samchain/econo-pairs-v1 huggingface dataset:
The legal and judicial system must make the rights and responsibilities of both banks and their counterparties clear and enforceable so that banks and borrowers can make the most effective use of collateral, guarantees, and other measures to secure credit. Third, we must confirm that the banking industry is developing a sense of a “culture” of risk management. This is perhaps the hardest criterion to define. To a great degree, Basel II is intended to create incentives for the banks to renew their focus on a risk management culture. At a minimum, countries that seek to apply Basel II must ensure that their banks view risk management not as an exercise in complying with external requirements, but rather as a means for pursuing opportunities responsibly. We must all understand as well that risk management is an art, not a science: it is a way to approach business decisions, but it does not provide automatic answers. Its successful application requires that we constantly improve our skills and our expertise. It demands the use of the best tools and best data available to support our analyses. And ultimately, it requires that we apply our best human judgement to all significant decisions. All of us can take immediate steps to strengthen our financial and supervisory infrastructure along these three areas. We must ensure the effectiveness of our supervisory systems. We must improve the transparency of our markets. And we must promote the development of sound risk management cultures.

Given our interest as well in promoting a more level playing field, ensuring the effectiveness of market discipline, and seeking the efficient allocation of capital across borders, we support the objective towards convergence in accounting guidelines. During tomorrow’s discussions, Dr. Arnold Schilder, Executive Director of the Bank of the Netherlands and Chairman of the Committee’s Accounting Task Force, will share some of the Committee’s thinking and most recent work on emerging issues related to accounting, Basel II and supervision. After his remarks, we will have an opportunity to meet in smaller groups to discuss issues and the work ahead for supervisors to help promote sound practices with regard to loan accounting, regulatory capital, and fair value accounting, as well as to incorporate the role of external auditors and accountants effectively in the supervisory process. But these discussions mark only the beginning. Our focus on accounting from the supervisory perspective, and our dialogue with the accounting profession, must continue to grow in the years to come. 5. Conclusion  In my remarks today, I have tried to make clear that, in our new journey, challenging work remains ahead to ready our banks, to build our skills as supervisors, and to promote greater transparency in our markets. As we consider the preparations we must make, we might recall the words of the Spanish author, Miguel de Cervantes. In his world-renowned novel Don Quixote de la Mancha, he wrote nearly 400 years ago that, “To be prepared is half the victory.” The other half, I think, will be cooperation.
It’s a tough regime which enables us to hold the top brass to account when things go wrong. 2. Responsible openness based on international collaboration and standards. The approach taken works with the grain of the international financial system, and other countries have already borrowed heavily from it. 3. Proportionality and sensitivity to business models, and promoting competition. The regime has left us room to tailor it so that it fits a small insurance company as well as it fits a huge bank. 4. Dynamism and responsiveness. The framework gives us room to adapt it as needed. To give you one recent example: in view of the increased importance of operational resilience at firms, and particularly at banks given the programme of branch closures and the rapidly-growing dependence of their customers on digital channels, we last year introduced a new Senior Manager Function (SMF 24) for operations – so that it is clear who is accountable when things go wrong. This simply wasn’t as high a priority when the SMCR was first brought in in 2016, but had become more important since – and the framework is flexible enough to allow us to respond to this change. 5. Consistency. There is enough of the regime in legislation to ensure consistency across activities and through time. 6. Accountability. We are regularly asked about the regime in Parliament, and have imposed it on ourselves.

