samchain/econo-pairs-v1 huggingface dataset:
It is still far too early to be drawing strong conclusions on the precise path of the UK economy from here. At present, we have only the smallest trail of data breadcrumbs on which to base any assessment of how companies and consumers are responding to the referendum news. The Monetary Policy Committee will have a chance to offer its own comprehensive macroeconomic assessment in a month’s time, with the August Inflation Report. But let me offer a few general reflections on the likely economic path ahead. First, and in some ways most importantly, this is not (underlined, italicised, capitalised and repeated in bold) a re-run of the financial crisis of 2008/09. Then, the fault-line was an undercapitalised and illiquid banking system which, having folded under pressure, then pulled the credit rug out from under the feet of companies and consumers. When the banks sneezed in 2008, the whole economy caught a cold – and atishoo, atishoo, we all fell down. The situation today could not be more different. The UK banking system is, by an order of magnitude, better capitalised and more liquid than then. That is in large part a reflection of the post-crisis regulatory reform agenda which has strengthened banks’ capital and liquidity standards. Since the referendum, the Bank of England has augmented these capital and liquidity buffers by making available more than £ billion of liquidity and by lowering banks’ Counter-Cyclical Capital Buffer to facilitate an extra £ billion of lending.

We are grateful to Bundesbank for their active participation in this project – as well as in their specific role in the regional project on “Strengthening the Central Bank Capacities in the Western Balkans with a view to the Integration to the European System of Central Banks”. We would also like to thank National Bank of Romania and Banque de France for their involvement in this project. Last but not the least, I would like to thank staff members of the Bank of Albania intensively engaged in the design and implementation of the project. I do believe that, as with previous experiences, this project will be implemented and finalised successfully, contributing to the advancement of capacities in our institution. Thank You! 2/2  BIS central bankers' speeches
It is important to recognize that the financial crisis of 2007–09 in the United States did not include widespread runs on bank deposit accounts, the hallmark of the crisis in the early 1930s. However, there has been a growing recognition that the financial system as a whole can be fragile beyond banks, and that runs can occur on a wide range of financial intermediaries. So what is a modern recipe for a financial crisis? Menu What is a financial crisis? First, let’s define a financial crisis. There are many types of financial crises including currency crises in which the value of a country’s currency plummets, as happened in Iceland in 2008 along with its major banking crisis; fiscal crises in which a country’s government defaults on its debt or has the debt restructured, as happened in Greece in 2010 and 2014; and general financial crises, often called banking crises, which occurred in several parts of the world in 2008–09.4 What is a banking crisis, specifically? The economists Luc Laeven and Fabián Valencia (2012) have a clear definition, but similar definitions have been offered by other researchers: A banking crisis is defined as systemic if two conditions are met:  3  IndyMac did experience a run in which depositors were, in some instances, unable to withdraw their deposits as their branch closed for the day. See Kristoff and Chang, “Federal Regulators Seize Crippled IndyMac Bank,” Los Angeles Times, July 12, 2008, http://articles.latimes.com/2008/jul/12/business/fi-indymac12.

Accordingly, an easing of the pressure on domestic productive resources was also expected, together with a reduction in the trend current-account deficit. Later on, beginning last June, we drew attention to the international financial conditions which were beginning to normalize, after announcements by the Federal Reserve Board of the United States. We noted then that this process could create increased short-term volatility in the global economy and the international financial markets, as portfolios were adjusted and spending plans were reviewed, but that, at the medium term it was a healthy development because it would create an environment that would help prevent the incubation of financial vulnerabilities. At the same time, we noted that the Chilean economy was on a good stand to address this transition in international liquidity. Our inflation-targeting and floating exchange rate regimes, our sound fiscal accounts and strong financial system, together with our healthy external financial structure allowed us to confront with relative calm this process and help cushion its impact on our economy. Throughout the past year, we have seen both a moderation in the investment impulse in Chile as the gradual normalization of global financial conditions. Investment has adjusted more sharply than anticipated, such that our economy grew less than we projected in late 2013, which also reflects in a downward revision of Chile’s growth forecast for 2014. Still, I would like to say that other mineral exporting economies have given a surprise in the same direction, hand in hand with the worsening of China’s economic outlook.
And that task has certainly become much tougher. At the aggregate level - looking at the economy as a whole, while no-one - and I mean no-one, whatever they may claim - knows with any great precision just where current demand and output is in relation to the underlying supply capacity of the economy, there is no doubt that we are now at least much closer to full capacity output than we have been - and the actual rate of growth  BIS Review 55/1998  -2-  over the past year was, on almost anyone’s calculation, above the rate of underlying capacity growth. So we have been at greater risk of overheating than for some time. The consequence - if we were to overheat - is quite clear. Inflation would accelerate and we would then need to impose an abrupt slowdown on the economy to bring it back under control - to meet the Government’s inflation target. It was, of course, to avoid accelerating inflation and the associated need for an abrupt slowdown that the members of the Monetary Policy Committee last year had no difficulty in agreeing upon a significant policy tightening. But there was - and is - a significant complication. The aggregate position takes no account of the serious imbalance within the overall economy between external and domestic demand.

