samchain/econo-pairs-v1 huggingface dataset:
However, from the point of view of financial stability we cannot completely disregard the possibility of capital outflow from the OFZ market if external or internal shocks were to take place. The Bank of Russia conducted a survey of foreign investors regarding their investment strategy in Russian sovereign bonds. The results of the survey show that a significant portion of investors buying OFZ admit that these may be sold prior to maturity. Such risks need to be taken into account and their impact on the economy reduced through clear and predictable policy. This is important because the situation on global markets remains fragile and volatile while uncertainty persists in a number of factors. Such factors include what format a British exit from the European Union will take, at this point still unclear; the possible negative consequences that will result from changing economic and trade policies in the United States; and the aggravation of political risks in Europe. The heightened risk of negative developments in the Chinese economy, given the high degree of debt load in the economy and increase in the number of corporate defaults over the last year, may also prove to be an important factor. However, seeing as total capital inflow is considered to be small, risks to financial stability associated with the possible outflow of this capital remain quite low. The excessive optimism currently experienced in global financial markets may also be a cause for concern.

Second, without violating the culture of observing the contractual obligations, it should be more active in the loan restructuring process to provide more room to businesses deserving it. Third, we think that Albania has in place business and development projects of a long-term interest that deserve greater attention. Lack of the loan demand is an already-known and well-understood problem. However, the banking system should be more flexible when assessing the submitted applications. In all my public pronouncements, I have iterated the prudence needed for sound public finances in the country. We deem that the country’s sustainable development economic paradigm requires taking swift measures for making the public finances healthier. Beyond the short-term challenges about the current year’s budget, putting in place a  2  BIS central bankers’ speeches  reliable and transparent fiscal rule is a necessity to discipline the fiscal policy in the long term and guarantee the trust of the financial markets in the Albanian public debt. Finally, the Bank of Albania deems that the macroeconomic stimulus should continue to be based on a stimulating monetary policy and a banking system more focused on the needs of the economy. Also, we believe that the fiscal policy lacks the room for such actions. This action path preserves the macroeconomic stimulus and the soundness of macroeconomic balances, hence providing the shape to the first pillar of development policies. 2. Second pillar: Reducing uncertainty in economy  The second pillar (of a short-term action, as well) relates to reducing uncertainty in the economy.
However, property markets in many other countries had experienced substantial price increases over a number of years, followed by a dramatic fall in connection with the crisis. Obvious examples of this are the United Kingdom, Ireland and Spain. It is probably therefore more correct to talk about a North Atlantic property bubble. 1  1  The concept of “the North Atlantic real estate bubble” was introduced, as I understand it, by Paul Krugman and Robin Wells in “The Slump Goes On: Why?” in the New York Review of Books, September 2010. BIS Review 149/2010  1  Developments in the United States may have been the trigger, but problems had already built up in many other countries, too, and not only in the property markets. …as a result of a long period of macroeconomic stability? What was the driving force behind this process? Macroeconomic factors probably played an important role. The global macroeconomic environment in the years prior to the crisis was characterised by low interest rates, low and relatively stable inflation and high and relatively stable growth. In brief, there was an awful lot that looked awfully good – so good that this period was given its own name: “The Great Moderation”. It is perhaps not so surprising that in this environment of low interest rates and an apparently new era of macroeconomic stability households and financial institutions became over-optimistic and took on too much risk. Households were happy to borrow and financial institutions were happy to lend.

