samchain/econo-pairs-v1 huggingface dataset:
However, the actual effect of the structural change towards more market-based financial transactions could be larger than the share of external financing from the market would suggest. The existence of market-based financing through increasing competition within the banking sector may have affected the terms and conditions of bank lending in the sense that banks are now more clearly no longer the only potential supplier of external funding for all but the smallest firms. In other words, the contestability of external financing may have increased, with potential competition from market-based financing limiting the scope for banks to profit from lending relationships. It could be added that banks have been encouraged to take part in the process of securitisation by undertaking investment banking activities such as underwriting, which uses their capacities for collecting information as well as private information based on existing credit relations. This also tends to boost the share of non-interest income in the total revenues of banks. The changes in the structure of the financial system and the role of banks are also illustrated by the emergence of new types of players in the financial system. Most apparent is the rise of institutional investors who are gaining a more important role in allocating savings from the household sector to the corporate sector, both domestically and across borders.

If the monetary authority were to commit to a program 1/3  BIS central bankers' speeches  of asset purchases until some economic objective is reached and, at the same time, were to make it clear that the policy rate would not begin to rise until the asset purchase program were completed, these steps might help anchor expectations about the likely path of short-term rates more effectively. The Federal Reserve’s third round of LSAPs, which was open-ended, was an important innovation of policy that the paper might have discussed in greater detail. I also don’t agree with the paper’s conclusions about agency MBS purchases. Such purchases do not represent “credit easing” as argued in the paper. The government’s interventions to support Fannie Mae and Freddie Mac have made it clear that there is no credit risk in the Federal Reserve’s purchase of such obligations. Also, the authors don’t acknowledge that the ability to purchase agency MBS has two benefits. First, it enables the Federal Reserve to purchase longer-duration assets at a faster pace without disrupting market functioning. This facilitates larger LSAP programs, when a larger program is viewed as necessary. Second, it opens up another channel by which asset purchases can provide stimulus—by narrowing the spread between agency MBS and Treasuries, the Federal Reserve can drive down long-term mortgage rates and provide support to the housing sector and to home prices.
And in order to limit risk-taking by banks there is also a strong case for relating the payments made by different banks to finance the insurance scheme to the risks that they will fail. And in that context, some element of pre-funding is natural and is used in many countries, including those with banking systems similar to our own, such as Canada and Sweden. A degree of pre-funding is one of those ideas that is bound to be unpopular before the fund is called upon, but seems decidedly wise after the event as it lessens the burden on the banking system in a time of stress. On the regulation of bank liquidity, the FSA has already issued a discussion paper, and I support strongly the case for reform of liquidity regulation made this morning by Sir Callum McCarthy. I very much hope that an international initiative to include liquidity in the Basel capital regime, in which the Bank is playing a leading role, will come to fruition. For our own part we, along with other central banks, have been reviewing the way in which our market operations can alleviate stress in the banking system. The primary objective of our money market operations is to ensure that the interest rate on overnight lending in the market is close to the Bank Rate set by the Monetary Policy Committee. That constrains the net amount of central bank money we lend to the system.

