samchain/econo-pairs-v1 huggingface dataset:
This darker view was given less credence, in part because the magnitude of the fall in U.S. nominal house prices necessary to produce a situation where the losses could not be easily absorbed was viewed by many as implausibly large. At that time, the conventional view was that by standard regulatory and accounting measures, most U.S. financial institutions had more than ample capital against the risks they faced. Furthermore, institutions were raising new capital to fill the reduction in accounting capital being produced by the write-downs associated with subprime related assets. Phase 2: Unusual and exigent On Tuesday March 11, 2008, the Federal Reserve announced an expansion of its standard securities lending program for primary dealers 3 to a facility that accepted a wider range of collateral and lent at a term longer than overnight. This new facility, known as the Term Securities Lending Facility (TSLF), was designed to help ease the ongoing erosion of liquidity conditions in funding markets that was occurring despite the two large cuts in the fed funds target in January 2008. Two days later after the Federal Reserve announced the TSLF, Bear Stearns Co., the fifth largest investment bank in the U.S., ran out of cash to meet its obligations for the next day. Over the ensuing three days, the Federal Reserve, working with the Securities and Exchange Commission and U.S. Treasury, facilitated the takeover of Bear Stearns by JPMorgan Chase.

In the short time it took Congress to pass the TARP appropriation, the panic continued to spread; on September 25, Washington Mutual, the sixth largest depository institution, was resolved by the FDIC and just days later Wachovia, the fourth largest bank holding company  6  The recent testimony by Thomas Baxter and Sarah Dahlgren provides a detailed explanation: Joint written testimony of Thomas C. Baxter and Sarah Dahlgren: The Federal Reserve Bank of New York’s Involvement with AIG. BIS Review 81/2010  5  encountered severe funding difficulties and was eventually taken over by Wells Fargo. As with the need to place the two largest GSEs into conservatorship, it became apparent that much of the supposed ample capital in the U.S. financial system was not an effective bulwark against insolvency or the perception of possible insolvency. The latter possibility, whether true or not at its inception, can ultimately become a self-fulfilling prophesy if it results in a run on the financial system. There are three broad forms of policy responses available to arrest the self-fulfilling prophesy dynamic that can take hold during a run on the financial system:   Lender-of-last-resort actions to assist the economy in adjusting to the severe funding strains produced by the run,    Guarantees issued to reassure existing liability holders, and    Capital injections to strengthen the actual, and therefore perceived, solvency of financial institutions.
It therefore seems that the Asian banking and financial markets are moving along the right track and we should congratulate each other for this accomplishment. However, I am not entirely sure if Asia can afford to feel complacent because I believe Asia’s finance is still facing many short-run and longer term challenges. In the interest of time, I would just highlight two key challenges. a.  Short-run challenge: clearly this has to do with the Fed tapering and the normalisation of the US interest rates. The key question is to what extent the unwinding of the dollar carry trade, which prevailed for over 5 years since the collapse of Lehman, would lead to significant outflow of funds and tightening of market liquidity across Asia. The risk of a “new normal” causing a rise in interest rates, re-pricing of assets and a slow down of economic growth would be a big challenge for Asia in the next year or two. BIS central bankers’ speeches  1  b. Longer term challenge: there are many structural reform challenges for Asia’s capital markets, but today I would just focus on infrastructure financing. It is beyond doubt that Asia needs heavy investments in infrastructure in the next decade or two. Some have estimated the amounts of funding needed for infrastructure financing to be in the order of $ bn a year. At the same time, Asia has accumulated a huge amount of savings, which are more than adequate to finance the infrastructural investments in the region.

