundations of the banking sector, thereby improving its ability to contribute to sustainable economic growth. Given the limited time that I have, I will focus on some key structural developments in the banking sector that have taken place over the past twenty years and that are described and analysed in several chapters of the book. In addition, I will examine how the regulations introduced by the Bank of Spain during the boom years helped to prevent and mitigate the negative effects of the crisis and, especially, how some of the reforms and structural changes that are currently being considered may substantially reduce the fragilities of the banking sector. If implemented, they will strengthen the banking system and ultimately have positive effects on financial stability and economic growth in Spain. Some reflections on banking developments during the last two decades As I see it, Spain’s banking sector has undergone two fundamental changes since 1990: banking liberalisation and financial innovation. Banking liberalisation has produced a notable increase in competition among institutions and in financial integration. For example, the cajas (savings banks) have started to compete geographically and in different business segments. The increased competition has also led, at different times during these 20 years, to strong competition for bank deposits (e.g. la “guerra del pasivo” at the end of the 80s).

They are based on spurious international comparisons since other central banks – such as the Bank of England – do not print their own banknotes, do not (yet) incorporate the banking supervisor and do not perform tasks such as the management of  BIS central bankers’ speeches  3  over indebtedness, which is entrusted to the Banque de France by law. More than 200,000 households debt applications processed every year is no mean feat! We have already made a great effort over the past few years as our staff levels have been cut by nearly 20% in ten years. And we will continue with this effect; but it is based on a detailed analysis of our activities and requires substantial investment in order to increase productivity. Our programme is ambitious but in keeping with the reality of the tasks we perform and respectful of our employees. 4  BIS central bankers’ speeches
In addition, a large number of residents, including myself, commute each day into the city. A smaller but still sizeable number of New Yorkers commute into this state. Now, how did the state fare during the downturn and how is the recovery proceeding? As I mentioned, the New York Fed produces indexes of economic activity to help monitor the  BIS central bankers’ speeches  3  performance of the region.1 Based on our index, the downturn in activity in New Jersey began about the same time as the Great Recession was beginning nationwide – that is, around December 2007. While activity in the state is no longer declining, and there has been a slight pickup this year in the level of activity, to date there is still no sign that a strong recovery has taken hold. Quite frankly, this modest recovery in New Jersey contrasts with the relatively sturdy recovery in activity in New York City over the past 18 months. Employment in our region also declined substantially during the Great Recession. Job losses in New Jersey totaled about 250,000 – on par with the roughly 6 percent loss nationwide. The pattern of job losses here in northern New Jersey was very similar. In New York City, job losses were also large but somewhat less severe, with employment in the city down a little over 4 percent. The jobs recovery in New Jersey to date has been sluggish.

Let me start by saying that New Jersey is well-positioned for growth. The state has a population of 8.8 million, the 11th largest state, and despite the fact that this is a fairly mature region, the state’s population expanded by 4.5 percent over the past decade. More than 40 percent of the population 25 years of age and older in the state have a college degree, a full 5 percentage points higher than the national average. Our population is quite ethnically diverse: roughly 20 percent of the state’s residents were born abroad, and that share is even higher in Essex and Bergen counties. Significant numbers of the foreign born residents in the state come from India, Mexico, the Philippines, the Dominican Republic and Korea. The state’s economy is also quite diverse, and its industry mix mirrors that of the national economy. A sizeable number of jobs in the state are in the healthcare, professional and business service, wholesale and retail trade, and leisure and hospitality categories. When we look at the northern part of the state, we see a somewhat greater concentration of jobs in finance, particularly in Hudson County, in goods distribution, related to the ports, rail lines and trucking and warehousing activities that are prominent here, in pharmaceuticals manufacturing and research and development, and in the private education sector. The area also has important links to New York City. For example, the data centers here in the state serve many of the city’s financial firms.
Since the oil price in the first half of 2009 was lower than in 2010, this level is due to a base effect attributable to oil prices. Thereafter, inflation is projected to remain below 1% until the second quarter of 2011. On the one hand, the base effect attributable to oil prices weakens. On the other hand, production remains below its potential. The forecast shows that – should the Libor remain at the level targeted today – inflation accelerates from the third quarter of 2011 onwards. At 2.2%, the inflation forecast for  BIS Review 85/2010  3  2012 is the same as in the March forecast. The forecast shows that the current expansionary monetary policy cannot be maintained over the entire forecast horizon without compromising medium and long-term price stability. The forecast is still associated with very considerable uncertainties. 4  BIS Review 85/2010