It is as if their judgements were expected to be consistently instinctive rather than objectively based upon their individual, open-minded, assessment - reached after careful analysis - of the most recent information available at the particular time. As a result serious economic commentary seems - perhaps temporarily - to have ceded some ground to ornithomancy - which, as of course you know, is the ancient practice of divining the future by observing the behaviour of birds - especially their flight patterns! This I suspect contributed to the surprise reaction to last week’s further rise in interest rates - which proved once again that “Hell hath no fury like a wrong-footed financial commentator”! It should not have been such a great shock. In the Inflation Report which we published a month ago we set out the analysis as I have described it to you this evening, and we drew attention to the fact that the outlook for monetary policy remained finely balanced - as it has clearly been for some months. We drew attention also to the major uncertainties surrounding the central inflation projection. These uncertainties included both the level of the exchange rate and developments in the labour market. It was - as we explained in our press notice last Thursday - the subsequent “news” essentially on these fronts, and particularly the sharp acceleration in private sector earnings growth, that caused the Committee to conclude that the necessary slowdown in domestic demand growth had become more pressing.
6  BIS Review 126/2010  Figure 3 IMACEC (1) (index, 2003=100)  Contribution to GDP growth (real annual change, percentage points)  135  135  130  130  125  125  120 115  120 115  07  08  09  25  25  20  20  15  15  10  10  5  5  0  0  -5  -5  -10  -10  -15  07  10  III  08  III  09  III  -15  10  GFCF Inventory change Government consumption Private consumption Net exports (2) GDP (1) Seasonally-adjusted series. (2) Goods and services exports minus goods and services imports. Source: Central Bank of Chile.

Figure 4 Loans by type of credit (1) (annual change, percent)  Lending interest rates (3) (percent)  30  30  50  50  20  20  40  40  10  10  30  30  0  0  20  20  -10  -10  10  10  -20  0  -20  98  00  02  Consumer Corporate (2)  04  06  08  Housing  10  02  04  06  08  10  0  Consumer, 181 days to one year (4) Consumer, over three years (4) Commercial, 30 to 89 days (4) Commercial, 181 days to one year (4) Housing, over three years (5)  (1) Provisional data for August 2010. (2) Sum of commercial and foreign trade credits. (3) Weighted averaged rates of all operations performed in the month. (4) Non-indexed rates. (5) UF-indexed rates. Sources: Central Bank of Chile and Superintendence of Banks and Financial Institutions.
3/7  BIS central bankers' speeches  From our market contacts we also hear that investors are increasingly using exchange-traded fund (ETF) shares to gain exposure to less-liquid markets. ETFs have been growing extremely fast thanks to their comparably low cost and high liquidity. ETFs are traded at higher frequencies and are sometimes more liquid than the underlying instruments. But can we be sure that liquidity in ETFs, in particular in bond ETFs, would remain stable if a sudden repricing in the markets occurred? This is a concern in particular for bond ETFs – a small but rapidly expanding market – which has not yet been tested in a larger distress event. Alongside liquidity risks, the ETF sector is also subject to counterparty risks because of connections to banks through ownership links and derivatives. Again, the fast-growing ETF segment deserves further attention from a risk and policy perspective. It goes without saying that leverage plays a critical role in any potential stress scenario as it forces companies to deleverage, generating potential spillovers to asset markets. Our analysis also shows that leverage increases the procyclical behaviour of investors and asset managers, even if they are not excessively leveraged. In any case, it is quite comforting that leverage in the European investment fund sector seems to be low, on average. Average leverage multipliers reach only up to 1.3 across different fund types.