Thus not only does the price of gilts rise as a consequence of the Asset Purchase Facility’s initial purchases, but also the prices of a whole spectrum of other assets. That in turn lowers the cost of non-bank finance and encourages increased corporate issuance. Also the rise in asset prices increases wealth and improves balance sheets. In this way, Quantitative Easing helps to work around the blockage created by a banking system that is still undergoing a process of balance sheet repair. That is exactly what we have seen since the Monetary Policy Committee started its asset purchase program. Gilt yields fell sharply, though they have subsequently risen and fallen again (Chart 2). But gilt yields can move for a variety of reasons, including changing expectations of future interest rates. If we control for that by comparing gilt yields with a measure of market expectations of the future level of Bank Rate (Overnight Indexed Swap rates for an equivalent maturity), we find that this spread has fallen by around ¾ percentage point (Chart 3). Moreover, no such movement is observed in either the United States or euro  1  That is in contrast to the related policy conducted by the Bank of Japan in the early part of this decade, which was instead directed at purchases of Japanese government debt held by the banking sector. 2  BIS Review 126/2009  area, which strongly suggests that the movement may be related to our gilt purchases 2 .
Chart 9 compares the 90th, 95th, and 99th percentile with the median and shows that the main change is at the top. If we break that top percentile down further, we see a more dramatic widening. This is not just true of the City or of the UK. The average CEO in the UK earns around 100 times more than the average worker but there is an even wider gap in the US, with the average pay of CEOs over 250 times that of the average worker in 2005, having risen from around 100 times in 1995. In 1999 Eddie George likened the change in the City since Big Bang to Wimbledon. 4 The UK still prospered by providing the venue even though most of the players were foreign. Today I think the Premiership may provide an even better analogy. That is partly because foreigners now own an increasing number of the venues as well as supplying many of the players. That is a striking illustration of Britain’s openness to foreign ownership which sets it some way apart from most other countries both in Europe and America. But it is also because both the City and the Premiership have become the centres of global industries with a dramatic impact on revenues and on earnings. One of my first footballing heroes was Johnny Haynes, the David Beckham of his day as a passer of a football.

The view that much of this growth reflects structural changes of this sort is supported in my view by the way the spread between deposit and loan rates of interest has vanished in the last few years (Chart 13). Of course that might be the product of competition between banks to lend more and attract more deposits; it also seems plausible that much of this lending is more about balance sheet restructuring than making a profit. However deposits associated with special purpose vehicles and intra-group only account for part of the growth. Even if we strip out all OFC deposits the growth rate of money has still been strong compared with the growth rate of money spending (Chart 14). In my final section I want to discuss what we should make of this. The significance of the money supply In the Treasury in the 1980s I was a close observer of the attempts to find a monetary aggregate as an intermediate target to guide policy. We were looking for both a predictable relationship between the policy instrument, interest rates, and the measure of money and a predictable relationship between that and our final objective, inflation. I remember the frustrations when both links proved unreliable. I am in no doubt that we are better off focussing directly on our final target, inflation. However I was struck, returning eighteen months ago to the economic debate, how the place of money in our debates had changed. Our model, like most others, is “new Keynesian”.
Partly, therefore, a downgrade by one or two  BIS central bankers’ speeches  1  notches within an investment-grade category could be consistent with my view. Then, on top of that, there is a significant amount of evidence to suggest that ratings do not see through the cycle. So the rating agencies and the markets are probably overestimating sovereign risk at the current juncture, in the same way that they underestimated it prior to the crisis. There is one important proviso to this statement, however: the negative feedback loop between sovereign risk and bank fragility, which in historical terms has been particularly severe in the recent period. Thus, for some countries, the markets might be factoring in further socialisation of private sector losses. Therefore, in addition to medium-term fiscal consolidation, a weakening of the nexus between sovereign risk and banking fragility is key. And that is where Iceland comes in. The collapse of Iceland’s three cross-border banks in early October 2008 was the most noticeable event in the unfolding of the financial crisis that hit the country that year. The combined balance sheets of these banks was 10 times Iceland’s GDP, and their combined bankruptcy, measured in terms of balance sheets, ranks second in size in the international history of corporate failures, only after Lehman Brothers. And this happened in a country that ranks among the smallest in the world.

Yes, many of these countries have been downgraded lately, but what that means in terms of actual default probabilities is not clear to me at this point, although it might be somewhat clearer after the next session. The fact of the matter is that advanced countries have both considerable means and strong incentives to avoid default. Even Iceland was able to avoid a default after the collapse of 90% of its financial sector and its deepest recession since the interwar period. So, for the post-war period, Walter Wriston has been largely right so far, in saying that “countries don’t go bust” – as far as advanced countries are concerned – although he was wrong as regards all countries. And what holds for advanced countries in this respect does so increasingly for the more important and advanced EMEs. I am not denying that sovereign risk has increased, more broadly speaking. Higher deficits and debt levels and weaker growth prospects bear witness to this. But the degree to which this translates into higher default probabilities in the narrow sense is not clear. My prediction is that default probabilities will remain low for most advanced countries. What, then, about the reaction of rating agencies and markets? Here again, we have the question of what rating agencies are actually trying to measure. I have long experience of dealing with them in my current and past jobs, and I have the sense that they are measuring something more than default probabilities.
International spillovers of reforms are generally found to be limited. For a review, see Dieppe A. et al. (2012), Competitiveness and external imbalances within the euro area, ECB Occasional Paper No 139. 16  See Coeuré B. (2013), The three dimensions of the euro area crisis, speech at the Asia-Europe Economic Forum conference on “European troubles, Asian worries”, Brussels, 21 January. BIS central bankers’ speeches  7  Slide 1  8  BIS central bankers’ speeches  Slide 2  BIS central bankers’ speeches  9  Slide 3  Slide 4  10  BIS central bankers’ speeches  Slide 5  Slide 6  BIS central bankers’ speeches  11  Slide 7  Slide 8  12  BIS central bankers’ speeches  Slide 9  BIS central bankers’ speeches  13

