samchain/econo-pairs-v1 huggingface dataset:
Yves Mersch: Euro clearing - the open race Keynote speech by Mr Yves Mersch, Member of the Executive Board of the European Central Bank, at the Frankfurt Finance Summit, Frankfurt am Main, 29 May 2018. * * * During the 2008 financial crisis, counterparty risks became infamous. Obviously, every finance textbook deals with the risk that, when you enter into a financial contract, the other party may not fulfil their part of the agreement and may even default on their obligation. But the failure of Lehman Brothers and the large losses suffered by AIG in over-the-counter derivatives markets revealed that there were counterparty risks throughout the entire financial system. This was due to the domino effect of counterparty defaults in leveraged products. As a response, G20 leaders agreed at the 2009 summit in Pittsburgh to move all standardised derivatives contracts to clearing through central counterparties (or CCPs). CCPs address the weaknesses exposed during the crisis by insulating counterparties from each other’s default risk. They specialise in managing counterparty credit risk, and by doing so they reduce the risk of defaults spreading across the financial system. But CCPs can only make the financial system safer if they are safe themselves. In the European Union, they are subject to a comprehensive regulatory framework. The European Market Infrastructure Regulation (or EMIR) ensures that they hold robust resources to deal with financial distress.

Confidence in some countries’ ability to service debt has been weakened. The monetary union is under pressure. (Chart 1: Current account) The crisis has its roots in global trade imbalances, with high saving in emerging economies and comparably large deficits in many advanced countries. The imbalances drove down long-term interest rates to very low levels and the appetite for risk grew. Inadequate financial sector regulation led to a further deepening of the imbalances. (Chart 2: Yield on 10-year government bonds) Four years after the financial crisis engulfed the world, a European version has now emerged. Both market participants and the authorities failed in their assessments after the introduction of a single currency. Prior to the introduction of the Economic and Monetary Union, there were wide differences between interest rates facing different European countries, which primarily reflected different inflation expectations across countries. But through the 1990s, long-term interest rates drifted down to German levels. Over the next 10 years, sovereign interest rates were fairly similar – and very low – for all euro area countries despite wide differences in debt levels, budget deficits and growth rates. Market participants did not take into account differences in sovereign creditworthiness. Sovereign debt was treated as virtually risk-free, both in the markets and by the authorities. The period contrasts with the recent two to three years during which interest rates on sovereign debt have widened sharply. For many countries, interest rates have reached very high levels.
Fritz Zurbrügg: Fiscal and monetary policy – interdependence and possible sources of tension Speech by Mr Fritz Zurbrügg, Member of the Governing Board of the Swiss National Bank, at the University of Lucerne, Lucerne, 21 November 2012. *  *  *  Ladies and Gentlemen, It is a great pleasure for me to be giving this presentation at the University of Lucerne this evening. Tonight’s topic is one that has interested me for some time. During my ten years at the International Monetary Fund, I repeatedly dealt with questions of fiscal and monetary policy and the interplay between them – albeit in a general and rather abstract way. Over the past six years at the Federal Finance Administration, my work was focused on fiscal policy, and in particular its implementation. This summer, I transferred to the Governing Board of the Swiss National Bank (SNB), and now have the unique opportunity, and the privilege, to focus on monetary policy. Although it is probably a little early for me to be making definitive speeches on both of these economic policy areas, I would like to share a few initial thoughts with you. Introduction In some countries, the scope for fiscal policy action has recently come up against its limits. Governments today find themselves in the position of being virtually unable to finance their normal range of activities, meaning that there is also no scope left for discretionary economic stimulus measures.

