samchain/econo-pairs-v1 huggingface dataset:
In part, this is due to better prepared health systems and the adaptation of businesses and households, increased testing and tracking capabilities, and the ability to focus on those services more intensive in human interaction. Meanwhile, in the last few weeks, important progress has been made in the development and distribution of Covid-19 vaccines, with several of them in advanced stages and having reported a high degree of effectiveness. In the event of early clinical approval, which is already happening in some countries, laboratories would be able to produce and deliver doses to vaccinate about half of the world’s population by the end of 2021, with several countries achieving herd immunity over the next year. This process will occur at different speeds around the world, depending on laboratory production, government contracts, the effectiveness of international coordination, distribution and delivery capacity, and people’s willingness to be vaccinated. Consequently, the uncertainty regarding the magnitude and speed of the impact that vaccines will have on economic recovery is still significant. This depends on how soon restrictions will be lifted, whether people will adjust their behavior, and whether the confidence of economic agents will recover. Therefore, the impact of the vaccine on activity will be more significant only as from the second half of 2021. In any case, the international financial markets have reacted positively to the news about the vaccine, exhibiting higher asset prices and lower risk indicators. All this is occurring as global economic activity continues to recover from the pandemic’s shock.

Figure 10 CPI monthly inflation (percent) 2.0  2.0  1.5  1.5  1.0  1.0  0.5  0.5  0.0  0.0  -0.5  -0.5  -1.0  -1.0  -1.5  -1.5  Jan.  Feb.  Mar. Apr. May  2001-2006 average  Jun. 2007  Jul. Aug.  Sep.  2008  Oct.  Nov.  Dec.  2009  Source: National Statistics Bureau (INE). 12  BIS Review 65/2009  Table 3 Inflation (annual change, percent) 2006  2007  2008  2009 (f)  2010 (f)  Average CPI inflation December CPI inflation CPI inflation two years ahead (*)  3.4 2.6  4.4 7.8  8.7 7.1  2.3 0.6  1.5 2.3  Average CPIX inflation December CPIX inflation CPIX inflation two years ahead (*)  3.2 2.7  4.0 6.3  8.4 8.7  3.7 0.5  1.1 2.2  Average CPIX1 inflation December CPIX1 inflation CPIX1 inflation two years ahead (*)  2.5 2.4  4.1 6.3  7.8 7.9  3.8 1.0  1.0 2.2  2011 (f)  3.0  2.9  3.0  (f) Projection. (*) Inflation projected for the second quarter of 2011. Source: Central Bank of Chile.
For risk management systems, this includes using stress scenarios to place appropriate limits on concentration and risk exposures. The use of value at risk (VAR) models that  BIS central bankers’ speeches  3  emphasize recent experience is clearly inadequate. In the case of compensation practices, firms and regulators need to continue to look for ways to tie compensation to the profitability of the firm over the cycle and rather than over shorter time frames, such as the calendar year, and making sure that compensation is appropriately adjusted for the risks that were taken. There also needs to be a framework for ensuring that collateral haircuts are high enough to provide meaningful protection in bad states of the world even if this means keeping collateral margins higher during the good times. Making progress on this front would help limit the propensity for leverage to increase when loss experience is low and to provide greater protection when volatility climbs and market conditions become less buoyant. In general, we need to continue to look to implement changes in systems and practices that will help dampen the pro-cyclicality of the system, and temper the amplitude of both booms and busts. Attention to the incentives created by infrastructure design is also important. Poor infrastructure design can serve to mask and obscure participants’ understanding of the credit and liquidity risks that they are exposed to. A good example of this is the triparty repo market, which plays a central role in providing funding on a collateralized basis.