While these ever emerging technologies such as Digital transformation, Artificial Intelligence, Internet of Things, Cloud Computing, Enterprise Mobility and Mobile Banking, have brought about efficiency and increased innovations, they have also exposed the financial services sector to cybercrime. Some notable incidents of 1|Page  cybercrime include, the attack on the Central Bank of Bangladesh, Russian retail bank and seven banks in the United Kingdom. The financial services sector is a key target by criminals because it is the custodian of large amount of funds in the economy. For this same reason, the financial services sector has to also deal with other types of risks, which among others include, fraud, extortion, money laundering, illicit financial flows, market manipulation, data theft, and currency attacks. With statistics showing an increase of cyber-attacks in the financial sector, the importance of ensuring that our institutions are cyber resilient cannot be over-emphasized. Ladies and gentlemen, the financial services sector has to see cybersecurity for what it is, a large scale operational risk deserving the utmost attention and thus develop the necessary systems and cultures throughout the sector to deal with this risk. Key to the development and operation of these systems and cultures is the need to nurture talent capable of addressing cyber security threats through prompt detection, investigation, reporting, prosecution and prevention. Distinguished participants, let me also emphasize that cyber risks should be viewed from an enterprise-wide perspective.
Then the energy of its single market, which we now have to push to its full potential:  Page 11 sur 14  Enabling our human capital  As you all know, there is a very strong correlation vii between growth and education. In Europe, we have some of the best education and vocational training systems – and you are the best proof of them! But there is a large human capital divide in the EU with regard to the distribution of skills. Southern EU countries, including mine, have a distribution of skills with more low-skilled people – Spain and Italy have twice as many as Sweden, as of share of the adult population – and fewer high-skilled individualsviii – France has half as many as the Netherlands or Finlandix. As education inequalities have been dramatically exacerbated during the Covid crisis, investment in education should be targeted as a priority in order both to raise human capital and reduce inequalities. On-the-job training is another factor of growth as tomorrow’s jobs will be even more changeable than today. Take the example of digital experts: “as of 2019, there were 7.8 million ICT specialists in Europe, which is far below” the requirement of 20 million experts, including “for key areas such as cybersecurity  Page 12 sur 14 or data analysis”x. Europe’s competitive advantage depends on its ability to ensure mobility through vocational education – what economists call “mobicationxi”. One word on the importance of “managerial quality” which can affect the implementation of innovative reforms inside firms.

“Requirements and Challenges of Rebuilding Banking Sector’s Capital and Liquidity Margins after lifting Stimulus Packages”  Two years ago today, the world was hit by coronavirus pandemic. Repercussions were far-reaching and severe posing challenges not only to the global markets but also the normal life that has been disrupted or almost disrupted. The pandemic had elements of both supply and demand shocks. On the supply side, closures in many economies around the world, and restrictions imposed on travel, gatherings, events and schools, as well as business interruptions led to supply chains disruption that had a negative impact on the growth of the global economy. This, in turn, affected the demand on energy that that witnessed a sharp fall, as brent crude oil plunged to 20-year low in April 2022 of USD 20 per barrel. The Purchasing Managers’ Index (PMI), concurrently, experienced a sharp decline during the same period reflecting deterioration of the operating environment for companies. In an effort to reduce the negative effects of the spread of the coronavirus pandemic and weather its repercussions and challenges, central banks around the worlds have taken exceptional measures. At the monetary policy level, interest rates have been cut to alltime low levels, reaching zero in some countries, liquidity injected exceptionally into the markets having eased the regulatory requirements to ensure the continued inflows, while fiscal policy stimulated economies by providing financial facilities and aids including payment moratoriums and extending financial aids to the affected segments.
In particular, according to the ECB’s estimations, the central scenario8 depletes banks’ capital (CET1) ratio by approximately 1.9 pp to 12.6% and the severe scenario by 5.7 pp to 8.8% in 2022. Impaired credit exposures and market risk losses are the key drivers of capital consumption. In any event, in view of the uncertainty and the complex nature of this crisis, and despite the wide range of measures already implemented, the need to develop certain measures further or to address new ones to avoid potential financial instability cannot be ruled out. As I have already said on previous occasions,9 I think our shared aim should be to prevent the current crisis from being accompanied by a widespread tightening of financing conditions or from seriously damaging our financial system. Therefore the authorities must remain vigilant and head off the risks to financial stability stemming from this crisis and we must be ready to provide a forceful, pan-European response should they materialise. Looking ahead, the low profitability of banks is one of the main challenges facing the banking sector in Europe and Spain. Everything points to the very low or even negative interest rate scenario continuing for even longer and, in this environment, banks may find it increasingly difficult to obtain returns without incurring excessive risk. Additionally, they will also have to face competition from potential competitors in the credit market.