An operating environment based on prudent risk management rather than aggressive risk taking, gives us regulators comfort that profits are conservatively stated. This is the essence of prudence which underpins safe and sound banking. BIS Review 70/2004  1  In an increasing trend to harmonise prudential frameworks across the globe, in recognition of the fact that banks, wherever they may be domiciled, are exposed to the same risks, it is becoming increasingly difficult to pursue country-specific solutions. We recognize that we too have to be internationally compatible in adopting common standards for regulation and supervision which are spearheaded by the Basel Committee. Global financial reporting practices are not far away and there are efforts underway to establish a common set of internationally accepted financial reporting standards. Differences of opinion between standard setters and regulators need to be reconciled IAS 39 is one such which is being hotly debated. The efforts taken by CRISIL India, together with the SLBA, in this regard are commendable and I would like to see this initiative gather momentum to provide the platform for the improvement of risk management techniques by the banks in Sri Lanka which would, in turn, make them ready, if not in 2007, even later, to meet the challenges of Basel II. The transition to Basel II calls for a fundamental shift from the basic rudiments of risk management to sophisticated risk management techniques. The period of transition and the cost of transition has to be closely examined by the banking industry.
Extraordinary growth in practices such as securitisation and in the use of sophisticated derivative products allowed banks to transfer credit risk in ways that the 1988 Accord does not capture. In addition, some banks began to manage their exposures to operational risk separately and as a comprehensive practice comparable to the management of credit or market risk. By the late 1990s, it became increasingly clear to leading banks and their supervisors that the original Accord no longer provided meaningful measures of risk for the most sophisticated banking organisations. As a result, the Basel Committee and others began to discuss ways to revise the existing capital rules to account for these advances. Supervisors sought more than a simple revision of the existing framework. We wanted to align our capital requirements more closely with the best measures of economic risks that banks actually face. We sought furthermore to fortify the stability of the banking sector so that banks could continue to serve as a source of credit through good years and bad. In our view, promoting financial stability will benefit not just banks, but also other businesses and consumers as well. To incorporate the latest advances in risk management, and to develop a more forward-looking approach to supervision, the Committee embraced a “three-pillar” approach to capital requirements. Rather than simply setting out a static minimum requirement for capital levels, the new capital framework will rely on three mutually reinforcing policy approaches.

They consist of, first, risk-sensitive minimum requirements; second, a more consistent system of supervisory review; and, third, enhanced transparency and market discipline. Each of these three pillars offers unique benefits on its own, but the real strength of the three pillars stems from their ability to complement each other. The first pillar - which specifies the minimum capital requirements - constitutes a very direct approach to supervision. By applying a uniform set of rules to banks, the first pillar adds transparency to the regulatory process. Applying a shared set of rules to all banks makes it easier to compare organisations and get a sense of their relative degrees of solvency. On a technical level, the Committee based the measures of risk on the advanced practices that banks are adopting. The rules reflect the evolution in credit risk management by allowing qualifying banks to rely partly on their own estimates of the drivers of credit risk to determine the amount of capital required against particular exposures. One such driver of credit risk might be the bank’s own estimate of a borrower’s probability of default. Similarly, the new capital rules will reflect the advances in operational risk measurement by incorporating an explicit capital charge for such exposures to loss. BIS Review 32/2004  3  So the minimum rules will align capital charges more closely to better measures of the actual underlying economic risks that the industry is developing.
Theory suggests that there are delays and risks associated with the latter - getting the timing wrong may result in pro-cyclical polices and make a monetary policy orientated towards price stability more difficult. In the medium term, fiscal policies can best contribute to sustaining non-inflationary growth by pressing ahead with fiscal consolidation. Ultimately, over the economic cycles, growth will reflect conditions on the supply side of the economy. It is therefore microeconomic, and not macroeconomic, policies that can promote the supply of labour and capital and their efficient allocation, further innovation and the diffusion of new technologies, and as a result, mitigate problems such as structural unemployment. Structural reforms in the labour and goods markets are a key element of any long-term strategy to improve investment, growth and employment prospects. First, more flexible markets increase the speed with which countries can adapt to economic shocks, thereby speeding up economic recovery. Second, increased competition in labour and product markets is conducive to a high level of innovation and the rapid spread of technological progress. This in turn supports long-term growth, without contributing to inflationary tendencies. Third, structural reform may facilitate the transmission of monetary policy. In more rigid economies, interest rate changes are transmitted to prices after a longer delay, and structural barriers can prevent the economic efficiency gains of the primary objective of monetary policy - price stability - from being fully realised.