The increase in capital reflects a number of factors – a long period of low capital payouts relative to income, significant equity raises, as well as sizable asset dispositions that have shrunk the balance sheet and bolstered capital. The fact that credit losses have abated and this has enabled banks to release reserves has also been important. The second element is the international agreement to implement new Basel III capital standards. Not only will Basel III significantly raise the Tier I capital standard when it is fully implemented in 2019, but also it raises the quality of capital by putting the emphasis on tangible common equity. In addition, we and our partners in the international community are in the process of implementing capital surcharges for large, systemically important financial institutions (SIFIs),  BIS central bankers’ speeches  5  with the size of the surcharge dependent on size, complexity, and interconnectiveness. I appreciate that it is impossible to calibrate “SIFIness” precisely, but this is not a valid argument for no surcharge. The logic behind the SIFI surcharge is that the failure of a systemically important institution would generate a very large shock to the rest of the financial system. As a consequence, it makes sense to require higher capital for such firms to reduce their probability of failure. In addition, the Federal Reserve’s efforts to improve banks’ capital planning processes and evaluate their capital dispositions in the context of stress scenarios – the so-called Comprehensive Capital Assessment and Review (CCAR) process – is an important innovation.
As confirmed by G20 Finance Ministers and Governors at their meeting in Shanghai, the aim is now to focus on making Basel III effective without further increasing regulatory capital requirements. In addition, in 2015 the Basel Committee initiated a review of the prudential treatment of banks’ exposures to sovereign risk. This review – which is being conducted in a “careful, holistic and gradual manner” – is meant to take into account several broad issues relating to the role of sovereign debt markets and the impact that any changes may have on this role and on certain market segments. In particular, in reviewing the existing regulatory treatment of sovereign risk, due consideration should be given to the liquidity function of sovereign bonds and to its potential implications for monetary policy implementation and transmission. Given the widespread reach and impact of any policy action in this area, consistency at the global level is key to ensuring a truly international level playing field as it is stated in the Five Presidents Report. Conclusions Let me conclude. 4  BIS central bankers’ speeches  Europe is facing a number of challenges simultaneously, in the economic sphere and beyond. Addressing these challenges requires a joint response. The ECB is doing, and will continue to do, its part by taking the necessary measures to fulfil its mandate.

In the past few months, a discussion has started about the need for a new risk reduction agenda. But, before discussing such further steps, it is worth recalling that we have already made significant progress – since the beginning of the crisis – in “de-risking” Europe’s financial system. We enhanced and implemented the single rulebook; defined a common resolution framework for banks to protect European taxpayers; established the Single Supervisory Mechanism and Single Resolution Mechanism, and conducted a Comprehensive Assessment of banks to deal with legacy issues before the start of Banking Union. The results are tangible. The Common Equity Tier 1 ratio has risen, on average, from around 9% to 13% since 2012 for significant institutions. Most European banks have managed to meet the fully-loaded capital requirements by now. While a lot has been achieved, there is no room for complacency: too many of our banks are still troubled by the ghosts of the past, legacy assets and NPLs. The ECB as supervisor is actively looking into this and has identified the issue as a priority. So, what is left to be done to mitigate the remaining risks and make the financial system more resilient? It is important to further improve and fine-tune what we have started. First, there is still room for improvement when it comes to establishing a truly level playing field, for example by creating a truly single rulebook.
It is, of course, difficult to calculate these costs. Some surveys have indicated that an average production loss resulting from a bank crisis could be around 15-20 per cent of GDP. According to some calculations, the collapse of the Swedish bank market cost around 5 per cent of GDP in terms of a loss in output. Seen from society’s point of view, the individual agents’ incentives are not sufficient to take protective measures against crises that affect the financial system as a whole. The shareholders can never lose more capital than they have put in and individual depositors find it difficult to monitor a bank with widespread operations. There are, to use economic terminology, considerable negative externalities. In addition to the consumer protection aspects, this is a decisive motive for having a financial safety net in the form of special regulation, supervision and a deposit guarantee. It is also the reason why central banks have the possibility to provide liquidity support in the form of emergency liquidity assistance. Such emergency liquidity assistance shall in principle only be granted if the institution in question has temporary liquidity problems, but is essentially robust and if there are systemic contagion risks. It was exactly this risk of domino effects in the rest of the financial system that meant that Northern Rock, which can hardly be said to be of critical significance to the bank system, became the object of a number of measures taken by the British authorities.

