samchain/econo-pairs-v1 huggingface dataset:
This complexity stems from the highly dynamic and constantly evolving nature of the financial system. Financial institutions occupy a unique position in any economy. This uniqueness requires financial institutions to balance between growth, profitability and innovation, and the long-run stability of institutions. It is also this unique position that may create a moral hazard where financial institutions are incentivised to take excessive risks on the expectation that the cost of failure would be borne by a third party, for example through government bail outs or through the concept of “bail-in”. This state of affairs, if not managed appropriately, would burden the taxpayers and increase the dissatisfaction of the general public with the industry. The risks and trade-offs that I have mentioned would pose a number of specific issues and challenges for corporate governance. Firstly, the complexity of the operations of financial institutions and financial groups is expected to continue to increase. Financial institutions are becoming larger and more complex as they grow in size and expand abroad. Earlier this year, the six domestic banking groups had overseas operations in 22 countries worldwide, including in all ASEAN member countries. The total overseas assets of the domestic banking groups had also increased by 15.4% from the previous year to RM362.1 billion. The oversight of financial groups with cross border operations is more complex and demanding, as groups have a highly diverse range of businesses, products and services, and diversified clientele bases. Managing people with different cultures will be an additional challenge.

We of course aim to be a more sensible and reasonable prudentist, but the question of ease of exit for our patients has nonetheless become more pressing through time. A well-functioning and competitive market is one in which firms can enter and exit easily. Our competition objective leads us to pay particular attention to this, significantly more I would say than prudential regulators without such an objective. I have frequently bored this audience with the very long list of things we have done to encourage entry, particularly into retail and SME banking markets given the competition issues in them. I will resist the urge to do this again but confine myself to making the simple point that in the 8 or so years since its creation the PRA has authorised 61 new banks, of which 28 are really de novo UK banks, because I think these figures speak for themselves. We have, however, said and done less on ease of exit. By “exit” here we mean the point at which a firm becomes unviable and can no longer sustainably meet obligations to customers using its own resources. While this often ultimately ends in winding-up proceedings, outside of fast failures there is much that can be done beforehand to “ease” their passing1. A reliably safe exit process is a vital corollary of ease of entry, as it allows us to be more accommodating to new entrants.
Lorenzo Bini Smaghi: One size fits all? Speech by Mr Lorenzo Bini Smaghi, Member of the Executive Board of the European Central Bank, at the 16th Annual Conference of the German-British Forum “The European Central Bank in a global perspective – central banking and the challenge of rising inflation”, London, 26 May 2011. *  *  *  I wish to thank Huw Pill and Oreste Tristani for their contributions to the speech. I remain solely responsible for the opinions contained herein. Ladies and gentlemen, It is a great pleasure to speak at this German British Forum on the important issue of “The European Central Bank in a global perspective – The challenge of rising inflation”. I would like to address an issue which is raised time and again, namely, can the monetary policy implemented by the ECB fit different underlying economic performances in the Member States of the euro area? And in the current situation, the question is often asked whether the ECB’s monetary policy doesn’t risk hampering the recovery in the euro area periphery and jeopardising the implementation of the adjustment programmes. As I said, the issue is not new, but it is certainly topical. I am sometimes tempted to answer that this is not the right question, or at least that the question comes too late, given that we now have had a monetary union for more than 11 years and there are no alternatives in sight.