Such risks may be particularly relevant in the context of close ownership links between banks and funds. For example, banks in certain circumstances may feel a need to step in to protect their brand. To tackle this issue, the Basel Committee on Banking Supervision (BCBS) has published guidelines on step-in risk that would require banks to self-assess and report their material step-in risk exposures to supervisors, who should have the possibility for supervisory action if deemed necessary.8 We also need to work on the different layers of interconnectedness between ETFs and their counterparties. In our view, the rapid growth of ETFs, coupled with their potential to transmit and amplify risks to financial stability, warrants further evaluation of regulatory action. 9 This may include enhanced rules to limit counterparty risk exposure of ETF investors, and measures that provide more transparency around ETF liquidity provision. The enhanced microprudential framework for the European fund sector is a key element in boosting the resilience of the financial system overall. But the sector’s rising role in shaping the financial cycle, and the potentially systemic nature of its risks, require a more ambitious approach. We should aim at extending the macroprudential framework beyond banks to encompass the asset management sector.10 In particular, we need to equip macroprudential authorities with the necessary tools to address systemic risks both ex ante and ex post. The recent ESRB recommendation to address systemic risks related to liquidity mismatches and leverage in investment funds11 is a crucial step towards this goal.
Taken together, these actions helped to stabilize the core of our financial system, support the flow of credit to our economy, and counteract the damaging psychology that was taking hold. At the FOMC's direction, the Open Market Trading Desk (the Desk) at the New York Fed executed many of these policies at an historic scale through repos, asset purchases, and swaps with foreign central banks. To give you a sense of size, since mid-March, the Desk has made gross purchases of around $ trillion of Treasury securities and $ trillion of agency MBS, including agency CMBS for the first time. Outstanding repos and swaps peaked at nearly $ billion and $ billion, respectively. In addition, using emergency lending authorities under Section 13(3) of the Federal Reserve Act, the Fed has stood up 13 temporary credit and liquidity facilities. Each facility was launched with the approval of Treasury, and in most cases, with an explicit Treasury backstop against potential credit losses. The mechanics and targets of each facility differ, but the underlying purpose is fundamentally the same: to support the flow of credit to households, businesses of all sizes and structures, nonprofits, and state and local governments during a time of extraordinary stress. Why was it necessary to have so many facilities? Our financial system is highly complex, and these facilities backstop the various channels in which credit flows to borrowers in the economy, including through loans from banks and nonbanks, through securities issued in capital markets, and through securitizations.

Average hourly earnings growth in lower-wage service sectors, such as leisure and hospitality, is less than 1 percent since February, compared to an overall average of about 3 percent. My colleagues in the New York Fed's Research Group have helped us to understand and shine a light on these disparities. I'll give three examples of their recent work. First, they have shown that COVID infection and death rates are highly correlated with race, income1, and financial vulnerability. 2 Counties with populations that are low-income, majorityminority, and financially vulnerable have suffered the highest rates of COVID incidence per capita, even after adjusting for population density. 1/4  BIS central bankers' speeches  Second, they have found that jobs requiring close physical proximity to other people are disproportionately held by workers who are poor, nonwhite, and don’t own a home. An outsized share of those jobs have been deemed essential, which has meant increased exposure to the virus for those who are most vulnerable to its effects. For those in jobs not deemed essential, the most disadvantaged workers have suffered much higher job loss rates than those who have the option to work remotely. Workers in occupations that required an on-site presence suffered seasonally adjusted employment losses from February to March of about 10 percent, compared to almost no losses for those who could work remotely. Third, using county-level data, they have demonstrated that Black-owned firms have been almost twice as likely to shutter as small firms overall.
As part of last week’s announcement on the Bank of England and Financial Services Bill, the Government put forward an important change to the senior managers regime for banks, by removing the “presumption of responsibility” and replacing it with a “duty of responsibility”. I can tell you from my postbox in all its many forms, that the “presumption” is the most controversial element of the new regime. On its own that is not a good reason for change. I want therefore to explain why the change does make sense, and why the new regime should create the right incentives. In the current Approved Persons regime, the PRA and FCA can take formal action for misconduct against an approved person either if that person has failed to comply with the statements of principle (which will become in the new regime common rules of professional conduct) or they have been knowingly concerned in a breach of a regulatory requirement by the firm. The burden of proof in an enforcement action falls on the regulator. The Banking Reform Act adds a third reason to take enforcement action against senior managers (not others) in these firms if: the firm (and I emphasise here the firm – going beyond the individual) has breached regulatory requirements; and the senior manager is responsible for the area of the firm in which the breach occurred.