We can make good use of this information as a starting point for the design and implementation of a national strategy of financial education and financial inclusion. They are both important objectives for the central bank. These two topics are set to gain central stage following the emergence and growing trend toward digitalization, emergence of digital financial instruments and potential introduction of Central Bank Digital Currencies. I am sure that as financial inclusion and financial education gain more attention in the mainstream central bank agenda, we will see these topics discussed in our future workshops. My most important recommendation is that research produced at the central bank, remains close to central bank interest and has practical value for policy and decision making to achieve their objective. It must flow naturally into policy making and provide solid foundations for 2/3  BIS central bankers' speeches  monetary and financial stability policy. Finally, I am proud to see how our researchers have progressed in the adoption of the most sophisticated techniques of research. Simultaneously, I am glad to see that the adoption of research methods has crossed the boundary of research department and is spreading well into other departments. Our economists are doing independent research work in support of their day to day activity. This is the result of our continuous efforts to increase the impact of research in policymaking.
The priority now is to complete the “second pillar” – the resolution of failing banks – with the establishment of a common backstop to the Single Resolution Fund. This should go hand in hand with a sufficient reduction in risks; however, we should not allow ourselves to be held back by layers of rigid quantitative criteria. It is also vital that we remove the obstacles to sound cross-border consolidations, which would allow banks to move savings more freely across borders. But this financing union must also build on the Capital Markets Union. There is a political consensus for this, but we now have to make concrete progress on revising bankruptcy laws and strengthening ESMA. In addition to private risk-sharing, there is also a vital need for a common public solidarity mechanism [slide]. One aspect of this is the reinforcement of the European Stability Mechanism (ESM), in particular its precautionary tools: credible crisis prevention means not just ensuring fiscal discipline, but also having the necessary tools in place to help Member States cushion asymmetric shocks, which can appear suddenly despite all efforts to avoid them. To be efficient, precautionary tools should, in my view, be based on objective and simple ex ante criteria [such as abiding by certain rules], rather than on the current burdensome conditionality system which is too similar to an assistance programme. The euro area budget proposed by France could also play a stabilising role, by supporting investment, especially in education and training, and of course in new technologies, when national finances are constrained.

The University at Albany clearly plays this role in the capital area. Perhaps equally important in terms of promoting local economic growth, colleges and universities can play a key role in creating jobs for skilled workers in local businesses. Colleges and universities conduct research and development that can have “spillover effects” into the local economy. Businesses in the region can take advantage of being close to these innovative activities and facilities to develop new products and technologies. This can also help draw new companies to the region to access university resources. Thus, successful industry–higher education partnerships can provide a quite a boost for a region’s economy. The local nanotech sector provides an excellent example of this type of partnership at work. During my visit to the University’s College of Nanoscale Science and Engineering this afternoon I look forward to seeing the facilities and hearing more about the Center’s plans to lead the way in global nanotech research. More broadly, I understand that our audience today includes several members of the Regional Economic Advisory Council – including the University at Albany’s president, George Philip and Michael Castellana, the co-chair of the Council – who are working to advance such partnerships and the outlook for the region. Going forward, the industry–higher education partnerships taking place here will be increasingly important. I expect the strong foundation already in place will help maintain the economic vitality of the capital region.
And from August 2024, the largest commercial banks active in retail payment transactions will be offering their customers the possibility of receiving instant payments. However, for instant payments actually to be available to commercial banks’ end customers, private sector solutions are still needed. According to surveys, many commercial banks are also planning to offer the possibility of sending instant payments from August 2024 onward. Competition among commercial banks should ensure that efficient payment solutions are offered to end customers, for example in ebanking. What do instant payments mean for the two-tier financial system? Instant payments settled in central bank money are an example of how our first principle – the division of labour between the central bank and the private sector in the two-tier financial system – enables successful implementation of innovations. With the introduction of instant payments, the end customers of SIC participants will also be able to settle their payments securely, quickly and in central bank money. In Switzerland, the irrevocable and secure transfer of value in central bank money in real time has to date only been possible for participants directly connected to the SIC system. This expansion of the group of participants brought about by instant payments corresponds to our second principle: the secure settlement of payments in central bank money. What about our third principle, the seamless integration of payment methods and forms of money? It is precisely here that we find the most significant innovation prompted by instant payments.

