samchain/econo-pairs-v1 huggingface dataset:
We went through the crisis without properly functioning bank resolution regimes in many countries including the UK, with the consequence that the response was a combination of using public money and improvisation to create resolutions where possible. But now we are well on the way to having properly functioning resolution regimes in place. So, what is the argument for why they will be ineffective? This is a crucial piece of the story, because it is a fundamental principle of the big equity school of thought that they reject resolution as a usable solution. The argument seems often to come down to doubting the will of the authorities to enact resolution 5. True, in the past it was much harder to enact resolution in the absence of the means to do it, but that will not be so in the future. It is also true that resolution necessarily involves changing the property rights of investors which is a big thing. Will the authorities have the nerve? My view is that we must, because the alternative is much worse. We are making huge strides in resolution as a technical matter. Last year’s agreement on TLAC in the G20 was a landmark. But alongside that is a vast amount of work to get to grips with what it takes to resolve a major bank. If you are involved in that work, as I am, you can see that there is no lack of commitment and progress.

Andrew Bailey: Bank capital – debating again Speech by Mr Andrew Bailey, Deputy Governor of Prudential Regulation and Chief Executive Officer of the Prudential Regulation Authority at the Bank of England, at Barclays’ 2016 Financial Conference, London, 9 March 2016. *  *  *  Bank capital has been in the news again recently, or at least parts of the news – there are some other things going on. There are probably two reasons for this “news”: first, because we have entered another phase of highly uncertain conditions in financial markets, which has had a strong impact on the market value of banks; and second, as authorities we are pushing on with implementing the post-crisis reforms to capital standards, and in doing so we have reached a point where some of the important building blocks are now being put into place. Today, I am going to reflect on and draw some conclusions for what I would call the bigger picture, namely what sort of banking system are we seeking to create, what are we not doing, and why not. I will draw on the detail, and there is no shortage of that, but this is not a talk about the detail of bank capital, you can find that in plenty of other places. Another objective is to tackle some urban myths of today.
Third, smaller banks are increasingly becoming direct customers of larger banks, which means that less trading is taking place on the interbank market. Nevertheless, because the interbank market allows for price determination and therefore provides reference prices, it performs a key function for the foreign exchange market. Consequently, a well-functioning interbank market is also very important for the SNB. Our analyses show that the decline in turnover has not yet resulted in a deterioration in market quality. Despite the fall in turnover, transaction costs are low and the interbank market is still working properly. However, we are keeping a close eye on developments in the structure and quality of the market. The focus of monetary policy implementation is currently the foreign exchange market. However, a well-functioning money market is no less important to us. Structural changes have also taken place in this market. On 2 May 2014, SIX Group Ltd commenced operations with a new trading platform for the Swiss money market. Since then, the SNB has conducted all open market operations, all transactions for its standing facilities as well as the auctions for the Swiss Confederation through this platform. This also means that banks can only obtain funds under the liquidity-shortage financing facility through this platform. The successful launch of the new platform can be measured by the fact that 140 foreign and domestic participants already have access, and additional participants have applied to join. With the introduction of the new platform, collateral eligible for SNB repos has been combined in new baskets.

To be clear, in my view, supervisors should take a risk management perspective, not a social engineering one. It is beyond our mandate to advocate or provide incentives for a particular transition path. Rather, supervisors should focus on the risks that emerge along the path decided by the public at large and their elected governments. Supervisors can use our tools to ensure financial institutions are prepared for and resilient to all types of relevant risks, including climate-related events. To do this, we must continue to invest in research to better understand the economic and financial impact of climate-related events. For example, on Friday, the Federal Reserve Bank of San Francisco will host a conference on the economics of climate change. We can also continue to follow closely and learn from the approaches taken by other central banks, including the use of scenario analysis, stress testing and supervisory expectations to encourage institutions to factor climate risk into their risk management practices. Finally, we can seek to strengthen the data and modeling capabilities we need to assess climate-related risks as part of our forward-looking, data-driven supervision. Given the far-reaching impact of climate risk on the structure of the economy and the financial sector, I am confident that risk managers will respond appropriately and firms will continue to build resilience to all risks.
One reason why financial markets might be over-extrapolating international experience is because, at least since the crisis, monetary policy internationally has borne most of the burden of supporting growth in advanced economies. Over that period, central banks have often been “the only game in town”.31 I believe that game made economic sense. The crisis led to a large gap opening-up between aggregate demand and supply in the economy. Pump-priming aggregate demand back towards aggregate supply, through accommodative monetary policy, was the right policy response. And this monetary medicine, as best we can tell, worked. In the UK and US, aggregate demand is now back in line with supply. And in the euro area and Japan, the output gap has shrunk materially. Today, however, the conjunctural starting position for most advanced economies is very different than a decade ago. With the output gap closed in the UK, economic growth and pay rises in future can no longer rely on monetary policy pump-priming demand. It will instead require a lasting expansion in the economy’s supply potential, if capacity constraints are not to bite and inflationary pressures are not to snuff out pay rises. It is not just the economic starting point that differs, now versus a decade ago. So too do the potential shocks. A decade ago, the world faced a sharp shock to aggregate demand courtesy of the global financial crisis. This opened-up yawning output gaps and fed fears of the scourge of 1930s-style mass unemployment returning.