But we are preparing the tools to make such access also possible by a remote and secure means. Naturally, a dilemma arises between the advantages of opening up our micro data to society (in particular for scientific purposes and for improving the design of policies) and the statistical confidentiality that reporting agents wish to keep. I think this is something that in the past has been biased on the side of excessively restrictive access to data. Given modern anonymisation techniques, my impression is that the picture should now become more balanced in favour of opening up our institutions and data to society. INE’s own laboratory is a good example of this movement. And I can in fact affirm that some Banco de España analysts are already enjoying access to INE’s data lab. Their experience shows the potential advantages and benefits of cooperation between institutions and researchers. Once public institutions provide the appropriate technology ensuring data confidentiality, analysts can undertake relevant policy evaluations and analyses that until now were not available for policymakers. This opens the way towards improving the policymaking process by conferring a greater weight on evidence and evaluation techniques. In this connection, the role of policymakers is to decide on public policy, but this role can be conducted more effectively the greater the information they have on economic conditions and on the consequences of each choice made. Useful evidence-based inputs to policymaking crucially require good and accessible datasets. Conceivably, we could think about a further step forward, linking and federating our data labs.
Digital payments could entail greater data on users’ identities and transactions being centrally visible. The data generated could have huge opportunities for the detection and prevention of financial crime, but this must be balanced with the risk of surveillance into private financial matters. These questions, as well as issues of encouraging inclusion and promoting competition, are not ones for central banks and regulators alone to answer. They go the heart of how we use money and who should be responsible for safety and security. There needs to be a wider debate between policy makers, governments and society as a whole. 9  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  9  Conclusion  We have reached the point in the cycle of innovation in payments where it is essential that we set the standards and thus the expectations for how innovation will take effect. It should not happen the other way round, with the standard setting playing catch up. The answer is not to strangle innovation, and it does therefore require a strong dialogue between the parties, which I think we have. It also requires the sort of thoughtful input that Brookings scholars have made. If I can end with one overarching point, I think the public expects its payments to carry the assurance of value that comes with money. At this point, my mother would have said firmly to me, “Thank you for that statement of the blindingly obvious”.

These firms are able to obtain funding on more attractive terms because debt holders expect that the government will intervene rather than allow failure. This creates an incentive to get large to achieve such status, not because it facilitates greater efficiency, but instead because the implicit government backstop enables the too-big-to-fail firm to achieve lower funding costs. Although the United States has an effective resolution mechanism for commercial banks, we do not yet have a good resolution scheme for large non-banking institutions or bank holding companies with large international operations. To address the too-big-to-fail problem, we need to develop a truly robust and credible resolution mechanism that allows for the orderly wind-down of any institution – regardless of its size – and that limits the contagion to the broader financial system. This will require not only domestic legislation, but also extensive work internationally to address a range of legal issues involved in winding down a major global firm. I want to emphasize how important it is that the incentives we embed within the regulatory apparatus for financial intermediaries encourage the type of behavior we seek – behavior consistent with safety and soundness and financial stability. For example, consider the efforts underway to standardize OTC derivatives and move the clearing of such trades to central counterparties (CCPs). These are good and worthwhile efforts.
In addition to these general forces that lead to industrial concentration, there is for financial services the particular importance of market liquidity and the ability to trade efficiently, which depends in turn on a large number of market participants wanting to trade in a particular venue. And the necessary market infrastructure generally has increasing returns to scale. Concentration in financial markets  Financial services concentration has increased with financial globalisation and with the revolution in information technology. There are more financial centres now and the largest have become very large. This may appear puzzling; the death of distance, the ability to interact instantaneously with market participants and end users anywhere in the world should perhaps have led to less not more physical concentration of financial services. One can only assume for financial services the returns to face-to-face contact, to physical proximity and co-location of workers remain high. And it is possible that the information technology revolution has perhaps had the opposite effect of making it more possible for activity that used to happen in more localised markets to benefit from the lower costs, greater efficiency and specialised products of the larger financial centres. 4  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  4  There is some historical support for this. The development of transatlantic cables, telegraphs and tickers in th  the late 19 century seems to have led to greater not less concentration, perhaps by giving greater access to th  economies of scale.

6  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  6  The great financial crisis and its aftermath was a painful reminder, however, of how financial markets, particularly in the international financial centres in which they have become concentrated:  -  can act to generate and amplify risk, rather than to spread and dampen it,  -  can become disconnected from the real economy and deflected into ‘socially useless’ activity and  -  can become subject to ethical drift and lose the social license on which ultimately they depend. Financial markets currently face many challenges but perhaps none is as fundamental as maintaining the support of society for the functions they perform. Meeting this challenge will require them to show that they are fair as well as effective. And as my colleague Minouche Shafik has recently pointed out, while misconduct in financial markets is older than the South Sea bubble, the scale of the misconduct which has emerged since the financial crisis is 7  unprecedented. The magnitude of the fines is indicative of the scale of the problem – since 2008 wholesale market participants have paid $ billion in misconduct fines and the story is not yet over. Perhaps most worrying is that while some of this relates to misconduct before the financial crisis, a good part of it is more recent. A year ago, the Bank used its convening power to bring together a wide range of stakeholders and market participants in an Open Forum on Fair and Effective markets.