samchain/econo-pairs-v1 huggingface dataset:
But capital does help to reinforce the system, because it provides an incentive for institutions to reduce the risk that they pose to the system. Banks which show that they are less risky should be subject to lower requirements, thereby incentivizing responsible and safe behaviour. Instead, those banks that pose higher risks should meet more stringent requirements. Let me stress, yet again, that my point is not about having all global banks following this organizational philosophy. On the contrary, I do believe a diversity of institutions from either a business model or an organizational perspective is needed to ensure that financial globalization promotes global growth. But we should also be aware that, if the regulatory framework in areas such as SIFIs capital surcharge is ill defined, we may end up promoting the convergence of global banks towards the most complex business model of the current landscape. BIS central bankers’ speeches  3  In this respect, I would like to draw your attention to the fact that we have recently raised core capital requirements – to 8% – for all institutions operating in Spain, in order to boost the stability of the financial system. However, we have also gone a step further and placed an additional 2% charge – to reach 10% – on those institutions which could potentially create more problems for the supervisor.

5  See ECB Opinion of 22 March 2012 on (i) a proposal for a directive on markets in financial instruments repealing Directive 2004/39/EC of the European Parliament and of the Council, (ii) a proposal for a regulation on markets in financial instruments and amending Regulation [EMIR] on OTC derivatives, central counterparties and trade repositories, (iii) a proposal for a directive on criminal sanctions for insider dealing and market manipulation and (iv) a proposal for a regulation on insider dealing and market manipulation (market abuse) (CON/2012/21). 6  See e.g. Madhavan, A., “Consolidation, fragmentation, and the disclosure of trading information”, The Review of Financial Studies, Vol. 8, No 3, pp. 579-603 and Bloomfield, R. and O’Hara, M., “Can transparent markets survive?”, Journal of Financial Economics, Vol. 55, No 3, pp. 425–459. BIS central bankers’ speeches  3  opacity enables the extraction of rents and can lead to increased price dispersion7, with negative consequences for market integrity and fairness. Furthermore, a low level of posttrade transparency can significantly distort the informational role of prices by preventing the diffusion of value-relevant information, which may hamper market liquidity because of adverse selection. In line with this rather positive view of post-trade transparency, a number of empirical studies8 have found that the introduction of mandatory trade reporting has significantly improved formerly opaque market segments, such as the market for US corporate bonds. At the same time, one must be aware of potentially negative side effects.
For this part, I will refer back to work conducted by the Basel Committee on Payment and Settlement Systems (CPSS) in 2010 when it examined the extent to which the market infrastructure for repos added to the uncertainty or instability evident in some repo markets. I will take up two issues identified in the related report published by the CPSS 2 and which can be considered relevant for the smooth functioning of euro money markets, i.e. the role of market infrastructures in providing adequate protection against counterparty risk as well as the efficient use of collateral. In so doing, I will also discuss some tensions which have emerged recently relating to a particular development at market infrastructure level, where it is important to quickly address the underlying issues in order to move forward. 1. Secured and unsecured money markets: developments in the euro area  Well-functioning money markets are an essential component of the financial system. When money markets do not function, financial stability and the transmission of monetary policy are at risk, with potentially severe adverse consequences for the real economy. Deep and liquid money markets insure banks against liquidity risk, a risk that arises naturally in banking, where maturity mismatch is the nature of the business. Unsecured money markets exert a useful disciplinary effect on banks. Money markets also are the starting point for the redistribution of the liquidity provided by central banks and hence the starting point for the transmission of monetary policy.