For instance, the Bank of England granted the building society emergency liquidity assistance. And HM Treasury abandoned the limits of its existing deposit guarantee, extending them to cover all deposits in Northern Rock without limitation. The question that many people are probably asking is why so much effort was made for one individual financial institution. Public measures of this type could hardly be appropriate if it had been a question of an ordinary engineering company or retail chain that was in financial straits. It is due to two factors. Firstly, it concerns the special role played by the banks and the bank system as a whole in the economy. Secondly, it concerns the special contagion risks in the financial system. In a central bank context, these are usually called systemic risks. Banks and other intermediaries in the credit market who receive deposits from the general public play a central role in the financial system. They contribute, for instance, to facilitating the mediation of capital by acting as intermediaries between depositors and borrowers. They also create the conditions for more efficient mediation of payments in the economy. The banks’ deposit accounts are of central importance for the use of payment cards, credit cards and credit transfers. Many banks also participate in the system for the settlement of  BIS Review 30/2008  5  large-value payments supplied by the central bank. The banks and their account systems are therefore a vital part of the payment system.
The testing operations don’t represent a change in the stance of monetary policy, and no inference should be drawn about the timing of any change in the stance of future policy. Not surprisingly, the exercise to date has confirmed that the level of facility use is sensitive to the rate offered (Exhibit 1). For much of the testing period thus far, the spread between market rates and the fixed rate offered on reverse repos has been relatively wide. However, we’ve seen take-up increase in instances where the spread narrowed. Also not surprisingly, participation increased on quarter- and month-end dates, particularly by GSEs and money funds, which noted that uncertain access to overnight secured investments on these dates, combined with lower unsecured overnight rates, increased the attractiveness of our operations. We’ve also seen that different counterparty types have used the facility differently, reflecting their business models and investment alternatives. Through November, total usage of the facility has ranged from $ million to $ billion and the number of bidders has ranged from 4 to 87 per operation (Exhibit 2). Excluding the quarter- and monthends, daily bids have averaged $ billion from 17 bidders. Operationally, market participants generally characterize the exercise as smooth, with minimal disruptions. From a policy perspective, participants have indicated that they expect that a facility, if executed in full scale in the future, should be an effective tool for increasing the Federal Reserve’s control of short-term money market rates through a stronger floor.

More information can be found in Regulation D.  4  BIS central bankers’ speeches  short-term rates like GC repo have tended to be more variable and have, more than in the past, fluctuated with sometimes unpredictable spreads to federal funds. These periodic episodes of weaker linkages suggest that although the IOER rate effectively influences the marginal unsecured funding rate for eligible depository institutions, it may not be representative of, and may currently lie above, the marginal cost of funds more broadly across money markets, for example, secured financing costs faced by repo market participants. This weakening of the relationship between short-term interest rates represents a reduction in the precision with which the Desk is able to control them over the very short term. It’s difficult to know, though, whether the shift in dynamics across money markets we’re seeing is permanent or temporary. While some of the changes could be indicative of an increasing desire by market participants to focus on collateralized rather than uncollateralized markets, it could also reflect more transitory factors related to an elevated level of reserves that leaves banks with no need to borrow funds given the abundance of deposits. Of course, it’s also difficult to know with certainty how money market rate relationships will respond when the FOMC eventually begins to remove policy accommodation in an environment with a high volume of reserve balances.
The way forward: moving towards an integrated financial market union As I mentioned already, while monetary policy can alleviate deleveraging pressures in crisis times, it cannot address their root causes. In fact, to tackle the underlying problems, a wide-ranging policy response is necessary, inter alia, pertaining to public finances, economic competitiveness and the financial sector. Given the focus of today’s conference, I would like to use the remainder of my speech to consider the last aspect, namely the institutional framework that governs financial markets in European Monetary Union (EMU). In particular, I would like to address two questions: first, what principles should the institutional architecture be based on in order to be effective in avoiding excessive risk-taking and cross-border fragmentation of banking sectors; and second, how do the on-going reform efforts towards a “financial market union” at European level contribute to these aims? In answering the first question, policy-makers should be guided by two criteria: first, economic actors that stand to gain from risky activity should also bear the associated downside risk. To be concrete, a system, in which banks can expect to be bailed out by taxpayers if their investment decisions go wrong, is neither efficient not fair. Second, the  BIS central bankers’ speeches  5  institutional architecture of EMU should achieve a level of integration that is commensurate to the integration of its banking financial sectors. Hence, there should be no systematic cross-country differences in the design and implementation of the rules that govern financial markets.

Thus, the central bank can use the amounts and modalities of its liquidity provision to the banking sector to influence prices in the money market and other markets for relevant assets. By easing the pressure to abrupt deleveraging, the central bank can reduce the likelihood of a credit crunch and adverse spiralling dynamics, thereby addressing downside risks to price stability. It should be kept in mind however, that monetary policy can exert mitigating effects, but cannot solve the underlying problems, often of a structural nature. In addition, the creation of abundant liquidity can in itself create side effects that need to be carefully monitored. First, there is a risk of distorting the incentives to carry out the necessary adjustment by favouring evergreening of loans and “zombie-bank”-type dynamics. This would represent a continued source of uncertainty about banks’ exposures to non-performing loans, about the possible implicit liabilities faced by governments and ultimately a drag to economic growth. Second, large liquidity-providing repo operations increase asset encumbrance in the banking sector. Banks tie certain types of collateral with the central bank, and these assets are no longer available to the bank for other types of transactions. And this increases banks’ difficulties to issue unsecured bonds and thus can worsen their access to private sources of refinancing. The ECB’s measures during the financial crisis Let me now turn to the concrete measures that the Eurosystem has undertaken during the crisis.
What laws can I – what do we need to put on the books to protect communities like this? Liberty and other organizations, research organizations, that you guys have can come up with some of these things. I look forward to speaking with you later today. President Dudley: Okay. On this issue of predatory lending, I mean this is – I think you raised a very good point, and this is something that we actually heard about small business lending when we were up I think in the Bronx awhile back, where, basically, people have these come-ons to lend money to small business, and it seems attractive on the surface, but it turns out that the actual rate of interest that people are paying is prohibitive to be able to run a successful business. So, I think the predatory lending thing is a completely important issue that we do need to address. Obviously, the Small Business Administration can play a role in this. I think we would certainly be interested in having a conversation about it, because I think it is a really serious issue. I mean one of the problems, just more broadly, is financial literacy in the United States. Part of the reason that predatory lending can work is because people don’t really have a good idea –they don’t know enough about the financial system, about the economy, about what’s a good value or not.

