samchain/econo-pairs-v1 huggingface dataset:
Culture Reform as a Complex Problem I’ll begin by observing that the issue of conduct and culture reform in the financial services industry is a “complex” problem and not simply a “complicated” one. Complicated problems have clear and relatively stable cause-and-effect patterns so that outcomes are largely predictable with the appropriate expertise and analysis. By contrast, complex problems are typically marked by interconnectedness of a large number of factors, constant evolution, feedback loops, “unknown unknowns”, and unpredictable outcomes.2 Culture reform is that type of problem. A firm’s culture can be defined as the shared set of norms that influences decision-making and is evidenced through behavior. Now consider a global systemically important bank with trillions of dollars of assets; with operations that span diverse business lines, customers, counterparties, investors and regulators across multiple jurisdictions; and that competes in a global industry against similar firms. Add in tens, or even hundreds, of thousands of employees with a wide range of motivations and goals who interact in varied but interconnected operating environments with different regional, corporate and individual values, incentives, regulations, and laws, and the inherent complexity becomes clear. This complexity makes it virtually impossible to fully comprehend the drivers of culture or predict its behavioral consequences. An implication is the need for a long-term, sustained commitment to addressing conduct and culture reform using a wide range of tools that are suitable for a complex problem.

We should ensure that we look at behaviors and outcomes from multiple perspectives, so we can gain a more robust understanding of the operating environment as a whole. No single perspective is likely to provide all of the insights. Experimentation and iteration, use of narrative and story-telling, and innovative methods for harnessing diversity of perspective are thought to be effective ways of tackling complex problems and we all need to innovate, adapt and seek new approaches.12 I think this focus on conduct and culture is entirely consistent with a traditional supervisory focus on resilience, both for individual firms and the financial system as whole. This can be resilience of a firm’s balance sheet in response to financial risk or an unexpected loss that depletes a firm’s equity capital or resilience of a firm’s culture in response to conduct risk or an unexpected fraud that depletes its cultural capital.13 In all of these cases, a resilient firm will be better able to adapt and evolve in order to continue to function and provide the critical financial services necessary to support a growing and stable economy. Thank you. 1 I thank Stephanie Chaly, Robert Fitchette, Jim Hennessy, Jackie McCormack, and Tom Noone for helpful  discussions and feedback on earlier drafts. 2 David J. Snowden and Mary E. Boone, “A Leader’s Framework for Decision Making,” Harvard Business Review,  November 2007 3 The Boston Consulting Group, Staying the Course in Banking, March 2, 2017. 4 William C. Dudley, Ending Too Big to Fail, November 7, 2013.
Just as the pandemic has followed its own script, I anticipate that the dynamics of inflation will also be different than previous cycles. With growth slowing and supply constraints gradually being resolved, I expect inflation to drop to around 2-1/2 percent this year, much closer to the FOMC’s 2 percent longer-run goal. And looking further ahead, I expect inflation to get close to 2 percent in 2023. Policy Actions These developments in the labor market and for inflation inform the Federal Reserve’s policy response and recent actions. In its December 2021 statement, the FOMC said that it would keep the target range for the federal funds rate at 0 to ¼ percent.2 With inflation having exceeded 2 percent for some time, the FOMC said it expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the FOMC’s assessments of maximum employment. Because of inflation developments and the notable improvement in the labor market, the FOMC also decided to reduce the monthly pace of its net asset purchases. With our actions, we have started the process of adjusting the stance of monetary policy away from one of providing maximum support for the economy. This movement in policy reflects the gains the economy has made since the beginning of the pandemic and the evolution of the risks to the achievement of our goals.