After the Lehman bankruptcy, banks suddenly deposited an aggregate amount of around € billion. Deposits increased since the ECB responded to the tensions in the market by accommodating the increase in banks’ demand for liquidity. 4 The extent of banks’ use of the ECB’s deposit facility is a useful indicator of the impairment of the flow of liquidity throughout the banking system, especially when the group of depositing banks is different from the group of borrowing banks. 5 A further troubling indication of the malfunctioning of money markets right after the Lehman bankruptcy came from cross-border transactions. Before the bankruptcy, cross-border transactions accounted for 60% of all unsecured overnight interbank lending. Right after the bankruptcy, this proportion dropped to 50%. A fall in the cross-border flow of liquidity indicates a fragmentation of the euro area money market along national borders and threatens the implementation of a common monetary policy throughout the euro area. The ECB reacted and succeeded in calming markets, including money markets, first by conducting two monetary policy operations with a three-year maturity, and then, most recently, by committing to remove redenomination risk in countries having signed to an ESM assistance programme (the so-called Outright Monetary Transactions, OMTs for short). For example, the share of the cross-border overnight transactions increased gradually from 30% to 50% following the OMT announcement.
In the public domain, however, their responsibility should be to illustrate potential economic consequences of the ultimately political decision to join or not to join the European Monetary Union. Conclusion Ladies and Gentlemen, the decision formally to join EMU does not appear to be a policy issue of imminent concern in either of our two countries. In the United Kingdom, the issue was indefinitely pushed back in time in June of last year. Here in Switzerland, it is the ratification of the second package of bilateral treaties with the European Union that dominates our current external political agenda. Since this contractual arrangement with our European partners was designed from the outset as a multi-issue legal document with costs and benefits spread over multiple issues, the Swiss government is to be commended for insisting on negotiating the agreement as a comprehensive package and not break it down into multiple single issues. Meanwhile, globalization is set to proceed. With the rapid integration of China and India into the global economy and the subsequent reorganization of production processes, global competition is rapidly increasing with changes in relative prices that become increasingly a function of global demand and supply. Needless to say, the globalization path will neither be linear nor smooth. There are risks, perhaps none less so than the temptation of governments to resort to protectionism in a misguided effort to respond to the costs associated with global economic integration. In Europe, integration is also proceeding. In less than a week, ten countries will join the European Union.

Fifth, the complexity of many of these structured products and the risks involved were simply beyond the comprehension of the ordinary investors and perhaps even the professional investors who did not have the time to look into the fine details of the financial arrangements. And so the rating agencies were relied upon, for a fee, to provide an objective view, or rather a rating that was as objective as it could be under the circumstances. But we all noticed the instability of these ratings, some falling from AAA to junk within a short time span, which threw doubt not so much on the integrity of the rating agencies – they are respectable organisations essential to the functioning of the financial system and they do a good job generally – but, in my view, on the appropriateness of the models that they used. Relative ratings comparing the risks of different financial structures do not throw light on the absolute level of risk when different structures are taken together. This I think requires a wider market or general equilibrium view, taking account of the behaviour of the entire economy and the financial markets in particular. Sixth, then, the structured products containing sub-prime mortgages were given the necessary qualifications to get into the hands of different investors, high net-worth individuals who probably can assume the risk and take the hit, leveraged hedge funds that may be a lot more vulnerable, financial institutions with surplus liquidity, and so on.
The resulting effect on inflation is thus only temporary. Over recent months, inflation has been observed to be edging back up towards the zero mark. Mandate The SNB’s statutory mandate is to ensure price stability while taking due account of economic developments. We equate price stability with a situation in which the inflation rate is below 2%, but still positive. Unlike other central banks, we do not have a percentage inflation target. There are good reasons for this. A small open economy like Switzerland is continuously exposed to powerful outside influences. Monetary policy cannot always entirely offset these influences. It therefore makes sense for us to stabilise inflation within a range over the medium term. In the case of very large or recurrent unfavourable influences from abroad, inflation may temporarily turn negative. Often, this is also part of the process of real economic adjustment. The global economy has been exposed to a series of powerful shocks over the past ten years or so. Central banks worldwide have reacted with interest rate reductions and unconventional measures. We too have resorted to unconventional methods and, as in the past, we will not shy away from using these methods if it is in the interests of the country as a whole. However, any action we take will always be based on careful consideration of the costs and benefits in the short and long term. 2  BIS central bankers’ speeches  Outlook Let me conclude the first part of my speech with a brief look into the future.