If we look back to the time when the first deposit banks were established in Italy in the late Middle Ages, we see that the financial system has undergone continual change. After the establishment of banks, central banks and bank regulation emerged, partially in response to the fragility of the banking system in its early years. What we see today is a system that has evolved incrementally over time. While there are differences between countries – often for historical reasons – they all have a fractional reserve system, i.e. they do not have sovereign money. Page 11/12  We will no doubt continue to see changes. Technological advances, which are notoriously difficult to predict, are among the key drivers here. It is therefore hard to know precisely how the banking system will look in the future. It is clear, however, that central banks and financial market supervisory authorities will need to find ways of responding to these changes. This is not a new challenge, but it is one we will have to face time and again. Page 12/12
Coase, R (1991), ‘The institutional structure of production’, Nobel lecture. Hayek, F (1976) Denationalization of money, London: Institute of Economic Affairs. King, M (2002), ‘The monetary policy committee: five years on’, Speech delivered to the society of business economists. King, M (2004), ‘The institutions of monetary policy’, Ely Lecture, American Economic Association annual meeting, San Diego. Kiyotaki, N and Moore, J (2002) ‘Evil is the root of all money’, American Economic Review, 92,2,p62-66. Lombardelli, C Proudman, J and Talbot, J (2005), 'Committees versus Individuals: An experimental analysis of monetary policy decision making', International Journal of Central Banking, 1, 5. Machiavelli, N (1515), The Prince. McLean, I (2006), Adam Smith: Radical and Egalitarian, an interpretation for the 21st century, Edinburgh University Press, Edinburgh. O’Neill, O (2002), ‘A question of trust’, The Reith lectures. North, D (1993), ‘Economic performance through time’, Nobel lecture. Rae, J (1895), A life of Adam Smith, Kelley, New York. Rothschild, E (2001), Economic Sentiments: Adam Smith, Condorcet, and the Enlightenment, Harvard University Press, London. Smith, A (1762), The theory of moral sentiments, in The Glasgow edition of the works and correspondence of Adam Smith, vol 1. Smith, A (1766), Lectures on Jurisprudence in The Glasgow edition of the works and correspondence of Adam Smith vol 6: manuscript B, ‘Report dated 1766’. Smith, A (1776), An inquiry into the nature and causes of the wealth of nations, in The Glasgow edition of the works and correspondence of Adam Smith, vol 2.

I understand that the EU Code on remuneration would already be consistent with this. What I am describing is not a scary prospect. It should, in fact, be liberating to establish a financial system based more firmly on the principles of the market. But it is a prospective world in which our capital markets will be at least as important as they were over recent decades. That underlines the necessity of the work on, for example, standards for central counterparties, on shadow banking, and on transparent and resiliently liquid markets. This is a world in which securities regulators will play a vital role in underpinning stability. In the UK, the new Financial Conduct Authority under Martin Wheatley will be a member of the new macroprudential body, the Financial Policy Committee, for just that reason. Thank you again to AFME for providing a forum through its book for this public policy debate to continue. 2  BIS central bankers’ speeches
Returns have fluctuated considerably since the Petroleum Fund made its first investments in equity markets in 1998. Since 1998, the first whole year the Petroleum Fund invested in equities, the annual excess return from active management has been close to half a percentage point. The corresponding krone amount is about NOK 18 billion. Petroleum revenues generally involve substantial, but uneven currency inflows into Norway. The currency flows might have resulted in a strong krone and large variations in the exchange rate. The Petroleum Fund acts as a buffer and dampens the wide fluctuations in the krone exchange rate that petroleum revenues might otherwise have generated. An increase in petroleum revenues will result in higher capital outflows from the Petroleum Fund. Operators in the foreign exchange market may at times have a tendency to underestimate the Fund’s function as a stabilisation mechanism. The capital outflows through the Fund contribute to both curbing the appreciation of the krone and maintaining its stability. Since the summer of 2004, the krone exchange rate has appreciated by about 5 per cent, as measured by the trade-weighted exchange rate index (TWI). The chart shows the krone exchange rate and oil spot prices from 1999. The chart indicates that there is no clear relationship between the nominal exchange rate and oil spot prices over time. An appreciation of the krone has accompanied higher oil prices in some periods and lower oil prices in others. The correlation between oil prices and the nominal exchange rate has therefore varied over time.