The condition of the banks which perform the financial intermediation function is of key importance for the whole economy. This accounts for the Bulgarian National Bank’s enormous responsibility for the fulfilment of the mandate entrusted to us by law and specifically for maintaining the stability of the banking system. This requires that we stay traditionally focused on the high capital and liquidity requirements for banks. These requirements are not ends in themselves, but follow from the need for banks to have reserves at hand. On the one hand, the reserves allow them to absorb costs and losses arising from the worsened quality of assets in the adverse macroeconomic environment. On the other hand, they support banks’ lending capacity. Consequently, it is logical to expect that we would continue to apply the measures of the anticrisis package, approved in March this year. Furthermore, we analyse, on an ongoing basis, the situation, and as a macroprudential supervisory authority we consider the likely scenario of a worsening economic crisis and the related significant deterioration in loan portfolios. Under this scenario, banks may need to temporarily operate under the combined capital buffers requirement, being ready to draw up and implement plans for rebuilding them. The prospect of continuing negative developments in the economy is a reason for us to expect materialization of credit risk and deteriorated quality of assets on banks’ balance sheets. It seems very likely that the trend of decreasing amount and share of non-performing exposures, seen over the last few years, may reverse.
John C Williams: Shifting gears - rebalance and realignment in the economy Remarks by Mr John C Williams, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the Fixed Income Analysts Society, New York City, 19 January 2023. ***  As prepared for delivery Albert Einstein famously said, "Life is like riding a bicycle. To keep your balance, you must keep moving." While charming advice to live by, it is also particularly salient when it comes to the rebalancing and movement taking place in the U.S. economy today. In my remarks this evening, I'm going to discuss inflation, the continued imbalances between supply and demand, and the effects that monetary policy is having on different sectors of the economy. I'll share what this means for the economic outlook in the United States, and how the Federal Reserve's policy actions support our bedrock commitment to price stability. Before I do that, I want to thank the Fixed Income Analysts Society for putting together this wonderful program. It's great to stay local, even if it means dodging rush hour traffic in Midtown. Although times like these make me wonder if I should take Einstein's bike riding advice more literally! I should also give the standard Fed disclaimer that the views I express today are mine alone and do not necessarily reflect those of the Federal Open Market Committee (FOMC) or others in the Federal Reserve System.

But I draw upon my own experience in the corporate world and upon the insights offered by Goodhart to suggest that you simply take all this forward guidance and forecasting a year or more out with a big grain of salt, bearing in mind that the policy statements and forecasts issued by the FOMC are tactical judgments of the moment, made within a broader strategic context. 6  “Longer-term Central Bank Forecasts Are Step Backwards,” by Charles Goodhart, Financial Times, Feb. 2, 2012. BIS central bankers’ speeches  5  The most important announcement Which leads me to what I consider the third and most important announcement we made last week: the statement of our longer-range goals and strategy. For the first time, the entire 17-member committee stated that, given inflation over the longer term is primarily determined by monetary policy, we are able to specify that an inflation rate of 2 percent, as measured by the index for personal consumption expenditures, is most consistent with our mandate.
His work will now feature on another 2 billion works of art – our new £ notes. How did we decide? How did we arrive at Turner? As befits Turner, we took the process of selecting a new banknote character out of the black box and brought it into the sunlight. In December 2013, the Bank of England committed to making our character selection process much more open and transparent. First, the Banknote Character Advisory Committee was created and then decided the field of accomplishment. They chose visual arts, which had never before been properly displayed on a banknote. The Bank then invited the public to make nominations in this field. They proposed artists, sculptors, printmakers, designers, craftspeople, ceramicists, architects, fashion designers, photographers and filmmakers. Indeed, the response was exceptional. We received almost 30,000 individual suggestions, between them nominating 590 different eligible characters – demonstrating not only the depth of achievement of British art but also the public’s passion for it. This pool was handed to our expert Banknote Advisory Committee – John Akomfrah, Sir David Cannadine, Andrew Graham-Dixon, Sandy Nairne, Alice Rawsthorn, Baroness Lola Young, and, from the Bank, Deputy Governor Ben Broadbent and Chief Cashier Victoria Cleland. They used their considerable knowledge, supplemented with views from public focus groups, and whittled down to a shortlist of five characters. What were the criteria? 2  BIS central bankers’ speeches  First, an unquestioned contribution to the visual arts. Second, a wider contribution to British society. And third, an enduring influence.