However, they also reflect supply and demand factors. On the whole, developments in credit appear to have been, up to now, in line with historical regularities, according to which loans to firms typically lag the economic cycle by a couple of quarters. In fact, credit flows remained positive, even during the period of the most severe contraction in economic activity, presumably as a result of the growing use of credit lines and revolving credit facilities. 23 Therefore, lending to firms can be expected to remain subdued even in the early stages of economic recovery, but it cannot be ruled out that supply factors will continue to restrict credit for some months. 24 The flow of loans to households began to grow again at the end of last year. The quarterly survey on bank lending indicates that the degree of tightening adopted by banks for the granting of credit to firms declined over the last few months of 2009, but remain positive (see Figure 1). It is interesting to note that among the factors that affect banks’ restrictive intentions, neither the one concerning the liquidity position of the banks themselves nor the one concerning access to financial markets seems significant any longer. Both factors now contribute in a positive way to the intentions of banks to grant credit. Considerations relating to the prospects for economic growth and those linked to specific sectors of the economy remain restrictive, but the degree of restriction is declining sharply.
I should say that the costs of implementing Basel II will not fall on banks alone - nor will the challenges. In most jurisdictions, regulators too will both face challenges and need to incur costs in expanding staff numbers, in training and in implementing systems. This will be important for them to handle the new approach. After all, it calls for a significantly greater level of expertise on the part of line supervisors than has the existing Basel Accord. And whilst the UK, and a few other jurisdictions, do have that expertise, we need to remember that we are looking at a global market place. And at a global level I detect a deficit of expertise which will require to be remedied. Pillar three and disclosure I would also like to say a few words on pillar three. Pillar three can, it seems to me, play two roles. First, of course, it can play a role within the Basel II context itself, by mitigating the need for complexity in pillar one. Disclosure about the way organisations actually manage their risks can indeed help a better understanding of their risk profile, compared to a study of complex numbers on their own. For example, understanding how a firm conducts its stress testing, or how valuations might be sensitive to different assumptions, could be of real value. But, second, such disclosure could be of value in the general accounting context itself.

Some in the private sector complain that there might be a lack of regulatory level playing field. But my own experience leads me to believe that supervisors themselves are just as aware of this. So I would encourage those in the private sector to work with supervisors in different countries to ensure the delivery of fair supervision across frontiers. If we can achieve confidence in that, then the intention of pillar two acting as a mitigant against greater prescription will I believe be realised in practice. That said, I recognise that in some jurisdictions the thinking behind pillar two represents a new departure in the philosophy, and perhaps legal basis, behind banking supervision. And in that way it represents a considerable challenge. BIS Review 14/2003  1  Maintaining the link with market practice Basel II has been a long process. But it is not an end in itself. Indeed if it were we would never achieve it. The markets, and the risks they give rise to, are not static. It is instructive, for instance, to reflect on just how much risk management theory and practice has advanced in the five years since negotiations on the Accord began. I have long felt that you need some mechanism to ensure that prudential standards remain appropriate as the state of the art moves on. That does not mean that the standards should be in a state of continuous flux. There is a good case for stability in the initial period while the Accord is being adopted.
For much of the first half of my 40-year career at the Bank of England, the emphasis of macroeconomic policy as a whole was on short-term demand management designed to manage the perceived trade-off between growth and employment, on the one hand, and inflation and a manageable balance of payments position, on the other. Monetary policy was used in conjunction with fiscal policy and supported with various forms of direct control to pump up demand, when the economy declined and unemployment rose, until inflation and the balance of payments threatened to get out of hand, at which point all the policy levers were thrown into reverse. It was a recipe for short-termism throughout our economy. We gradually learned from experience - perhaps more slowly in this country than some others - that there is no trade-off between growth and stability in the medium and longer term, and that, in managing demand - which of course we continue to do - we needed to pay far more attention to the underlying, supply-side, capacity of the economy to meet that demand. We came to recognise that direct controls merely addressed the symptoms of instability rather than its causes. We realised increasingly that fiscal policy was not well suited to the task of short-term demand management, and needed to be constrained within prudent limits if debt levels were to be sustainable in the medium- and longer-term.

