samchain/econo-pairs-v1 huggingface dataset:
Recent Developments: Status of Consultations and the October Press Release In that vein, I’d like to discuss the status of our discussions and especially the proposals for managing credit risk. By now you’ve no doubt read that the Basel Committee agreed two weeks ago on a breakthrough plan to address the final issues raised in public consultations and to complete the new rules. This was a difficult task, as the Committee received over 200 comment letters from the industry and the broader public on the Third Consultative Paper, or “CP3”. While we might have been somewhat surprised by the number of responses that we received, we were not surprised by the hard work that was evident in the letters. In addition, we will have further valuable information from national consultative processes such as that under way in the United States. The comment letters were positive and offered constructive suggestions on a wide range of issues. Indeed, even among the most critical of respondents, one finds support for the introduction of the “three pillars” of the New Accord and its aim to align capital more closely to risk; for the development of greater consistency in the supervisory review of capital adequacy; and for strengthening the effectiveness of market discipline through enhanced transparency. It was, moreover, satisfying for us that most commentators acknowledged substantial improvements in the proposals since the release of the second consultative paper in early 2001.

Future Work: Full Credit Risk Modelling The Committee will spend the next few months considering these and other themes carefully and finding ways to balance the complexity of the New Accord against the need for appropriate sensitivity to risk; to ensure that the assumptions supporting the rules are appropriately conservative, but not excessively so; and to apply the rules consistently to protect and promote competition in the global banking market. But when the ink dries on the New Accord, rest assured that the Basel Committee will not be adjourning. Just from the comment letters we received, we can already identify a wide range of issues ahead to continue to find new ways to advance risk management, to promote greater transparency, and to strengthen the stability of the financial sector. I’d like to conclude by mentioning just two of the potential items on our agenda for future work once the New Accord is implemented. The first would be to consider the benefits of full credit risk models in the calculation of minimal capital requirements. In theory, a bank’s capital requirements would then reflect to the greatest degree the economic benefits of diversification in its balance sheet. In fact, the Committee did at one point evaluate whether advanced banks should be permitted to estimate the degree to which their assets might behave similarly or default together in the New Basel Accord. As you know, we decided that we are not quite there yet.
2 The pattern of bad behavior did not end with the financial crisis, but continued despite the considerable public sector intervention that was necessary to stabilize the financial system. As a consequence, the financial industry has largely lost the public trust. To illustrate, a 2012 Harris poll found that 42 percent of people responded either “somewhat” or “a lot” to the statement that Wall Street “harms the country”; furthermore, 68 percent disagreed with the statement: “In general, people on Wall Street are as honest and moral as other people.” I reject the narrative that the current state of affairs is simply the result of the actions of isolated rogue traders or a few bad actors within these firms. As James O’Toole and Warren Bennis observed in their Harvard Business Review article about corporate culture: “Ethical problems in organizations originate not with ‘a few bad apples’ but with the ‘barrel makers’.” 3 That is, the problems originate from the culture of the firms, and this culture is largely shaped by the firms’ leadership. This means that the solution needs to originate from within the firms, from their leaders. What do I mean by the culture within a firm? Culture relates to the implicit norms that guide behavior in the absence of regulations or compliance rules – and sometimes despite those explicit restraints. Culture exists within every firm whether it is recognized or ignored, whether it is nurtured or neglected, and whether it is embraced or disavowed. Culture reflects the prevailing attitudes and behaviors within a firm.