The strength of the other four characters on the final shortlist – filmmaker Charlie Chaplin, sculptor Barbara Hepworth, painter William Hogarth, and designer Josiah Wedgwood – gives a sense of the exceptional pedigree of British visual arts – and contextualises Turner’s contribution. To develop this point, I’d like to now introduce a short film from the Committee members celebrating some of the nominated visual artists and outlining their views on the process that led to Turner being chosen. *** So as Darwin is about to be replaced on one of our notes and Churchill is to appear on another, it’s fitting that Turner should be unveiled on the next. And here is the new image for the new Turner banknote. It features Turner’s self-portrait, from 1799, currently on display in the Tate Britain; and one of his most eminent paintings – The Fighting Temeraire – which can be seen in the National Gallery. This painting was a tribute to the HMS Temeraire, which played a distinguished role in Nelson’s victory at Trafalgar in 1805. It also commemorates the Age of Steam replacing that of Wind as this great warship is pulled into harbour by small tug boat. And in classic Turner fashion captures the interplay between light and vibrant colour.
They have to earn a decent return for intermediating credit, otherwise they will do less of it. Bank profitability has come under pressure from a combination of the three realities of the postcrisis financial landscape: slow growth, easy money, tight regulation. More work is needed to discern the impact each of these factors is having on bank profitability. Be that as it may, as we put the finishing touches to the Basel III reforms, it is important that the overall capital requirements on banks not be increased significantly. It is also quite clear that the cost of risk management and compliance has exploded and this is something regulators need to be alert to. According to a Thomson Reuters report, more than one-third of financial firms spend at least an entire day each week tracking regulatory change4. The headcount for legal, compliance, and regulatory matters has grown significantly in financial firms, in some case, even doubling. Third, have regulatory reforms contributed to strong, sustainable, and balanced economic growth? This is much tougher to answer, but this is the central question. Across most countries, overall credit provision to the economy has been stable despite higher capital and liquidity requirements. The cost of financing has remained low, although this has had do with highly accommodative monetary policies, which are not permanent. But there are distributional effects that we need to monitor closely. Studies suggest that small business loans have been shrinking as a share of non-bank loans in the US.

The IILM is expected to issue high quality, liquid, tradable and low risk Shari’ah-compliant financial instruments at both the national level and across borders to enhance the soundness and stability of the Islamic financial markets. The instruments of the IILM will be utilized in liquidity management as eligible collateral for interbank transactions and central bank financing, or through trading of IILM instruments (either within the same country or crossborder) in the secondary market. As the IILM is intended to facilitate cross-border liquidity management, its instruments shall be denominated in major reserve currencies. This is to ensure access to a large pool of global investors and broaden the range of its holders, thereby enhancing the prospects for active secondary market. There is not an available mechanism through which the Central Bank of Turkey can provide liquidity to the interest-free banking sector, or the so-called participation banks. However, the Central Bank of Turkey has become a founding member of the IILM and contributed 10 million USD to its equity. As additional efforts by the institutions in Turkey to facilitate participation banks’ liquidity management, the Undersecretariat of Treasury has started the issuance of Revenue Indexed Bonds, which are purchased by the participation banks. As it is known, another kind of interest-free security, which could be useful for participation banks especially in their liquidity management, is a specially designed financial certificate, called “Sukuk”.
Generally speaking, unemployment in these countries remained low in the 1990s and employment is high. Many countries with decentralised wage determination and a low level of employment protection have also experienced high employment and low unemployment. Wages are determined on the basis of each company’s profitability and the supply of labour. This system can be found in countries like the US, Canada, the UK and Switzerland. By contrast, a decentralised wage formation system that is combined with a strong bargaining position at the local level and extensive employment protection can produce unfavourable results. Countries with this type of structure include France, Italy and Spain. In these countries unemployment is high, with substantial flows out of the labour market into various pension and social security schemes. Nor have countries such as Germany, Belgium and Finland, where employment protection is relatively extensive and wage determination only partly decentralised, achieved particularly favourable results even though the results are somewhat more mixed. Extensive employment protection and a tightly knit social safety net reinforce the perception that the risk of an income loss is limited. Employees can take advantage of the bargaining power these rights afford to obtain high wages without taking into account the effects on overall employment. For their part, employers may have incentives to promote exclusion through government-financed social security schemes. Those who are not employed will be interested in finding employment, even at a lower wage level. However, it is not the unemployed who negotiate local wage agreements.

With a floating exchange rate and unchanged interest rates, an increase in wage growth of one percentage point will eventually translate into a comparable increase in price inflation, unless this increase is based on higher productivity. The interest rate increase must be adjusted accordingly. First, the nominal interest rate must be increased to maintain the real interest rate. Second, the real interest rate must also be increased in order to prevent inflation from accelerating. When wage growth reaches a level that is inconsistent with the inflation target, the result will be higher interest rates, lower employment and higher unemployment. Similarly, when wage growth is lower than the level consistent with the inflation target, the result will normally be lower interest rates, higher employment and lower unemployment. The sharp growth in labour costs in recent years is a source of higher unemployment. When real wage growth is higher than productivity growth, corporate profitability declines. As a result, businesses will recruit less and shed more labour. In the public sector, we will see a growing conflict between budget limits and service production requirements. A monetary policy that is oriented towards low and stable inflation will contribute to stabilising aggregate demand and output. As a result, the central government budget will not normally have to be used actively to stabilise the economy.
In banking regulation, externalities are the conceptual driver behind the enhanced prudential standards for capital, liquidity, and risk management that are currently applied to the largest, most systemically important financial institutions.8 Principal-agent problems Principal-agent problems reflect incentives for employees to act in ways that don’t align with the broader interests of management or shareholders. This can lead to excessive risk-taking, underinvestment in risk-reduction and risk-control mechanisms, and a focus on short-term returns at the cost of long-run viability. Think about the trader who is compensated on short-term P&L and not long-term value creation. These issues can be amplified by the opacity intrinsic to many financial activities that allows misconduct to persist and erodes the cultural capital of the firm. 3/5  BIS central bankers' speeches  Adverse selection Adverse selection occurs when those particularly ill-suited for something are the most likely to participate. This could be a complicating factor in this context if conduct-related events change the composition of a firm’s workforce. Firms with relatively low cultural capital (and a relatively high tolerance of misconduct risk) may attract and retain employees and clients more inclined to take inappropriate risks and push beyond internal limits and controls. Further, high-quality directors, executives, and employees might leave such firms or decline to join them, depleting the firm’s human capital and contributing to the deterioration of cultural capital.