The results of this appropriate policy mix, which placed the burden of the response to the crisis on the shoulders of the SNB, can be seen in the remarkable accounts of the Swiss general government: public surpluses in both 2009 and 2010 (+0.8% and +0.2% relative to GDP, respectively) and a reduction of the debt level to less than 40% of GDP.11 One reason for the misperception is probably the view, propagated by the academic literature on the subject, that central bank interventions in foreign exchange markets are geared to achieving an exchange rate target and that they are generally unsuccessful at doing so. As has been repeatedly emphasised, this was not the objective for the SNB in 2009–2010.12 The SNB’s objective was to provide appropriate monetary conditions to the Swiss economy. A given exchange rate level in that context may be maintained for a limited time period, but it is subject to review as macroeconomic conditions evolve. And as the SNB’s experience in 2009 demonstrates (illustrated in Chart 7), influencing the exchange rate level temporarily is feasible and makes sense at the zero lower bound when the traditional monetary policy instrument is exhausted. III. Conclusion: how to judge whether interventions were successful? All actions by the SNB have to be considered in the light of its mandate. The primary goal is to ensure price stability, while taking due account of the overall economic situation. In this way monetary policy contributes to creating an environment that fosters prosperity and economic growth.
•  Financing restrictions – in the form of LTVs and caps on loan tenures – were imposed on housing loans and car loans to moderate demand and reduce price pressures. •  Over 2013–2014, inflation came down steadily as housing and car prices declined. So, monetary policy and macroprudential policy can potentially be complementary to help achieve both macroeconomic stability and financial stability. They can do this sometimes by acting in the same direction; sometimes in opposite directions. •  Charles Bean 7 gives a useful pedagogical exposition of how a restoration of price and financial stability could be achieved by a combination of instrument tightening and loosening, similar to employing an optimal mix of fiscal and monetary policies to influence the composition of aggregate demand. 7  Bean, C. (2015), Comment on Applying an Inflation-targeting Lens to Macroprudential Policy Institutions, International Journal of Central Banking, Vol 11, Supplement 1  BIS central bankers’ speeches  7  •  But we need to deepen our understanding of when to use monetary policy and when to use macroprudential policy and when to combine the two, if at all. Does tighter regulation weaken the efficacy of monetary policy? There is one other aspect of the interaction between monetary and regulatory policy that I would like to touch on. •  Just as monetary policy that is set to achieve macroeconomic stability can sometimes be inappropriate for financial stability, could there be a situation where regulatory policy weakens the transmission mechanism of monetary policy?

•  The interconnectedness among institutions propagates and magnifies shocks across the system. •  The stability of the parts does not equate the stability of the whole. But eight years after the outbreak of the crisis, as the latest BIS annual report points out “macroeconomic stability and financial stability remain uncomfortable bedfellows.” 1 •  The interactions between macroeconomic stability and financial stability are not well understood. •  Monetary policy and regulatory policy have tended to be conducted independently. We need to get a better handle on financial instability: what causes it and how can it be avoided? There are a few emerging propositions. First, credit cycles have strong implications for financial stability. •  Moritz Schularick and Alan Taylor describe financial crises as “credit booms gone wrong.” 2 Both the level and growth of credit matter for financial stability. •  Claudio Borio and Piti Disyatat argue that both the amplitude and duration of credit cycles exceed those of business cycles due to what they call “excess financial elasticity.” 3 Debt and financial imbalances build up over successive business cycles until they reach a breaking point. •  Frederic Mishkin points to how excessive credit can fuel asset price bubbles, whose eventual bursting can lead to damaging episodes of financial instability. Second, monetary policy has an influence on the credit cycle and hence on financial stability.