Firms should also pay closer attention to how they and the industry are broadly viewed by the public. Internally, one important marker for progress is the frequency of problems, and whether small problems stay small, or instead, grow into large problems. A healthy culture is one where problems are identified early and promptly addressed. In addition to a strong compliance function, firms need to foster an environment that rewards the free exchange of ideas and views. Individuals should feel that they can raise a concern, and have confidence that the issues will be escalated and fully considered. This is a critical element to prevention. A firm’s employees are its best monitors, but this only works well if they feel a shared responsibility to speak up, expect to be heard and their efforts supported by senior management. Let me give you an example to take this from the abstract to the more specific. As I noted in a speech a few weeks ago on the issue of reference rate reform, in the case of the LIBOR setting process, the information barriers between the traders and LIBOR submitters were paper thin and porous. 5 At times, traders and LIBOR submitters colluded to manipulate LIBOR for the gain of the traders and the firm. 4  Supervisory Letter SR 12–17. 5  Restoring Confidence in Reference Rates. BIS central bankers’ speeches  3  What should have happened instead goes like this: A trader asks the LIBOR submitter to adjust the submitted rate.
William C Dudley: The economic outlook and the role of monetary policy Remarks by Mr William C Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York and Chairman of the Committee on the Global Financial System (CGFS), at the Economic Club of New York, New York City, 25 March 2013. *  *  *  Krishna Guha, Simon Potter, Jamie McAndrews, Lorie Logan, Kevin Stiroh, Paolo Pesenti, Richard Peach, Jonathan McCarthy and others on my staff helped with the preparation of these remarks. Clearly detailed accompanying charts to this speech can be found in the pdf document on the US Federal Reserve website. [For clarification, exhibits 8 and 14 have been revised to indicate that the charts show fiscal years]. It is a pleasure to have the opportunity to speak to the Economic Club of New York again. Today, I will focus on the economic outlook and the role of monetary policy. I will argue that the fundamentals underpinning the U.S. economy are improving and monetary policy is gaining additional traction. But this may not immediately lead to stronger growth because of the recent increase in fiscal restraint. As a result, I expect that labor market conditions will improve only slowly and that inflation will remain muted. Consequently, it will be appropriate for monetary policy to remain very accommodative. As always, my views are my own and may not necessarily reflect those of the Federal Open Market Committee (FOMC) or the Federal Reserve System.

6  http://www.bankofengland.co.uk/monetarypolicy/Documents/pdf/chancellorletter120321.pdf  7  See for example “Recent Developments in the Sterling Monetary Framework” http://www.bankofengland.co.uk/publications/Documents/speeches/2011/speech487.pdf  BIS central bankers’ speeches  available  at:  3  money can surely be relied on to prevent deflation, but even if it provides a temporary boost to real activity it can’t guarantee sustaining a particular real growth rate. Third, the split into prices and real output and the overall outturn for the economy, depend on what else is happening at the same time: monetary policy is just one of the various forces at work shaping the pressures on output and inflation. We don’t conduct monetary policy in a scientific laboratory where everything else can be held constant. QE is often described as being a great experiment. In fact, the theory of monetary policy in the economic textbooks that I was brought up with at Bristol, and later, all considered the supply of money to be the central bank’s primary policy instrument. The use of interest rates to set monetary policy appeared to be viewed by many academic authors as something of a slightly unfortunate and uninteresting practicality8. I want to be clear about one very important point: for monetary policy to stimulate the economy, the Bank of England has to cut interest rates and/or increase the supply of money. That gives firms and households an incentive to spend rather than to save.
Dimitar Radev: The Bulgarian banking sector and the challenges in 2020 Publication by Mr Dimitar Radev, Governor of the Bulgarian National Bank, in the Quarterly Bulletin of the Association of Banks in Bulgaria, issue 60, January 2020. * * * The banking sector in Bulgaria ended 2019 with very good overall indicators and positive trends – high capital adequacy and liquidity, credit activity, improving asset quality and the historically highest annual profit of the sector. The asset quality review and the stress test conducted by the European Central Bank confirmed the resilience of the sector overall. The banking sector in Bulgaria will be strategically impacted by the developments in the process of accession to ERM II and the Banking Union, part of which was the assessment of six Bulgarian banks undertaken by the ECB. The final stage of this process is to unfold in the coming months. The fulfillment of the commitments assumed by Bulgaria, including strengthening the capital of two Bulgarian banks, will be followed by relevant external assessment. Following the set path, Bulgaria is drawing near to achieving a fundamentally new level of EU integration – membership in euro area institutions. This will bring about significant change in terms of banking supervision and bank resolution activities. The very onset of the process of establishing close cooperation of the Bulgarian National Bank with the ECB has already expanded the scope and enhanced the intensity of the two institutions’ joint work.