I hope my remarks, which are based on a whitepaper we published earlier today, will offer a complementary perspective to the type of work already underway by other supervisors and regulators, including the UK regulators (FCA and PRA), the Australian Prudential Regulation Authority (APRA), DeNederlandsche Bank (DNB), the Hong Kong Monetary Authority (HKMA), and other institutions like the Financial Stability Board and the Group of Thirty (G30). I am focusing my remarks today specifically on “misconduct risk,” but the conceptual arguments and framework apply more broadly to financial sector risk management in general. Please note that the views I express today are my own and they do not necessarily reflect those of the Federal Reserve Bank of New York or the Federal Reserve System.1  Misconduct Risk A primary goal of bank regulators and supervisors is to support the sustained provision of financial services to households and businesses in a fair and transparent way. In order to do this, we examine financial institutions, individually and collectively. We assess safety and soundness to ensure firms have the appropriate risk identification and risk management processes for prudent banking. We hold them to standards that require them to be resilient to a broad range of potential risks such as credit, market, liquidity, and operational risk. One specific risk is employee “misconduct risk.” We define this as the potential for behaviors or business practices that are illegal, unethical, or contrary to a firm’s stated values, policies, and procedures.
There is no consistent framework at the EU level for collecting data on the use of these instruments, but attempts to limit information gaps on this topic in the EU are under way, possibly by means of ad hoc surveys under the aegis of the ESRB. 6. Concluding remarks  As mentioned earlier in my remarks today, data challenges would be far more modest, and the need for supervisory information reduced, if the level of public disclosure, the quality and the accessibility of, and consistency in, financial public reporting were more satisfactory. This would also benefit market participants at large – notably by reducing uncertainty with respect to counterparties. Further encouragement and guidance by national authorities (in addition to another FSB initiative on disclosure) could be provided to improve the financial reporting of institutions and to enhance the quality of disclosures. 6  BIS central bankers’ speeches  On another front, the establishment of a common legal entity identifier (LEI) that is applied universally should contribute greatly to the quality of macro-prudential analysis. It would, for example, facilitate the aggregation of the single-name counterparty risk at the level of the system and can, for example, help in the identification of the building-up of concentrations towards single counterparties. Unique identification codes at the EU level will be valuable for meaningful data aggregations, and would allow the use of this information for macroprudential purposes.

However, to the extent that stablecoins or CBDCs supplant private bank money or expand overall demand for central bank liabilities, they could also increase the size and  A larger balance sheet could cause some central banks to adapt approaches to asset composition to manage the influence of a larger balance sheet on the policy stance. For example, a central bank could buy short-duration assets to support the new demand for central bank liabilities and differentiate these asset purchases from those intended to foster accommodative financial conditions. These issues may also require new operational approaches for central banks. In some circumstances, the balance sheet could need to adjust rapidly because of unexpected large shifts in liability demand. This could require new thinking by central banks on the appropriate approaches to implementation with potentially a different mix of assets or tools to add liquidity to the system. Shortduration assets or temporary liquidity providing operations would also allow flexibility if an increase in liability demand is expected to be short term. Conclusion The innovation occurring in money and payments has the potential to alter the existing two-tier monetary system upon which current monetary policy implementation frameworks are designed. How things evolve from here is uncertain, and the impact of these innovations could be revolutionary, or more evolutionary. But imagining an environment in which new forms of private and public money and payments could coexist is helpful in adapting implementation frameworks that will enable central banks to continue to achieve their desired policy stance in the future.