The Federal Council has rejected the initiative without a counterproposal. It maintains that a sovereign money system would be an experiment for which there are no comparable models in other countries, and would carry risks for the Swiss economy. The implementation of the sovereign money idea would entail a complete restructuring of today’s monetary system. This  4  BIS central bankers’ speeches  would give rise to great uncertainty, could jeopardise the financial centre and thus damage Switzerland as a whole. The Federal Council also fears that the sovereign money system would harm lending and restrict the SNB’s ability to conduct monetary policy. We share the Federal Council’s concerns. A feeling of disquiet about the existing financial system is not enough reason for a radical overhaul. It is also difficult to predict what impact such an experiment would have on Switzerland as a business location. Moreover, the SNB’s independence would be undermined if we had to distribute new money directly to the state or to private households. The SNB would become a political football and the fulfilment of our mandate would be hampered. Conclusion Let me conclude: the discontinuation of the minimum exchange rate did not plunge Switzerland into recession as many had feared. The economy actually grew slightly in 2015, despite appreciation of the Swiss franc and a hesitant recovery in the international economy. The main reason for this growth is that Swiss companies and employees actively exploited optimisation potential and showed great flexibility.
Smaller firms have higher average growth rates, and greater dispersion in these growth rates, than larger ones. Finally, when it comes to companies’ leverage, the picture is also a nuanced one. 54  High leverage is a  characteristic of firms with two very distinct productivity profiles (Chart 22g). Very low-productivity firms tend to have high leverage because their profits, repayment capacity and investment are low. But high leverage also characterises high-productivity firms, whose profits, borrowing and investment are high. These patterns provide an explanation for the damaging impact of the crisis on productivity growth. The absence of credit may have affected disproportionately high leverage, high productivity companies operating in the upper tail. The distribution of debt is also important when gauging what impact monetary policy and regulatory forbearance may have had on the lower tail of companies, to which I now turn. The Role of Monetary Policy  These distributional data enable us to look closely at the lower tail of companies who have potentially been protected from failure since the global financial crisis by regulatory forbearance and accommodative monetary policies. Chart 16b plots this lower tail on three dates, pre-crisis (2002), mid-crisis (2008) and post-crisis (2014). Unsurprisingly, the crisis fattened the lower tail. Since the crisis, however, this tail has shrunk again. The tail of low-productivity companies today is, if anything, smaller than it was pre-crisis.

The predominant view has probably been that one should not use the interest rate to try to counteract a credit boom that is expressed in rapid price increases on houses or financial assets. This view is based on the fact that it is difficult or almost impossible for a central bank to determine whether a credit boom has its base in the real economy or whether it is due to unrealistic expectations of continuing price increases. Instead of trying to deliberately burst the bubble, one should use monetary policy to counteract the negative effects that may result if it bursts. The disadvantage of this reasoning is that the negative effects when the bubble bursts may be fairly substantial – which to a large degree is illustrated by the current financial crisis. It is also difficult to deny that the long period of low interest rates in the world prior to the crisis may have contributed to an unreasonably high build-up of credit. With hindsight, this view does not appear so controversial. Does this mean that monetary policy can and should be used to prevent financial crises? I believe that monetary policy can be a complement to other measures when overly large risks appear to be building up in the financial sector, but that the main responsibility must lie with other methods of regulating the relationship between capital and risks. The emphasis here is on regulatory frameworks and supervision.
Nonetheless, the most recent data could suggest a change in trend in this market stemming from the macro-financial setting that I have described. Specifically, housing transactions contracted in July, which is significant given that this month usually has a positive seasonal component. Also, house prices ceased to accelerate in Q2, posting growth similar to the first three months of the year. In any event, we will have to wait for new information to assess this behaviour more accurately, meaning we will need to keep a close eye on this market. As for the public sector, fiscal policy has clearly played a key role since the outset of the pandemic to soften its impact on household and corporate income, thus avoiding more persistent negative effects. The corollary of this has been a significant increase in public debt relative to GDP, which was already high before the pandemic. This high government indebtedness and the likewise high structural budget deficit evidently represent vulnerabilities when faced with a tightening of financing conditions, as is the case at present, and reduce fiscal policy headroom to respond to future shocks. Mitigating factors include most notably the higher-than-initially-forecast reduction in public deficit in 2022 and the significant lengthening of the average government debt maturity in Spain, which stands at more than eight years and delays the impact of interest rate increases on the public debt burden. In any event, Spain’s annual public sector financing requirements stand at high levels, around 20 pp of GDP.