The banks in Bulgaria have an important year ahead, which we expect to be overall successful for the sector. Banks’ operations continue to take place in an environment of rather optimistic attitudes of enterprises and households amidst a relatively high growth of the Bulgarian economy. At the same time, the external environment holds risks and insecurity that, due to the openness and international integration of our economy, could potentially affect the economic 1/2  BIS central bankers' speeches  situation in Bulgaria. Some adverse scenarios could exacerbate aspects of the risk profile of the banking sector. Therefore, it is essential that in their behaviour banks continue to take into account the main risks, including profitability risks and asset quality risks. 2/2  BIS central bankers' speeches
6  In the April 2010 quarterly Industrial Trends Survey, 62% of manufacturers reported that they were working below capacity. The average figure for the decade 1998–2007 was 61%. BIS Review 99/2010  7  Chart 6: UK, US and Euro Area inflation rates Annual percentage increase in consumer prices 4 2003-07 Average 2008 - 10 Average May 2010  3  2  1  0 UK  US  Euro Area  Source: Office for National Statistics, Thomson Datastream  One obvious reason for this higher level of UK inflation is the weakness of the pound. Since mid-2007, the pound has lost nearly a fifth of its value against the euro and has fallen by around 25% against the dollar. Indeed, as Chart 7 shows, looking back over the last three years, the pound has been the weakest currency in the whole G20 group of currencies, declining more against the US dollar than the Argentine Peso and the Turkish Lira.

The initial step in that process was the FOMC’s decisions to first reduce, and then end, its net purchases of Treasury and mortgage-backed securities.2 These purchases pushed longer-term interest rates lower, making it less costly for consumers and businesses to borrow, and contributed to favorable overall financial conditions that supported spending. The next step will be to raise the FOMC’s target range for the federal funds rate the short-term interest rate at which banks lend to each other. In March 2020, the FOMC reduced the target range for the federal funds rate by 1-1/2 percentage points to near zero. This very low interest rate contributed to the sharp rebound in demand, which propelled the strong labor market recovery over the past year. But with today’s strong economy and inflation that is well above our 2 percent longer-run goal, it is time to start the process of steadily moving the target range back to more normal levels. In particular, I expect it will be appropriate to raise the target range at our upcoming meeting in March. Once the interest rate increases are underway, the next step will be to start the process of steadily and predictably reducing our holdings of Treasury and mortgage-based securities, which had grown significantly as a result of the purchases that began in March 2020. Last month, the FOMC released a set of principles that will guide that process.3 Assuming the economy develops roughly as I expect, I foresee this process getting started later this year.
Tilting is a well-developed investment practice, applied to climate-based central bank purchases by Dirk Schoenmaker,22 and has a number of key attractions: -  It will allow us to maintain a dynamic engagement with issuers – dialling up those whose strong record improves, and dialling down the laggards (a process illustrated schematically in Chart 9);  -  Similarly, it will allow us to improve the mix of climate metrics we use over time, as data coverage and quality improves;  -  Predictable, progressive action of this kind will send a clear message to issuers, and the wider market, about the Bank’s current and future intent, giving time and incentive to adjust transition planning; and  -  It will help avoid concentrations in the portfolio, and maintain space to use the CBPS for future monetary policy purposes, in either direction. 22  Greening-monetary-policy.pdf (bruegel.org) 13  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  13  Chart 9: stylised illustration of a climate-based tilt  To calculate the appropriate tilts, we will explore the use of a ‘scorecard’ approach, capturing a range of metrics related to company climate performance. Judging which metrics to include is a key task for the next stage of the work, and we look forward to receiving input and guidance on this question. Potential candidates include: the level and rate of change of companies’ carbon footprints, the existence of regular climate reporting, commitment to specific reduction targets, and authoritative third-party validation of those targets.