Ours is not a precise science. In fact it's more of an art than a science. And, although we bring as much economic and statistical science to bear as we can, we know that our forecasts, and indeed our policy judgements, are subject to a range of error. They cannot be accurate to every last digit. We can't expect to hit the target all the time, but by consistently aiming to do so (and we do consistently aim to do so looking 2 years or so ahead) we can hope to get reasonably close to the target on average over time. I'll come back in a moment to the objective, and to our experience measured against it. But perhaps I might digress briefly to make a couple of points about the principle of delegation of operational responsibility for monetary policy to the Bank. Some people I know had misgivings about that when it was introduced in 1997 on the grounds that interest rates are intrinsically a matter for elected politicians. But that neglects the fact that within the present framework in this country the Government specifies the objective of policy. That is a political decision insofar as there may be a short-run trade-off between growth and inflation - and the Government delegates only the technical task of setting interest rates to achieve that objective to the Bank.
Paul Fisher: Developments in financial markets, monetary and macroprudential policy Speech by Mr Paul Fisher, Executive Director for Markets of the Bank of England, at Richmond University, London, 25 September 2012. *  *  *  When I gave a speech about the state of financial markets in June 2011, I talked about a process of healing as markets recovered from the Great Recession.1 But since then the patient has not regained anything like a full state of health. In this lecture today, I want to offer a second opinion on the condition of financial markets. But also, as a member of both the Monetary Policy Committee and the Financial Policy Committee, I want to talk about aspects of the monetary and macroprudential policies which are part of the medicine. In particular I want to give some background to a recent initiative by the Bank of England and HM Treasury to revive the economy, the Funding for Lending Scheme. Financial markets have continued to be buffeted by global events over the past year. In particular, the sovereign crisis in the euro area became more acute. It suffered a serious lurch in mid-July 2011 when confidence in Italian politics evaporated and Italian and Spanish sovereign yields rocketed to record euro-era highs (Chart 1). What followed was alarming – a growing fragmentation of euro zone markets as participants positioned themselves to minimise risk in the event of euro break-up. And the story has become more focussed on Spain than Italy.

Partly because I know some banks are acting against a base case of contraction. And partly because some of the funding could be used to refinance existing loans at cheaper rates. But also in the first instance, we have set it up so that the funding can be drawn down in advance or as it is needed, not with a delay. That is just one of the features designed with the macroeconomic benefits in mind. At every stage we asked ourselves how the design choice would best support lending growth. I believe we have made the right choices. BIS central bankers’ speeches  11  I would like to conclude by noting that one lesson from the crisis is just how important it is to have a properly functioning financial sector, expert in allocating savings to consumption and investment. Financial markets are not there to line the pockets of the participants. They exist because there are social and economic benefits from the services they provide. I believe most of the industry understands and accepts this. We need to focus on policies which encourage those benefits. For policy to be effective, it also needs to be joined up. The FLS, jointly launched by Bank and HM Treasury, and with supporting actions from the MPC, the FPC and the FSA shows that the new arrangements among these authorities can ensure that policies work together to get the economy back on track to meet the objectives of low and stable inflation, sustained growth and financial stability.
Now let me come to the risks that a generalised move towards universal banking could entail, and the ways and means of containing them. The main risk, of course, is the emergence of conflicts of interest. One such potential conflict of interest may arise within any bank, between the bank’s own risk-taking activity and risk-taking for its customers. The classic example of this is the potential conflict of interest between credit-granting and securities underwriting, but this is only one example. The traditional way of avoiding the misuse of such conflict-creating situations is (a) to devise an organisational structure with clearly distinguishable lines of responsibility, (b) to avoid flows of “inside” information between the various activities, (c) to attribute to each activity costs, income and profits, and (d) to entrust external auditors with the surveillance of the systems put in place. The end-result will, of course, never be entirely safe. Moreover, the building of “Chinese walls” inside a multi-polar banking organisation may weaken, or even destroy, the synergy between those poles, i.e. it may undermine the rationale of a multi-polar organisation. I would not want, however, to overstate the internal conflict of interest argument. In the long run, the kind of conflict to which I have referred is unlikely to be very strong. In a longer-term perspective, no bank can afford to favour its own risk-taking activity at the expense of its customers - especially if auditing makes it certain that any misuse of the bank’s powers would come to light. 3.