So that comes back to whether or not we can resolve the largest firms in an effective way and so can reintroduce market discipline through that route. 7. Concluding remarks  Let me conclude with something on shadow banking. Martin [Wolf] talked about the grave problems that are present in the global financial system through global imbalances. I completely agree. To the extent that we do not solve the global  BIS Review 148/2010  3  imbalances problem, our financial system will need to be more resilient than otherwise. That must be understood. Global capital flows are one of the givens of the world that we will continue to live in. The other given, in my view, is regulatory arbitrage. The biggest misjudgment that our predecessors made in the 1980’s and 1990’s was to underestimate the ferocious ability of capitalism to arbitrage regulatory rules. That will not change. Therefore, whatever rules we put in place now, capitalism will find ways around them. An important element of the reforms therefore has to be a much greater consciousness of regulatory arbitrage and a willingness to do something about it. This must not mean charging after windmills. It means identifying where something is happening that could threaten stability from outside the regulated sector, and being prepared to move the perimeter of regulation in those circumstances. The authorities must be more interested in shadow banking. That is something that the FSB, I believe, should focus on next year.
Today’s world economy is no longer dominated by a small group of like-minded industrialised countries at similar stages of development; tomorrow’s will be even less so. A shared knowledge base will facilitate effective consultation and collaboration on complex and politically charged issues. This is essentially a public good. And while it is possible to envisage alternative arrangements for supplying it, a permanent international institution is likely to offer clear practical advantages. Second, the Fund already exists. It has the reach and experience to respond flexibly to the changing structure of the world economy. It has nearly universal membership, (now totalling 184 sovereign nations), an agreed legal framework, extensive relevant institutional capacity and a reputation built up over sixty years. Given the costs of acquiring such unique capacity from scratch in the modern world, the benefits of starting again would need to be very substantial indeed. This adds up to a strong pragmatic case for working with what we have. So what role should the Fund be playing? Mervyn King, in his speech in Delhi earlier this year, likened the role of the IMF to an umpire in cricket, ‘warning the players not to attack each other verbally and making it clear publicly when they believe the players are not abiding with the spirit of the game’. While I would be the last person to argue with Mervyn, at least about cricket, I initially found this analogy rather unconvincing.

The broader point is that everyone needs to have confidence that the Fund is fair and impartial in the way it goes about its work. Surveillance needs to be free from any perception of bias if it is to be credible. This is sensitive territory. Members are prohibited from attempting to influence staff as they discharge their functions. But present arrangements offer plenty of scope for misperceptions. There is a fuzzy boundary between legitimate concern for the quality and relevance of surveillance and improper pressure on staff to fudge difficult issues or water down unpalatable conclusions. A surveillance remit would clarify the boundaries between staff and members without sacrificing accountability. The role and performance of the Executive Board is clearly a critical issue. Putting to one side the long-running debate about the case for shifting to a non-resident Board, there is ample room for modernisation and improvement. Could the conflicts inherent in the MD’s dual role be more transparently managed? And could the Board refocus it own efforts to better support the wider surveillance agenda? Last year, for example, it spent just 5% of its time mulling over multilateral surveillance issues – at a time when global imbalances and energy prices were headline news. Finally, reform is a process not an event. The structure, processes, incentives and culture of an organisation whose core activity is surveillance are likely to be significantly different from one whose primary focus is on lending to countries confronting financial crises.