In DLT, the term ‘atomic settlement’ is used in this context. Settlement in DLT systems raises issues similar to those for settlement in an RTGS system, just the other way round. Central bank money existed as a secure means of payment before the introduction of the first RTGS systems; what was lacking for a long time was an appropriate settlement mechanism. This was provided by RTGS systems introduced from the 1980s. With DLT, the situation is reversed: A secure settlement model in the form of atomic settlement is designed to be in place from the outset. The unresolved question with DLT systems is which means of payment are the most appropriate. 5  By ‘conditional’ we mean a secure settlement based on the principle that the delivery of assets occurs if and only if payment is made (‘delivery versus payment’, or DvP). Page 7/11  The SNB is open to DLT and the token ecosystem and its potential for efficiency gains and risk reduction. At the same time, however, DLT can introduce new risks into the system. It could fundamentally change the role of financial intermediaries, and thus the architecture of today’s financial system. If we are guided by the three principles, it should help limit the risks. Token transactions require stable-value, generally accepted means of payment. We will now show you which private and government-issued forms of money qualify under principle 1 within the two-tier financial system.
During the crisis, such market-based measures of leverage did a much better job of identifying problem banks than conventional risk-weighted capital ratios.1 So measured, the world’s largest 20 banks are at present around 36 times levered. That is a loan-to-value mortgage of around 97%. The household sector, too, has been repairing its balance sheet. On average across the US, UK and euro-area, households are running a financial surplus of around 2.5% of GDP (Chart 11). As recently as 2006, they were running a financial deficit of 1% of GDP. Since 2007, around £ has been repaid each year by UK households. Deleveraging is underway. Yet this aggregate picture masks some important distributional differences. There remains a sizable tail of over-indebted households vulnerable to a worsening of financial conditions. In the UK, the proportion of households in negative equity is 1 in 14. In the US, it is 1 in 4. With house prices falling in both countries, that fraction may rise further. The tail of “vulnerable” households (those with limited or no equity in their property and reporting problems servicing their debt) is high and rising. So defined, vulnerable households in the UK account for 15% of household secured debt and 35% of unsecured debt (Chart 12). These shares have risen over the past three years, by around 5 and 10 percentage points respectively, despite interest rates being at rock-bottom. The picture in the corporate sector is, in some respects, not dissimilar.

Chart 6:  Chart 5: Long run government bond yields  (a)  Long run gold prices(a)  Per cent  US dollars per troy ounce (1980 prices)  16  800  14  700  12  600  10  500  8  400  6  300  4  200  2  100  US UK  0  0 1800  1840  1880  1920  1960  2000  Source: Global Financial Data. (a) US yields are on 10 year bonds. UK yields are on consolidated stock up to 1957; 10 year bonds after 1957. BIS central bankers’ speeches  1950 1960  1970  1980  1990  2000  2010  Sources: Bloomberg, Global Financial Data and Bank calculations. (a) Deflated using US CPI. CPI for July and August 2011 is projected. 9  Chart 7:  Chart 8:  VIX Index(a)  Market liquidity Per cent 90  Index (a) 1.5  80  1.0  70  0.5 0.0  60  -0.5  50 -1.0  40  -2.0  20  -2.5  10  -3.0  0 2007  2008  2009  2010  -1.5  30  2011  Source: Global Financial Data. (a) S&P 500 implied volatility (daily closing prices).
Whether improved prudential regulations, supervisory practices and risk management techniques will suffice to avoid financial cycles in the future remains to be seen. Our experience so far does, however, leave some doubts about this. This brings us to a possible third line of defense that could at least in principle be used to prevent large financial cycles. I am of course thinking about monetary policy The argument is that since we live in a fiat money system, there is no exogenous constraint on the supply of credit except through monetary authorities. If those reactions are geared exclusively to controlling inflation, then the monetary anchor may not counter a build-up of credit that does not immediately lead to inflation in the price of current output. Hence, there is little to prevent the emergence of cycles in the prices of real and financial assets that are not included in the measure of inflation. In addition, experience has taught us that price stability is not, by itself, sufficient to ensure financial stability. So why don’t central banks simply change the way they conduct monetary policy and also try to prevent financial cycles? Well, the conventional view is that they should not. There are some very powerful arguments against a central bank trying to respond to credit expansion and “misalignments” in asset prices that do not lead to inflation in goods and services. First, how do we know that a bubble is a bubble and not a reflection of fundamental values?