To be more precise, this higher capital requirement will be applied on those which have less than 20% of their share capital or voting rights with third parties and that have wholesale funding of more than 20%. These institutions are not the globally active ones, but they are the locally oriented ones that have created the highest risk for financial stability in Spain during recent times. While our largest banks have been more a support factor than a problem, and part of our savings banks sector is sound and profitable, we have faced serious challenges regarding a number of the local savings banks. Our experience in this crisis illustrates that we should be careful not to establish over-simplistic solutions to be applied generally. Instead, we should concentrate on solving the problems where they really originated. This is precisely the goal of the measures we have adopted in Spain during the last two years. We are currently dealing with a deep restructuring process that will end up by transforming those savings banks into larger commercial banks that, in the future, could also become global banks or a part of a global foreign bank. In conclusion, we should not demonise global banks for being global. They can play an important role in the international economy. Provided they are safe and soundly managed, they can facilitate the internationalization of non-financial firms, and they can bring greater competition, efficiency and stability to the markets in which they operate.
Traditional channels, – through interest rates- have become ineffective: first of all because economies have hit the zero lower bound; and in some case, like in the euro area, because transmission – through credit – has been clogged. The expansion of balance sheets results from attempts to overcome those limits and allow monetary policies to fulfill their mandates via large scale of assets purchases. 2. Is it the size of the balance sheet or the means of its increase that matter? The causes and consequences of changes in balance sheets size are rather diverse. Broadly speaking, both liabilities and assets of Central Banks matter. An expansion of liabilities occurs when, as the Eurosystem did in many instances, the Central Bank increases liquidity provision to the banking sector, with the explicit objective of easing pressures on funding, reducing its costs, and ultimately, influence lending behavior. Expansion of liabilities may be  BIS central bankers’ speeches  1  more passive though when setting an exchange rate floor such as in the case of the SNB. Looking, now, at the asset side, asset purchases bring down risk premia, they trigger portfolio rebalancing, flatten the yield curve, increase risk taking in the private sector and shift expectations in a more positive territory. As you all know, the Eurosytem has now embarked into a major purchase program, the PSPP, that follows other programs of smaller sizes for asset-backed securities (ABSPP) and covered bonds (CBPP3). There are many technical discussions.

It can and will be deployed all the more efficiently that the rest of the policy environment remains sound. 4  BIS central bankers’ speeches
Credit spreads can widen, also at the short end. 10 Another typical effect is the flight-to-quality phenomenon: as in previous episodes of high uncertainty, during the turmoil savers have shunned equity and credit risk products in favour of government bonds and commodities as well as cash and bank deposits. As a result, bank deposits increased significantly. The term asymmetric information, on the other hand, applies to an adverse selection problem, notably in the interbank market, where market players can no longer distinguish solvent from insolvent borrowers. Such a “lemon’s problem” induces banks to demand high risk premia of their creditors and lead to a general increase in interbank market rates. Moreover, it can lead to the rationing of credit provision. Indeed, during the turmoil, a general tightening of credit standards has occurred and has been intense and wide-spread. Counterparty credit risk and uncertainty about the development of entire segments of the financial market – notably of more complex instruments such as collateralised debt obligations and other related products – were important elements in the development of the turmoil. Central banks have to deal with this increase in uncertainty on several accounts. First, monetary policy needs to take into account the heightened uncertainty: central banks need to refine their monetary and financial analysis, and monitor extremely closely the developments in the financial system and their impact on the pass-through of policy rates to the economy. Second, and to turn to the beginning of my remarks, liquidity management has become more active.

(1936)  9  For instance, wealth of Swiss households relative to GDP, measured in terms of financial assets, shows no clear trend over the last decade (Figure 7). 4  BIS central bankers’ speeches  2008–09 and the sluggish recovery recorded since 2009. In the fall of 2008, the SNB lowered the policy rate significantly to counter unwarranted tightening of financial conditions and the risk of deflation and recession. Since then, the policy rate has been kept close to zero and, in September 2011, the SNB set a minimum exchange rate for the euro against the Swiss franc to ensure appropriate monetary conditions for the Swiss economy. In this environment the interest rate is not available as an instrument for influencing developments in the credit market. As a consequence of this exceptional period of low rates, Swiss mortgage rates have fallen substantially over this time period, with advertised rates for 10 year mortgage credits hitting all-time lows in 2012 at 2.1%, substantially below the pre-crisis average of 4.7% (Figure 7b). It thus comes as no surprise that credit growth, mainly driven by the growth of residential mortgage loans, accelerated from 2009 onwards (as shown before in Figure 2a). Given the rather rigid Swiss rental market, the decrease in mortgage rates has not been, until recently, accompanied by a similar decrease in rental rates. This has led to a situation where it may seem relatively more attractive to buy than to rent. Such a prolonged period of ultra-low rates is also fertile ground for behavioral biases.
Concerning the intensive debate about the Riksbank’s policy, my conclusion was that it can be useful to have a system where the monetary policy remit and policy objective are reviewed at regular intervals, as is currently the case in for example Canada. This would create better understanding and legitimacy for the monetary policy conducted and clarify that the central bank actually only performs the remit it has been given. I also believe it can be a way to counteract the forces that seem to exist in many parts of the world to make central banks less independent. As regards the decline in cash use, there are not so many conclusions to draw as yet. What we can say for certain is that an e-krona would affect the conditions for monetary policy quite substantially, more or less regardless of how it is designed. It is wise that many countries are examining the scope for introducing e-money, as one of the lessons that after all can be learnt from developments in Sweden is that cash use in society can decline very rapidly. These were the experiences and reflections I wanted to share with you. Perhaps the conclusions I draw are not that spectacular. But I would like to believe that the observations and experiences that we practitioners and economic policy decisionmakers make in our day jobs, so to speak, slowly but surely help to enhance the level of our collective knowledge. My hope is that this could at least be a small contribution to this development.