Svein Gjedrem: Petroleum and the Norwegian economy Speech by Mr Svein Gjedrem, Governor of Norges Bank (Central Bank of Norway), at the Alfred Berg ABN AMRO’s Nordic Energy Conference, Oslo, 30 August 2005. The speech does not contain assessments of the economic situation or current interest rate setting. Please note that the text below may differ slightly from the actual presentation. The references and the  Charts in pdf-format can also be found on the website of the Norges Bank. *  *  *  Let me start by reminding you of the importance of the petroleum sector to the Norwegian economy. In 2004, it accounted for 20 per cent of total GDP and almost half of Norway’s total exports. Due to spillover effects, investment in the petroleum sector affects the activity level both offshore and in mainland Norway. Oil gives us an economic base that is not available to many other countries. But it also presents us with considerable challenges. Our petroleum resources are part of our national wealth. When oil is extracted and sold, natural assets are transformed into financial wealth. Norway’s national wealth belongs not only to our generation, but also to future generations, and government policy takes this into account. When exercising fiscal discipline, the Norwegian authorities are seeking to ensure that our petroleum wealth is distributed equitably across generations. Second, the size of the cash flow from petroleum activities varies.
Mervyn King: Finance – a return from risk Speech by Mr Mervyn King, Governor of the Bank of England, to the Worshipful Company of International Bankers, London, 17 March 2009. *  *  *  Master, Sheriff, My Lords, Alderman, Ladies and Gentlemen, Introduction The financial turmoil that began in August 2007 led to a financial panic in September 2008 and now to a severe worldwide economic downturn. It is fair to describe the events that followed the failure of Lehman Brothers as the Panic of 2008 because of the almost complete collapse of confidence in financial institutions and the flight of funding that ensued. Perhaps we had forgotten that such panics and banking crises have occurred with depressing regularity in the financial systems of market economies. But the history of the City is in large part the history of banking crises. The measures that central banks took, and continue to take, to restore confidence in the banking system were extreme and on an extraordinary scale – the Bank of England has lent hundreds of billions of pounds to the banking system. But they were not unprecedented – it has happened many times before in crises over the years. So I want tonight to reflect on why we seem to find it so difficult to learn from experience. But even when set against that historical background, the extraordinarily sudden, severe and simultaneous downturn of activity and trade in every corner of the world economy last autumn is remarkable.

This portfolio is associated with some $ trillion in excess  BIS central bankers’ speeches  1  reserve balance liabilities – a level at which the Open Markets Trading Desk (the Desk) will be unable to move the effective federal funds rate up or down with small variations in the supply of reserves, as it did before the financial crisis. 1 Against this backdrop, implementation of monetary policy will require a new operational approach to influence shortterm interest rates when the FOMC determines it is time to start raising them. The FOMC outlined its anticipated approach to policy normalization – that is, raising the federal funds rate and other short-term interest rates to more normal levels, and reducing the Federal Reserve’s securities holdings – in a statement of Policy Normalization Principles and Plans published after the September 2014 FOMC meeting, with additional details provided in the March 2015 FOMC meeting minutes. 2 In its September statement, the Committee noted its plans to reduce monetary policy accommodation by raising its target range for the federal funds rate. The Federal Reserve intends to move the federal funds rate into the target range primarily by adjusting the interest rate it pays on excess reserve balances (IOER), and will use an ON RRP facility and other supplementary tools, as needed, to help control the federal funds rate.
•  A second reason is that the changes in relative prices and wages that are necessary for the economy to develop can occur more easily if there is a low, positive inflation rate than if there is no inflation. In other words, some inflation can function as a lubricant in the economy. •  A third reason, and the one that has perhaps received most attention in recent years, is that if an inflation target is set too low, it will leave insufficient scope to stimulate the economy by cutting interest rates in a deep recession. Important that the inflation target remains in place But the most important thing is to choose a certain level for the inflation target and then build up confidence in this level. Such confidence can hardly be created if the inflation target is constantly being adapted to actual inflation. Many economic agents now assume that inflation will be around 2 per cent in the coming period. It is important that we can rely on this being the case. This does not mean that the Riksbank can ensure that inflation will always be 2 per cent. It is not possible to formulate monetary policy with such precision. Inflation will deviate from the 2 per cent level during certain periods. One reason is that unforeseen events will always occur, another is that it takes time before changes in monetary policy have a full impact.