But here, too, there are clear signs of an increase in high LTV mortgage products on offer. Towards the end of last year, the FPC announced measures to reduce the stimulus previously provided, for instance from the Bank’s Funding for Lending Scheme, and outlined further instruments it had available to mitigate potential risks to financial stability from the housing market. Given the increasing momentum, the FPC stated its clear intention to be vigilant to emerging vulnerabilities and to take further proportionate and graduated action if warranted. Also, the FCA has undertaken, from next month, as part of the implementation of the Mortgage Market Review to work to maintain stronger underwriting standards – I say “maintain” deliberately because we observe evidence of a welcome strengthening by the industry of such standards. The FPC, for its part, has recommended that it should in future be able to give guidance on appropriate interest rates to be used by banks in their affordability tests. The FCA is putting this new arrangement into effect. In its latest statement, the FPC made clear that it had discussed the appropriate scenario for this year’s bank stress testing exercise. Like all stress tests, this scenario will not represent the FPC’s central expectation of what is likely to happen, but rather act as a coherent representation of risks in the tail of the distribution of possible future outcomes against which the resilience of banks can be tested.
Broad money  BIS central bankers’ speeches  3  M3 growth came close to its historic average during the fourth quarter of the year, marking 11.9% and mainly in time deposits in the banking system. Although banks did not tighten their lending terms and conditions – on the contrary, during the second half of the year there were signs of easing – demand for bank lending by the private sector was low. This remains low due to the existence of negative output gap by businesses and the growing consumer tendency to save under a perceived added insecurity for the future and a more cautious behaviour towards actual consumption. Reduction of risk premia in financial markets, maintaining positive economic growth, employment and salaries, as well as a clearer short-term perspective of the economy are expected to contribute to an increased demand for bank loans in the coming period. The banking system meets the prerequisites, in terms of liquidity, capitalisation and more favourable financing conditions to response to this demand. Our outlook for the future supports keeping a positive progress of the economy for 2011. Growing demand is expected to be subject to the comparatively better progress of the domestic demand during this year. Private consumption and investments are expected to rise further, while, after the slowdown in 2010, the fiscal sector is expected to contribute positively to the economic growth. In spite of this, the growing demand is considered to be below the potential of our economy even for 2011.

 Low and stable inflation  Cannot affect employment and production  in the long term…  …except through providing conditions for  a good and sustainable economic development. 8  BIS Review 22/2008  In retrospect…  Not as easy as one might think  Monetary policy must be based on  forecasts  Much will happen between the forecast and the final outcome Uncertain data?  Monetary policy considerations?  Unpredictable events?  Poor forecasting?   What demands can one make?  On average, not poorer accuracy  Consistency between different  variables  The driving forces should be explainable  BIS Review 22/2008  9  Other reasons for deviations  Normally we try to reach the target  within 2 years  May deviate deliberately  Considerations for the real economy  Must be communicated clearly  So how did it turn out? CPI and CPI-forecasts Annual percentage change 3.5  3.5 CPI  3.0  3.0  Forecasts  2.5  2.5  2.0  2.0  1.5  1.5  1.0  1.0  0.5  0.5  0.0  0.0  -0.5  -0.5 03  04  05  06  07  Sources: Statistics Sweden and the Riksbank  10  BIS Review 22/2008
This will increase the confidence in the financial system as a "conditio sine qua non" for the functioning of the financial markets. In the case of Macedonia, which follows and will appropriately adjust to the changes in the world financial system, the crisis emphasized the existing weaknesses of the macroeconomic reality: the high import dependence of the economy, high export concentration, vulnerability of the sources of financing of the balance of payments deficit and currency risk, which can be easily transformed into a credit risk as a threat to the financial stability. Therefore, in a short run, we have to maintain the appropriate level of foreign reserves, as a precondition for maintaining the confidence in the stability of the domestic currency. In a medium run, more serious structural adjustments are needed, which will lead to narrowing of the trade deficit, primarily through increased export, which will enable higher growth rates of the economy and  6  BIS Review 127/2009  containing of the significance of the vulnerable sources of financing of the current account deficit. As a conclusion, Macedonia has succeeded in maintaining the confidence in the financial system, i.e. in the banking system. That was possible due to the prudential macroeconomic policies and sound supervision of banks. However, the struggle for maintaining the confidence is a constant effort. Risk management is never a completed process. We should always have in mind that the costs for regaining the lost confidence are always and everywhere incomparably higher than the investment in its maintaining.

Largest portion of the core capital must be consisted of common shares and retained earnings. Appropriate principles will be prepared for the legal entities who are not  BIS Review 127/2009  5  organized as shareholding companies for ensuring high-quality core capital comparable with the quality of the core capital of the shareholding companies. Also, deductive items and prudential filters will be harmonized on an international level and will be applied at the level of a shareholding capital or its equivalent in the case of the legal entities which are not organized as shareholding companies. Moreover, all components of the capital will be fully published. -  Introduction of a leverage ratio as an additional measure of the risk-based Basel 2 framework, in order to include it in the treatment envisaged in the First Pillar in the future, on the basis of an appropriate analysis. So as to provide comparability, the details about the leverage ratio will be harmonized on an international level, with full adjustment of the accounting differences. -  Introduction of a minimum global standard for providing liquidity for the financing needs which cover the compulsory rate of coverage of the liquidity in stressscenarios, backed by a long-term rate of structural liquidity. -  Establishing of counter-cyclical capital buffers above the minimum compulsory level. This framework will include measures for maintaining the capital, such as restrictions on the possibility for allocation of the capital elements.
To this end, the Basel Committee has tabled an important set of measures aimed at increasing the financial system’s resilience in the medium and long term. These include most notably: –  Firstly, the proposal to increase the amount and quality of capital required of banks in order to enhance their loss-absorption capacity. The definition of capital will, moreover, be more transparent and internationally comparable. –  Secondly, consideration is being given to introducing minimum global liquidity standards and establishing common criteria to help supervisors identify and evaluate liquidity risk. –  Thirdly, work is under way to define various measures to mitigate the procyclicality of the financial system, which was not taken sufficiently into account in the pre-crisis period. Along these lines, the creation of countercyclical capital buffers has been proposed so as to contribute to reducing and not amplifying credit cycles. The aim pursued would be for banks to reinforce their capital during upturns and to be able to use it subsequently in periods of stress. In other areas, measures have been proposed to lessen the tendency of financial market participants to accentuate business cycles by their behaviour. Specifically, a series of criteria have been set for bankers’ pay in order to lessen their incentives to adopt risky, short-termist strategies. These have already been applied in the main developed economies. In the field of accounting regulations, too, significant efforts are being made to strengthen standards.