This support will continue to be provided by the net asset purchases until the end of the year, by the sizeable stock of acquired assets and the associated reinvestments, and 6/7  BIS central bankers' speeches  by our enhanced forward guidance on the key ECB interest rates. Thank you. 1 In moving annual sums. Source: US Department of the Treasury. 2 See Cœuré, B. (2017), “The international dimension of the ECB’s asset purchase programme”, speech at the  Foreign Exchange Contact Group meeting, 11 July. 3 See also Bergant, K., M. Fidora and M. Schmitz (2018), “International capital flows at the security level – evidence  from the ECB’s asset purchase programme”, ECMI Working Paper No 7. 4 For quantitative evidence, see Cœuré, B. (2017), “Monetary policy, exchange rates and capital flows”, speech at  the 18th Jacques Polak Annual Research Conference hosted by the International Monetary Fund, Washington, 3 November. 5 See Cœuré, B. (2018, op. cit.). 6 See Cœuré, B. (2018), “Forward guidance and policy normalisation”, speech at the Deutsches Institut für  Wirtschaftsforschung, 17 September. 7 See, for example, Rey, H. (2015), “Dilemma not Trilemma: The Global Financial Cycle and Monetary Policy  Independence”, NBER Working Paper No 21162. 8 See Cœuré, B. (2018, op. cit.). 7/7  BIS central bankers' speeches
This is one of the reasons why the Swedish krona has weakened against the euro. In the period since the beginning of the crisis to the present date, the krona has depreciated by approximately eight per cent against the euro. However, the fall has been even sharper over the last 12 months, reaching 18 to 19 per cent in March 2009. Rapid downturn in the Baltic states It became increasingly clear that the rate of growth in the world was beginning to slow down already in 2008. But it was not until the autumn, when the global financial crisis really took hold, that the situation seriously deteriorated. At present, the global economy is in recession and GDP is expected to fall by one per cent this year. World trade is expected to fall by over 12 per cent. 4 GDP is expected to fall in our region too – by 5 per cent in Sweden, which is slightly more than the figure for our Nordic neighbours. Development in Germany is somewhat weaker than in Sweden, while zero growth is expected in Poland. The situation is much worse in the Baltic states (see Figures 2 and 3), where GDP is currently expected to fall between 15 and 20 per cent this year. 5 This means that the crisis in the Baltic states is unparalleled compared with previous crises. The labour market has also weakened dramatically throughout the region. This is evident not least in the Baltic states where unemployment has now reached almost 17 per cent.

There were large savings deficits in both the private and public sectors and a high level of indebtedness in the private sector. The loans also gave rise to a growing currency crisis. In addition, increasing cost pressures gradually undermined the competitiveness of the three countries. When the global financial crisis broke out, economic growth in the Baltic states had already begun to decline. Declining growth and the large current account deficits led investors to begin reappraising the value of eastern European and central European assets. Capital inflows dried up, which made it more difficult to fund many projects and further reinforced the downturn in economic activity. The credit rating agencies downgraded the Baltic states, one after the other, which further aggrevated the shortage of capital. The lack of capital thus helped to reinforce the downturn in the same way that the surplus of capital once reinforced the dramatic upturn. There are some signs that the real economy in this part of the Baltic region has now begun to stabilise, but unfortunately the recovery may be a long, slow process. This is partly because external demand is still weak as a result of the global recession. Above all, however, it is because domestic demand is low due to the fact that the Baltic states are now carrying out so-called internal devaluations. This means that wages and other costs have been substantially reduced to restore competiveness and to counteract the serious weakening of public finances.
The effectiveness of central bank asset purchase programmes rests on this critical assumption.6 It is now easy to see that these programmes can trigger substantial cross-border capital flows and that these are likely to affect the term premia of assets in the receiving economy. As a result, returns on US Treasuries, German Bunds and Japanese government bonds, given their close similarities in terms of safety and liquidity characteristics, are often driven by a common component as investors attempt to equalise their risk-adjusted returns. Slide 5 illustrates this mechanism through the lens of a Japanese investor. It shows the evolution of the return on a ten-year Bund and equivalent US Treasury on an exchange rate-hedged basis. You can see that, in recent years, a Japanese investor in US Treasuries would have been able to lock in a significant yield pick-up over a domestic government bond, and at times also over a German Bund without incurring exchange rate risk. Only recently has it become more attractive for a Japanese investor to invest in German Bunds, reflecting the increased cost of hedging resulting from the rise in US short-term yields. Empirical analysis on the direction of international spillovers in bond markets corroborates this view. On slide 6 you can see that ECB researchers, using the Diebold-Yilmaz methodology, find that bond market spillovers from the euro area to the United States spiked sharply by mid-2014, just when capital flows started to turn.