The diagnosis is the same in the short-term derivatives market, whose integration, standardisation and depth have increased. This is reflected, for instance, in the scale of daily transactions and the huge expansion of the euro interest-rate swap market. These structural changes in the euro area money market have generated significant moves by market participants, who have concentrated within the euro area their euro cash management activity and have benefited from better liquidity on the secondary market. Of course, such integration has to be brought to fruition in the other segments of the money market, i.e. the repo market and the short-term securities market. Further integration will enhance the efficiency of the euro area financial markets and will be beneficial to borrowers and investors alike. –  With regard to the capital markets, progress towards integration has been significant, both on the euro-denominated bond market and the equity market. The gross issuance of long-term debt securities denominated in euro amounted to 791 billion euro in 1999, against the equivalent of 902 billion euro for debt securities denominated in US dollars. The pace of euro-denominated issues remained brisk in the first three quarters of 2000 at 498 billion euros. According to the Bank for International Settlements, euro-area private sector borrowers have issued about three quarters of their debt in euros since 1 January 1999, compared with an average of 50% in the predecessor currencies since during the 1990s.
By increasing the equity allocation from 40 to 60 percent during the financial crisis, the fund doubled its average stake in the world’s 5 3/7  BIS central bankers' speeches  publicly traded companies to around 1 percent.5 Since 2011, Norges Bank has also invested in real estate. And most recently, earlier this year it was decided to increase the equity allocation in the GPFG to 70 percent. In the course of 20 years, the fund has changed from being a small lender to a handful of countries to becoming the world’s largest sovereign wealth fund. The GPFG is invested in thousands of companies worldwide and now owns the equivalent of close to 1.5 percent of all large listed companies in the world. Such a large ownership stake entails rights and obligations. As the fund has grown, there have been increasing expectations and demands concerning what the GPFG should not own and the type of owner it should be. As the manager of the GPFG, Norges Bank is to act as a responsible investor and exercise the fund’s shareholder rights in line with the Ministry’s management objectives. In parallel with the growth of the GPFG and the broadening of the management mandate, Norges Bank’s organisation and governance structure have evolved in response to growing responsibilities and complexities. The most important change came as early as 1998, which was to organise NBIM as a dedicated investment management unit, with responsibility for the investments in the fund.

The board must also be conscious that it is the owner’s representative – its loyalty must lie with the principal. If this emphasis is misplaced, it can damage the position of the fund in the public consciousness. Finally, I would like to underscore the importance of preserving cost-effective investment management. In the course of 20 years, Norges Bank has built up a competent investment management organisation. Considerable economies of scale have been realised – investment management costs are low. The level of management costs over time is particularly important for the owner’s net return. We must keep the GPFG’s management costs at a low level, regardless of whether the fund remains within the Bank or is organised outside the Bank. Norges Bank concurs with Central Bank Law Commission in that neither the fund nor its management tasks should be divided among several entities. This will raise management costs. Any gains, however, would be difficult to come by. Conclusion Norway has managed its petroleum resources well. We have set aside wealth for the future and have created a stable institutional framework for the management of the country’s savings. In the 6/7  BIS central bankers' speeches  quotation I began with, the Prime Minister points out that Norway has also been somewhat lucky. Oil and gas prices were high during a period where production was also substantial. Luck is hardly a permanent condition. Oil prices are now far below the levels prevailing just a few years ago.
A sovereign money system would hurt our country as a whole and also make it difficult for the Swiss National Bank (SNB) to fulfil its mandate. The SNB, like the Federal Council and Parliament, therefore firmly opposes the initiative. But what is the aim of the initiative? According to its authors, the goals are ‘crisis-safe money’ and a reduction in the burden on taxpayers. To achieve these, they propose that customers’ sight deposits at commercial banks be converted into so-called sovereign money accounts, and that ‘debt-free’ payments be made by the SNB to the state or the people. Furthermore, the initiative’s authors want to separate the creation of money from the granting of loans because they regard money creation by commercial banks as the main cause of financial crises. Sovereign money makes lending more complicated The Swiss sovereign money initiative testifies to a deep mistrust of our monetary system in general, and of the current credit system in particular. Yet, credit is a cornerstone of our economic system. It is the tool whereby capital that is not needed at one point in the system can be used productively elsewhere. The credit system facilitates projects – in the areas of consumption and investment alike – which would not be possible otherwise, and thereby makes our economy dynamic and flexible. This promotes growth and prosperity. Money and credit have always been closely linked. Today, money creation and lending take place in a two-tier system, namely via the SNB and the commercial banks.

Just how difficult that would be – and how far sovereign money would complicate our work – can be illustrated by taking the example of our monetary policy during the last financial crisis. Over a very short space of time, we created a vast amount of money; initially to ensure liquidity in the banking system, and thereafter to counter the massive upward pressure on the Swiss franc. This led to a significant expansion of our balance sheet. How would we have proceeded in a sovereign money system? We would probably not have reacted so decisively given the difficulty of reducing liquidity once it has been created in a sovereign money system, which can therefore lead to higher inflation further down the line. A weaker monetary policy reaction would have exacerbated the negative consequences of the crisis for the real economy. Quite apart from that, it is doubtful whether we would even have been able, in a sovereign money system, to react as we did because the initiative limits the number of tools we would 2  As regards the SNB’s shift from monetary targeting to interest rate targeting, cf. Meyer, Hans, On monetary policy in the new year, speech held at the University of St. Gallen, St. Gallen, 20 January 2000. Page 6/8  have available. Interventions in the foreign exchange market, which have played a central role in combating the overvaluation of the Swiss franc, would not actually be allowed under a sovereign money system.