The most recent surveys show that expectations five years ahead are now at around 1.9 per cent a year. Inflation expectations two years ahead have been below those five years ahead ever since 2012. The most recent surveys show that expectations two years ahead are now at 1.3–1.4 per cent a year. Together with measurements five years ahead, the picture is that the credibility of the inflation target on the whole has increased thus far this year. Expansionary monetary policy to stimulate inflation The Riksbank’s aim is to bring the rate of inflation back towards the target of 2 per cent. Monetary policy is therefore very expansionary today in the sense that the Riksbank’s policy rate, the repo rate, has been cut in several stages and is currently at –0.25 per cent. The repo rate is expected to remain at this level at least until the second half of 2016. Furthermore, the Riksbank decided in February and March this year to purchase government bonds to a value of SEK 40 billion. The repo-rate cuts and bond purchases contribute to pushing down market rates. Figure 6 shows how the repo rate has developed since 2010. The purpose of cutting the repo rate and buying bonds is thus to bring up inflation. Lower interest rates contribute to increasing demand in the economy. It becomes more attractive for households to consume and for companies to invest. Higher demand also makes it possible for companies to raise their prices.
Indeed, in practice, banks often model the effect of even severe macroeconomic shocks as if they were occurring to the bank in isolation. They thus may assume that they have freedom to readjust their balance sheets and lending practices in the event of an adverse shock, without considering whether other banks may be trying to do the same thing and the effect that these behavioural responses may have cumulatively on market liquidity and on the economy as a whole. An important implication is that many firm-level stress tests may consequently underestimate the possible impact of adverse shocks. As I have highlighted, some of the potentially missing effects should be captured in the proposed suite of models. But the proposed enhanced “top-down” approach outlined above may still benefit from additional insights gained from closer dialogue and interaction with major financial firms on their likely reaction to episodes of stress. I consequently think there is merit in more formal comparison of “top-down” and “bottom-up” stress testing exercises, and of seeking ways of integrating the two into more formal “systemic” stress tests, where the authorities present an initial scenario to firms and then modify the scenario in the light of feedback on the potential response by firms in an iterative loop. This approach has recently been pioneered by the Dutch central bank.

BIS Review 81/2007  5  assets and off-balance sheet exposures, the asset price approach can serve as a useful cross-check to the outputs of the more structural model. 12 The distinguishing feature of the model suite is the emphasis placed on the feedback effects induced by market liquidity risk and funding liquidity risk and their interactions in a network context. In addition, the potential feedback to the macro economy from the behavioural responses of banks individually and collectively to an impairment of their balance sheet position (eg, through a “financial accelerator” effect) will be incorporated explicitly. The development of the suite is at an early stage but preliminary results from prototype work seem to promise some useful insights. Chart E shows an illustrative distribution of future UK bank system assets from the prototype model (the right-hand panel expands the lower tail of the distribution). Notice that the distribution is explicitly bi-modal – as one might expect of a system where losses on interbank exposures, and pressures on asset prices and market liquidity from failing firms, may be transmitted through the financial network and may trigger a cascade of defaults. Our suspicion is that the firesale of assets by institutions facing default is the source of much of the action here, but more research is needed to be properly certain and before we can ascribe quantitative meaning to the distribution. 6  BIS Review 81/2007  13 Chart F illustrates how such distributions might also be tracked over time and compared in successive Financial Stability Reports.