Keynes was focusing on the demand side and on how to get out of the bust, whereas Hayek was focusing on the supply side and on how an economy got into the bust in the first place. While a great deal has been done to understand the reasons behind financial instability, many questions remain unsolved. So the discussion continues and when it comes to crises prevention, two conventional pieces of policy advice seem to emerge. The first line of defense is moral suasion. The central bank could warn market participants in various ways that they are becoming overly optimistic in their expectations about future cash flows, if we are talking for instance about stocks or real estate. The problem with moral suasion is that it is difficult to calm down a market that is rushing to new highs. Talk rather than action is often not enough. Still, if a bubble is starting to build up, it may be worth a try. This is one reason why several central banks have began to publish financial stability reports. In this way one can perhaps broaden the public discussion about what is happening. The second line of defense is prudential regulation. However, the way prudential regulation is done in practice raises two, interrelated problems. The first has to do with the fact that most financial crises stem not from individual banks getting into difficulties and affecting others by contagion.
The use of cards has increased rapidly Card payments have increased rapidly in Sweden in recent years. In ten years the value of card payments has almost quadrupled and the number of payments by card has increased sevenfold. Six years ago, in 2002, for the first time ever more card payments were made in payment terminals than ATM cash withdrawals. In the most recent statistics available, from 2006, card payments in payment terminals were three times more common than ATM cash withdrawals. If one calculates in terms of the number of transactions, cards are now the most used account-based payment instrument. Like cash, card payments are mainly used for payments that are made at the actual time of the transaction. According to a 2006 Temo survey, 45 per cent of those questioned used cards as legal tender in at least four of five purchases. 3 (3) The value of an average card payment has almost halved in the past ten years, from around SEK 730 to around SEK 380. We are then using cards to a greater degree to pay smaller amounts. In this way cards increasingly appear to act as a substitute to cash. This is particularly so in the case of younger people, which is indicated in a study recently published by the Riksbank. 4  1  The Economist, 17-23 February 2007. 2  The stock of banknotes and coins totalled SEK 114 billion on 31 December 2007. Sveriges Riksbank.

We are also aided by the fact that we are more reliant on traditional banking rather than the capital markets for our debt financing. Beyond the direct impact on banks, the general reduction in risk capital and financial deleveraging will be felt in Asia, through higher costs of capital. This is the downside that many companies and investors will have to confront. On the upside, this should further spur the efforts of Asian countries to make their own financial intermediation process more efficient. This can be done through a lowering of barriers to global capital and the building of channels to facilitate the growth of this capital. Global investors will increasingly look to Asia for investments as Asia remains an attractive area for growth in the long term. On the other hand, Asian companies will continue to require funds as they extend their global footprint. In this regard, lessons from the subprime crisis are timely. As Asian capital markets evolve, investors and risk managers alike will need to understand the innovations and the products as they develop. I believe that some key issues in the securitization markets will also have to be addressed, such as in origination standards. How investor confidence is restored will shape the ability of companies to tap capital market solutions in the near future. US recession and Asia’s growth story Let me now turn to the third issue, which is the impact of the US recession on Asia.
As early as November 1973, at the Conference on Managers in a Changing Hong Kong Environment, Sir Philip spoke on, amongst other things, the role of public policy. He said that, “the Government must accept such responsibilities as are necessary to ensure that management decisions are not frustrated by imperfections in the operation of the market mechanism, leading to economic inefficiency or social distress which only the Government can remove.” In September 1979, he talked about interventionism and the adjustment mechanism, amongst other things, in a speech on the Hong Kong Economy in Transition. He said that: “A pragmatic view dictates an admission that interventionism can be relevant to the maintenance of economic stability in Hong Kong even in the general context of a philosophy of positive non-interventionism”. In the same speech he cautioned against taking for granted the “efficiency with which [the] essentially automatic adjustment mechanism operates in restoring equilibrium”. He then went on in the same speech to identify areas that could be collectively referred to as market imperfections which justifies market intervention. BIS Review 67/1998  -2But it was the speech he made to the Federation of Hong Kong Industries in December 1980 (and as Principal Assistant Secretary for Economic Services then it was my honour to have a hand in drafting part of the speech) in which he made abundantly clear his stance on the policy of positive non-interventionism. Here I quote two paragraphs of his speech in full.

It is true that, more often than not, we come to the conclusion that the balance of advantage lies in not intervening; and, I must confess, I would be alarmed if we didn’t. Yet, in all cases, the decision is made positively, and not by default, and it is not the non-outcome of a do-nothing approach. But, there are many examples of the Government deciding, usually on the advice of its boards and committees, to intervene, in one way or another, in the free play of market forces.” Indeed there are many examples of intervention. We built the airport because, without government intervention, it would simply not have been economically viable. We built roads and bridges. We provided public housing, medical services, the list is long. But we tend to do less than other jurisdictions and so the size of our public sector in relation to gross domestic product is one of the smallest in the world. Specifically in the monetary and financial systems, there is significant intervention in the form of the regulation of financial markets and the supervision of financial institutions. This is precisely because we feel that, in the words of Sir Philip, ‘the balance of advantage’ lies in so intervening and because ‘imperfections in the operation of the market mechanism [may lead] to economic inefficiency’. In very much the same spirit, we intervened in 1996 and built a real time payment system because the private sector was not able to come up with this highly desirable piece of financial infrastructure.