19  10  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  10  Setting a target for the overall climate properties of the portfolio will help shape and steer our investment decisions, and provide transparency and accountability. At first sight, the framing of this target seems obvious: to achieve net zero by 2050. But 2050 is well beyond the likely lifespan of the CBPS. And ‘achieve net zero’ does not tell our staff which bonds to trade. So we need a nearer-term, intermediate, goal – in measurable units. The Discussion Paper considers a number of options (Chart 6). The first, a declining path for the carbon footprint of the portfolio, is simple to state and measure, and can be aligned with the Government’s target path to net zero. Implementing it at a more granular level is however complicated by the limited availability of appropriate sectoral pathways to net zero. Chart 6: Options for intermediate portfolio targets  11  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  11  A second, more forward-looking, approach would be to use an ‘implied temperature rise’ metric to target a declining temperature path. These convert data and projections of the current and future emissions of companies held in the portfolio into estimated future temperature levels, using assumptions about how those emissions compare to target paths.
Fourth, the defence of the exchange rate will create a liquidity shortage in the domestic money markets. The central bank may recoup the liquidity by expanding its domestic assets by lending to commercial banks and also to the government which is now unable to raise funds from the market due to the liquidity shortage. 2  Finn Kydland and Edward Prescott in their 1977 paper introduced this problem See, “Rules rather than discretion: The Inconsistency of Optimal Plans” Journal of Political Economy, 85: 473-92  3  Alex Cukierman has chosen to call the problem “Prisoner’s Dilemma”. See, Central Banking Strategy: Credibility and Independence (1992), MIT Press, p 17-8. 4  BIS Review 58/2009  Fifth, to pay interest on foreign loans and repay the principal, a central bank may be forced to make further foreign borrowings. This will enlarge the net foreign liability position and cause the interest payments to surpass the interest earnings. The losses so made will continue to mount, gradually eroding a central bank’s capital base. The end result will be the conversion of a central bank’s net-worth from positive to negative. At that stage, a central bank will become technically insolvent. It actually becomes insolvent when it is unable to make further foreign borrowing and the domestic high inflation makes it impossible for it to fund itself by further issuing currency. It is the duty of the auditors to be vigilant on the emergence of these signs and alert the management and legislators in time.

Internal auditors report on these aspects to the top management of a central bank, while the external auditors do so to alert both the management and the legislators. Such compliance auditing is necessary and useful, but not sufficient to gauge the risks faced by a central bank and, accordingly, to take early prescriptive measures. A central bank may operate quite perfectly with regard to its internal procedures and systems. The accounts of a central bank may have been prepared having compliance to the best accounting standards. The external auditors may have given an unqualified certification to a central bank’s financial statements. In the eyes of the public, a central bank may have been projected as a model institution to be emulated by others. Yet, all these salutary features which pertain to a central bank’s past or current actions may hide the major risks it may be facing with regard to its future operations. It is the duty of the auditors to dig out these risk aspects and alert the management and, if necessary, the legislators, before it becomes too late to take any prescriptive measures. This poses a daunting challenge to the auditors of a central bank. A central bank, with its unrestrained resources, may have staffed itself with the best technical talents in the main field of its operations. Auditors are now required to assess their work and make judgments about the adequacy and the consequences of such work.
In other words, financial companies have pulled equity indices downward – much more so in Iceland, where banks constitute a greater proportion of the index than in other markets. Iceland’s commercial banks went through a difficult period in early 2006 and learned a number of things from the experience. Among the lessons they learned was that they must increase transparency in their operations to a significant degree, reduce cross-ownership, significantly enhance their liquidity position, and increase the proportion of deposits in their funding. Having undergone these changes, they were much better prepared to weather last year’s turmoil than they would otherwise have been. Iceland’s banks have been considered bold in their investments, and they have a reputation for being more risk-tolerant than banks in many of our neighbouring countries. This may be correct, but it is also reflected by the fact that Icelandic banks have elected to maintain a relatively strong equity position. The banks are all subject to surveillance by the Icelandic Financial Supervisory Authority, which bases its operations on the regulatory framework that applies to financial markets in the European Union. Subsidiaries of Icelandic banks are all subject to surveillance by the financial supervisory authorities in their home countries. The Icelandic Financial Supervisory  1  E.g. Credit Sights, February 3, 2008: Icelandic Banks FY07: Heads You Lose, Tails You Lose. BIS Review 25/2008  3  Authority carries out regular stress tests on the banks’ accounts and publishes the results on its website. These stress tests assume extreme changes in fundamental premises.

Let me also say that we are experiencing a period of market nervousness, a period where we see volatility in markets in general and re-appreciation of risks. We think that these developments in financial markets deserve attention. Shifts in market sentiment need careful monitoring. We will continue to pay great attention to the developments in the market over the period to come. I am now open to questions. BIS Review 89/2007  1