BIS central bankers’ speeches  1  pithily summarised by the diarist John Evelyn, who recorded the event 320 years ago in the following terms: “A publick bank... set up by Act of Parliament… for money to carry on the war”. The war in question was against France, and in return for the monies raised the Bank received both income and banking privileges: it was soon the only bank allowed to be constituted as a joint stock company, and had an effective monopoly of the note issue in the London area.2 Its size – partly resulting from its unique joint stock status – meant that, by the first half of the 19th Century, the Bank had become the dominant part of the financial infrastructure. Its notes had become an accepted means of settlement between banks, and as the provider of those notes the Bank acted as banker to other banks. Commercial banks held Bank of England notes in place of gold, relying on the Bank of England’s credibility for ultimate convertibility. Despite the Bank’s founding aim of public service, criticism persisted until after the middle of the 19th Century that it was acting in its own rather than the public interest by protecting its gold reserves at times of financial stress, to the detriment of its customers.
See: http://www.ellsbury.com/gne/gne-042.htm. 4 In 1946, King George VI appointed Turing an Officer of the Order of the British Empire for his wartime services, although the details of his work remained secret for many years. 5 Turing, A (1936), ‘On Computable Numbers, with an Application to the Entscheidungsproblem’, Proceedings of the London Mathematical Society, Volume 42, Issue 1, pp. 230-265. 3  4  All speeches are available online at www.bankofengland.co.uk/news/speeches  4  Having imagined the concept of a computer, Turing helped turn it into reality. He played a vital role in the design and development of early electronic computers after the war, continuing to contribute key ideas such as implementing functions by flexible programing rather than pre-set built-in electronic components. Working first at the National Physical Laboratory in London and later at the Computing Machine Laboratory at Manchester University, his insights led to the creation of the Automatic Computing Engine (ACE) in 1950 and the program for Ferranti Mark 1, the world’s first commercially available electronic computer. A visionary as well as a revolutionary, Turing recognised that “This is only a foretaste of what is to come and only the shadow of what is going to be”. True to his nature, Turing himself began to suggest some possible directions. His interests in neurology and physiology led him to ask whether computing machines could be capable of mimicking the faculties of the human mind, including the ability to learn.

Thanks to groups like the Sexual Law Reform Society and Stonewall, and initiatives like Pride, there has been huge progress towards ending the unfair treatment of people on the basis of sexual orientation and creating a society in which everyone can be their true selves without fear or favour.7  6  See https://webarchive.nationalarchives.gov.uk/20091005104048/ http://www.number10.gov.uk/Page20571 7 The Bank of England aims to be an LGBT+ inclusive employer, taking part in the London Pride parade every year and flying the pride flag atop its Threadneedle Street building. The Bank has a thriving LGBT+ & Allies Network which was launched in 2006 and now has around 350 members and allies. In 2018, the Bank supported the rollout of rainbow lanyards in the spirit of creating a visibly inclusive and supportive environment – these are now worn by more than 1,000 colleagues. We complete the Stonewall benchmarking exercise each year and were pleased to have increased our ranking by over 100 places in 2018. 5  All speeches are available online at www.bankofengland.co.uk/news/speeches  5  The Bank of England is committed to ensuring our banknotes are as inclusive as possible. That means celebrating the breadth of human achievement in this great country from science to the arts to statecraft to literature. And it means featuring a range of individuals who reflect the vibrant diversity of UK society. The design of the note Let me conclude by unveiling the image for the new Turing £ note. The design recognises the breadth and variety of Turing’s contributions to science.
Despite the case for its inclusion in the regulatory regime that I made earlier, some people have questioned the merits of a leverage ratio. But given the very high levels of leverage that could be generated under the risk-based regime, it is a sensible measure to include as a backstop in the regulatory framework. And the case for a leverage ratio will only grow further if risk-weight variability is not adequately dealt with. In sifting through these potential actions and trying to find the preferred policy mix, it is important that supervisors and the industry engage in a constructive dialogue on the best way forward. Banks have a keen interest in ensuring that their risk measurement methods are seen as robust and credible: not only does this affect confidence in the reliability of their capital ratios, but any doubts also call into question their stress-testing results and their risk management systems more generally, since these are invariably all built on the same foundations. Thus the Committee is keen to hear from banks and other interested parties what their preferred course of action is. Recent initiatives by the industry groups, such as the International Institute of Finance (IIF) and by the Global Association of Risk Professionals (GARP), to foster improved understanding of these issues, are therefore very welcome. Concluding remarks Let me sum up some of the key points I have made this morning. First, it is important that bank capital is seen to be of sufficient quantity, quality, consistency and reliability.