In the long run, inflation is a monetary phenomenon: it cannot happen without an (at least) accommodating expansion of the money supply. And we know from historical experience that more often than not the major source of any such inflationary increase in the money supply has been the direct financing of government by the central bank. Hungary has not been an exception to this general rule - rather its confirmation. And once inflation is established, interest rates go up. Except for very short periods, it is impossible to keep market interest rates below the rate of inflation: who would be ready to undertake financial savings the remuneration of which would imply a loss in real financial wealth? To try to keep interest rates low by monetary financing of the government is a self-defeating device. It may work for a few months, but would end up producing more inflation and higher, not lower, interest rates certainly higher nominal interest rates, but very likely also higher real rates. The simple reason for this is that people are not fools - at least not for a long time. Monetary financing of the government is therefore likely to combine two evils at the same time: inflation and high interest rates. BIS Review 16/1997  -4-  2. The accumulated and potential future losses of the NBH on account of its borrowings in foreign currency have been taken over by the government. This is a salutary cleaning-up operation which ought to have been carried out long ago.
Findings show, for example, that an effective climate policy need not be expensive and that allowing for extreme events is inexpensive insurance against substantial but uncertain future climate costs, see Chart 1.22 The blue line indicates that the costs of overestimating the effects of climate change are not particularly prohibitive. This is because the carbon tax is an effective tool to reduce climate change at a low cost. The red line indicates, on the other hand, that the cost of underestimating climate change can be very substantial. Chart 2. Global warming for various carbon taxes. Degrees Celsius 9  9  8  8  7  7  6  6  5  5  4  4  3  3  2  2  1  1  0  0 2020  2060  2100  2140  2180  Temperature without a tax  Carbon tax in the EU (200 SEK/ton)  Global carbon tax (200 SEK/ton)  Global "swedish" carbon tax (1100 SEK/ton)  Source: Hassler et al. (2020)  Chart 2 shows estimates of the global temperature increase in four different scenarios. The first scenario (blue line) indicates what happens if we don’t implement any political measures. The temperature will then have increased by almost 3O C by 2100, and by around 9O C by 2200. The red line show that a carbon tax only within the EU has a very small effect on global warming.

14 [18]  weight to “green assets”34 or perhaps avoid “brown” assets? If climate change is seen as a threat to financial stability, it may seem unreasonable that central banks themselves should hold bonds, the market pricing of which does not take into account the climate-related risk that the company contributes to. An alternative to the purchase of green bonds could be to refrain from buying bonds from companies that create carbon emissions over a certain level. I do not have an answer to the question of what action the Riksbank will take in this issue if we are faced with a scenario where we need to decide whether to extend and broaden our bond purchases. My message today is that we are participating in the ongoing international work to analyse and draft recommendations on an appropriate way forward. These questions are extremely complex. They require analysis of legal frameworks, of how green and brown assets are defined, any potential side-effects, how effective the measures would be compared with other types of measures, and the effects of policy tightening, i.e. selling assets if the economic cycle turns.35  Central banks are taking the climate issue seriously The Riksbank constantly faces new challenges that affect price stability and financial stability. Climate adaptation is one of many changes currently affecting the Swedish and the global economy. Digitalisation, a greying population, trade conflicts and, most recently, the coronavirus are other important issues that also create new challenges for us and for other central banks.
It is important to recognize that any credible approach to addressing the TBTF problem, including the one we are pursuing today, necessarily implies changes to the structure and business mix of financial firms and financial markets. Moreover, it is important to stress that not all of these adjustments will be in the private interests of these firms, and some will result in changes to the price and volume of certain financial services. These are intended consequences, not unintended consequences. Too big to fail is an unacceptable regime. The good news is there are many efforts underway to address this problem. The bad news is that some of these efforts are just in their nascent stages. It is important that as the crisis recedes in memory, that these efforts not flag – this is a project that needs to be seen to a successful conclusion and then sustained on a permanent basis. Thank you for your attention, I would be happy to take a few questions. BIS central bankers’ speeches  9

Governments in the G7 agreed that intervention in the currency markets should be undertaken only when there was a collective view that exchange rates had become out of line with their longer run fundamental values. That reticence served us well. But over the past two decades, some governments, particularly in Asia and the euro area, have tried to fix exchange rates without putting in place mechanisms to ensure that competitiveness could be rebalanced by other means. That has contributed significantly to the problems facing us. It is crucial to the health of the world economy that we find ways of allowing competitiveness to adjust so that trade imbalances, and hence the present scale of indebtedness, can be reduced. Neither liquidity nor austerity are answers to the question of how to restore a loss of competitiveness. Dealing with these structural issues will take time. Meanwhile, how do we resolve the immediate crisis of confidence in some banks and sovereigns? Since the summer, there have been renewed concerns about the adequacy of the capital of banks in the euro area to absorb likely future losses, thus jeopardising their ability to raise funds. Wholesale funding dried up for many banks over the summer, and share prices of European banks are around 35% lower today than at the start of July. A transparent recognition of losses and a substantial injection of additional capital are necessary to restore market confidence.