The first is addressing the immediate short run concerns emanating from various shocks; and the second is implementing structural reforms to ensure that financial stability becomes embedded in the underlying structure of the economy in the long run. In terms of challenges, the former essentially concerns the challenge of maintaining economic stability through appropriate policy settings and actions to offset the various shocks hitting the economy at any given point in time. The latter, on the other hand, focuses on strengthening the institutional framework for monetary policy and financial supervision as well as fostering financial system development that improves the ability of the system to absorb shocks by itself in a way that minimizes the impact on the real economy without the need for policy intervention. Let me now discuss some specific challenges to monetary and financial stability in emerging markets from both the short and the long run perspectives. For short-run stabilization, it is clear that one of the important challenges at present is how to contain financial vulnerabilities that accompany an influx of short-term capital. In coping with capital flows, lowering interest rates to reduce the relative attractiveness of the country to capital inflows may be a first appropriate way to ensure price stability. But, in most cases, fast appreciation may not subside as exchange rates tend to behave more like asset prices than relative goods prices.
Islamic financial institutions may now also take the opportunity under these new institutional arrangements to explore opportunities for building strategic partnerships to acquire new expertise and develop new value added activities. The move toward strategic partnerships would create potential for greater innovation and expansion of the market. Such strategic partnerships would also enable Islamic financial institutions to tap the best talents from a broad range of fields. With the experience that has been built up in Islamic banking and finance over the years, it is timely and desirable to extend our wings beyond our shores. New markets need to be identified to expand business operations, especially in the Asia-Pacific region, which offer considerable opportunities. There is a vast business potential to be tapped as several regional countries are progressively opening up their economies to greater foreign participation. Islamic financial institutions are strongly encouraged to continue their efforts by taking the lead to establish collaborative partnerships and develop new approaches for financing facilities in this region. To succeed, adequate resources would need to be allocated to build distinct capabilities in these areas and to put in place the proper risk management systems and sound corporate governance practices. It is equally critical that institutions play their role effectively and efficiently to generate improvements and growth in Islamic finance. Of importance, is the firm commitment towards performance and capacity enhancements with the readiness to invest in talent and skills to spearhead the development of Islamic financial industry.

But the confidence crisis that followed in the wake of Lehman filing for bankruptcy protection also affected the Swedish financial system. To counteract the effects of the financial crisis, the Riksbank has supplied the market with loans in kronor and US dollars in a similar manner to what other central banks have done in their currency areas. The loan facilities have allowed a different class of collateral than usual. The maturities have been longer than those the market has been able to offer and longer than the Riksbank normally provides. In total, the Riksbank has increased its lending by more than SEK 400 billion. We will continue to provide the market with liquidity as long and as far as it is needed. During the autumn the Riksbank has received signals from Swedish industrial and trade companies that they have been unable to find satisfactory credit. Quite simply, they have not been able to borrow on the market or from the banks in the same way as usual. This problem originates outside of Sweden and has arisen despite the Swedish banks being financially strong. As a preventive measure, the Riksbank established a new, temporary, credit facility on 29 October. The aim is to improve the opportunities for companies to borrow money. Companies can organise their financing through this facility by issuing and selling commercial paper to the banks. The banks can in turn use commercial paper as collateral for loans from the Riksbank.