In the current framework, internal models provide an important means of generating the increased risk sensitivity that is regarded as essential. Making capital adequacy ratios more risk-sensitive should, in theory, also make them more comparable. Capital adequacy assessments are about measuring the adequacy of capital relative to the risks a bank is taking. Measuring capital, ie the numerator, is relatively easy. The denominator, ie risk, is a much more slippery concept, and a certain degree of sophistication and complexity is needed to measure it. But by enhancing the accuracy of risk measurement, we should be making capital adequacy ratios more comparable and reliable, both over time and between banks. BIS central bankers’ speeches  3  As an aside, let me clarify that this is no criticism of the leverage ratio as a regulatory tool. It is simply that capital adequacy and leverage are two different concepts, and measure different things. The risk-based capital framework is not ideal for placing an absolute constraint on leverage, just as a leverage ratio is not ideal for assessing whether capital is adequate to cover the risks undertaken. This is why Basel III adopts a “belt and braces” approach, using the leverage ratio as an important backstop for the risk-based capital adequacy regime. Returning to the rationale for using internal models to measure risk, it is important to remember that a key premise was that banks’ risk-based capital ratios should consistently reflect banks’ risk-taking.
9 In particular, as discussed in the previous FSR, the two biggest banks made adjustments to their goodwill for an amount of over € billion in the first half of the year, and one of them made further adjustments to its deferred tax assets. Moreover, in its end-of-year accounts, one bank, as a result of its merger being approved, recorded a fair value correction for an amount exceeding € billion, in accordance with accounting regulations. 10 Net interest income and fees also showed year-on-year declines, of around 10%, while gains on financial assets and liabilities (up 35%) and operating expenses (a decline of almost 11%) were the only items that improved compared with the previous year. The fall in operating expenses led net operating income to increase slightly – by 0.7% – on the previous year. 11 The crisis affected unevenly those countries where Spanish banks' main exposures are to be found (GDP fell by 8.5% in Mexico, 4.5% in Brazil, 1.5% in Turkey, 3.5% in the United States and 9.9% in the United Kingdom). 4  adjustments made by the main Spanish banking groups to the goodwill of their UK and US subsidiaries, net ordinary earnings on external business stood above 80% of the total. Finally, it should also be emphasised that, as the stress tests performed by the Banco de España suggested, the effects of the crisis across banks have been uneven. In fact, the dispersion in various significant variables, in particular in impairment losses and results, increased.

But as the crisis deepened in late September, it became clear that we needed more than a case by case approach here to tackle the continuing loss of confidence in the banking system in the UK, in euro area and in the US. On 8 October therefore we announced a comprehensive package of measures including support for recapitalisation, guaranteed funding and enhanced liquidity. That very quickly became the template for action in other advanced and some emerging countries. The central plank of the package was the offer to underwrite capital issuance of at least £ billion and it is important to be clear what that was intended to do. It was not to establish new regulatory minimum ratios. It was intended to underpin confidence in the banks and to ensure that each institution would have a sufficient capital buffer both to absorb losses that are likely to arise during a recession and to continue lending on normal commercial criteria. Under the new Basel II rules the ratio of capital to risk weighted assets is almost bound to fall as arrears and losses mount. The aim of the package was to create the headroom for that to happen and to remove the capital pressure on banks to deleverage quickly by refusing even good credit requests. The capital raising is not complete of course but the process is underway. Banks and building societies have already secured around £ billion of guaranteed funding in the market and has facilitated new bank debt issuance without the need of a guarantee.