1  2 percentage points (pp) on June 2019. This was higher than our estimated cost of capital for the period (7%, similar to the level estimated prior to the pandemic). This improved profitability owed to a better performance in banks’ recurring business, with growth of more than 10% in net interest income and in fees and commissions. It is worth noting here that banks are beginning to pass through the increase in money market interest rates to new loans, albeit, for the time being, far more slowly than in the past. Evidently, for variable-rate loans the impact is automatic, but it will likewise take some time. For their part, banks’ wholesale funding costs are reflecting the tightening of financial market conditions, while risk premia are also rising. As yet, however, deposit interest rates have not increased, and to June there has been no significant shift of funds towards term deposits. Further, listed banks as a whole recorded a year-on-year increase in impairment losses to June, as a result of specific contributions from business abroad, but at most banks these impairment losses declined. In any event, impairment provisions remained slightly higher than those recorded before the onset of the pandemic. Third, as regards solvency, the overall common equity tier 1 (CET1) ratio of Spanish banks stood at 12.9% in June 2022, down 50 basis points (bp) on a year earlier, but 70 bp above the pre-pandemic level (12.2%). The recent reduction owed to the increase in risk-weighted assets, since the numerator of the ratio barely changed.
Denis Beau: Financial markets - driving innovation and connectivity Opening remarks by Mr Denis Beau, First Deputy Governor of the Bank of France, at the Paris Financial Seminar, co-organised by the Hong Kong Monetary Authority and Paris Europlace, Hong Kong, 16 January 2019. * * * Ladies and Gentlemen, I am very pleased to open this seminar jointly organised by Paris Europlace and the Hong Kong Monetary Authority (HKMA). A new year is usually the time when we regain confidence in the future and in our collective ability to prepare for it. ***  However there are many uncertainties weighing on the global economic outlook. In Europe, there are still many uncertainties about the outcome of Brexit negotiations and the vote over the withdrawal agreement. Caution requires that we all be prepared for a no-deal scenario. Public authorities and most importantly market participants have all prepared serious contingency plans to address and master the cliff-edge risks associated with such a no-deal scenario. As a result, we can expect that those risks will be appropriately managed, without financial stability implications, should such a scenario occur. Outside Europe, global trade tensions are also generating additional uncertainties. Protectionism can indeed be a temptation, but in my view it should not be an option. Let’s be clear: our economies are increasingly integrated, and research conducted at the Banque de France suggests that a rise in protectionism on a large scale (i.e. a generalised trade war scenario) would have a negative impact on global growth.

Managing their liabilities in such a way as to ensure that these vital services continue to be provided, and citizens view that they are getting appropriate value in exchange for their taxes is a daunting challenge. I am happy to see such a distinguished group assembled here at the Bank to address this challenge. Good luck in your work and I look forward to learning of the results of today’s discussions. BIS central bankers’ speeches  3
14  BIS central bankers’ speeches  Chart 7 Projected global GDP shares (2000–2050) 2000  2010  China  India  China  India  Other emerging G20  US  Other emerging G20  US  Other advanced G20  Non-G20  Other advanced G20  Non-G20  2020  2030  China  India  Other emerging G20  US  Other advanced G20  Non-G20  China  India  Other emerging G20  US  Other advanced G20  Non-G20  2040  2050  China  India  China  India  Other emerging G20  US  Other emerging G20  US  Other advanced G20  Non-G20  Other advanced G20  Non-G20  Source: IMF, US Census Bureau, Penn World Tables and Bank calculations. See Haldane (2010) for more details. Measured at market exchange rates. e  BIS central bankers’ speeches  15  Chart 8  Chart 9  Equity home bias to GDP per capita in 2005  Equity financial depth versus log GDP per capita in 2005 for G20 economies  Source: IMF International Financial Statistics, IMF World Economic Outlook October 2010, S&P Global Stock Markets Factbook (2010), updated and extended version of dataset constructed by Lane and Milesi-Ferretti (2007) and Bank calculations. Source: IMF World Economic Outlook and Thomson Reuters Datastream.

All over the globe, the financial markets are becoming more integrated and financial institutions as well as financial infrastructure companies are consolidating domestically as well as cross-border. The challenge touches all the aspects of regulatory involvement – crisis prevention, crisis management and crisis resolution. Cross-border integration of financial markets… In the EU, the process of cross-border integration has been actively promoted by the creation of the euro and the ongoing harmonisation of regulation and supervision – in the last years epitomised by the Financial Services Action Plan (FSAP). Admittedly, financial markets integration in the EU has so far been a mixed picture. Until now, integration has mostly taken place in wholesale markets, such as the money market and the bond markets. Many investment banking segments such as capital raising and mergers and acquisitions (M&A) for large corporates are also dominated by global giants. In contrast, retail financial services are still to a very large extent controlled by domestic players, at least in the old member states. … and institutions… My guess is that we still have only seen the beginning of cross-border integration. Banking integration will probably not primarily take place through direct cross-border provision of services but through cross-border bank M&A. Integration of ownership will result in integration of lending/funding, organisation, products and services.