Warnock, F. and V. Warnock (2009), “International capital flows and U.S. interest rates”, Journal of  International Money and Finance, 28, pp. 903–919; and Caballero, R. and A. Krishnamurthy (2009), “Global Imbalances and Financial Fragility”, American Economic Review: Papers & Proceedings, 99:2, pp. 584–588. 3 See Cœuré, B. (2017), “The international dimension of the ECB’s asset purchase programme”, speech at the  Foreign Exchange Contact Group meeting, 11 July; and Cœuré, B. (2017), “Monetary policy, exchange rates and capital flows”, speech at the 18th Jacques Polak Annual Research Conference hosted by the International Monetary Fund, Washington D.C., 3 November. 4 See e.g. Eggertsson, G. B. and M. Woodford (2003), “The Zero Bound on Interest Rates and OptimalMonetary  Policy”, Brookings Papers on Economic Activity No 1, pp. 139–211. 5 See e.g. Culbertson, J. (1957), “The Term Structure of Interest Rates”, Quarterly Journal of Economics, 71, pp. 485–517; and Vayanos, D. and J.-L. Vila (2009), “A Preferred-Habitat Model of the Term Structure of Interest Rates”, NBER Working Paper, No 15487. 6 See e.g. Cœuré, B. (2015), “Embarking on public sector asset purchases”, speech at the Second International  Conference on Sovereign Bond Markets, Frankfurt, 10 March; and Altavilla, C., G. Carboni and R. Motto (2015), “Asset purchase programmes and financial markets: lessons from the euro area”, ECB Working Paper No 1864; and Blattner, T. and M. Joyce (2017), “Net debt supply shocks in the euro area and the implications for QE”, ECB Working Paper No 1957.
Some have seen a challenge to Hong Kong’s future in the turbulence we have faced. But I would argue that successfully weathering another storm has only reinforced Hong Kong’s unique value – to China and to the rest of the world. 16. Another key feature of Hong Kong’s ecosystem is our broad-based financial leadership. This city is strong not only in one or two areas but across the full spectrum of products: commercial banking, investment banking, equities, fixed income, asset and wealth management, foreign exchange and more. This is important because it means we can provide holistic solutions to the specific financial needs of firms and individuals. 17. This array of financial services is supported by world-class professional services. Hong Kong has top-notch capabilities in law, accountancy, tax, risk management and compliance. 18. And we have an outstanding talent pool. Hong Kong has a well-educated local workforce. But we are also a welcoming city that attracts top professionals from around the world, creating a deep and diversified bench of talent. 19. And let’s not forget the legal system and regulatory environment. Hong Kong is renowned for its unique bilingual common law system. We have a highly-regarded, independent judiciary – as well as an internationally-recognised, forward-looking regulatory environment. That means we offer a fair and predictable marketplace in which all financial institutions can operate and prosper. 20. Each of the above is a great asset in its own right.

We are also encouraged by the leadership shown by the Lord Mayor Alderman Alan Yarrow who is also President of TheCityUK’s Advisory Committee during his visit to Malaysia in May 2015 to discuss ways to further strengthen the collaboration between our countries with Islamic finance as the intermediary, in particular in the areas of trade and investment. Malaysia-UK relationship The UK-Malaysia’s relationship stretched back many centuries. Our strong and close linkages in social, economic and finance span over a period of 200 years that have delivered great economic benefits and opportunities to both countries. In Islamic finance, our collaborative partnership formally began with the MoU between Bank Negara Malaysia and the UK Trade and Investment (UKTI) in 2009. The collaboration paves the way for both countries to strengthen international linkages in talent and expertise, cross border business and infrastructure support. Islamic finance: prospects & opportunities Islamic finance has increased its significant in the international financial landscape. As at third quarter of 2014, global banking asset has reached almost USD2 trillion whilst Islamic fund assets and takaful contributions amounted to USD76 billion and USD21 billion, respectively 1. As at end June 2015, total sukuk or Islamic bond outstanding stood at USD313 billion with Malaysia making up 55% or USD172 billion of total market share 2. 1  Source: IFSB 3Q2014. 2  Source: Bloomberg, Zawya. BIS central bankers’ speeches  1  The increased participation of non-Muslim jurisdictions also reflects the positive acceptance of Islamic finance among the global community.
This is in stark contrast to the situation in countries such as Australia, Canada and the United Kingdom which have had a fixed inflation target as long as Sweden. In these countries, the rate of inflation has been at or very close to the inflation target (in the case of the United Kingdom until the end of 2007).2 As, according to the Prospera surveys, inflation expectations in Sweden have been firmly anchored to the target since 1997,  1  See Svensson (2011) for a comparison of monetary policy in Sweden and the United States since the summer of 2010, including which monetary policy has been better balanced. 2  As discussed in Svensson (2012d), Australia has had an inflation target in the form of an interval between 2 and 3 per cent, that is, with a midpoint of 2.5 per cent, since the middle of 1993. Average inflation for the period 1997–2011 was 2.7 per cent. Canada has had an inflation target since 1991 and the target has been 2 per cent since 1995. Average inflation for the period 1997–2011 was 2.0 per cent. The United Kingdom has had an inflation target since the end of 1992. From 1996 to 2003 the target was 2.5 per cent measured using the RPIX index. Average RPIX inflation for the period 1997–2003 was 2.4 per cent. Since 2004, the target has been 2 per cent measured in terms of the CPI. Average CPI inflation for the period 2003–2007 was 2.0 per cent.

However, in 1995 and early 1996, inflation expectations according to Aragon Fondkommission’s surveys were significantly above the target, which all else being equal increases inflation and requires a higher rate of unemployment to attain the target (Svensson 2012d). Inflation expectations do not become anchored around the target until the latter part of 1996. The period from 1997 and onwards is therefore more relevant for assessing target attainment and the real economic costs of falling below the target. 4  See, for example, Ingves (2012) and Per Jansson’s comments in the minutes of the monetary policy meeting held in October 2012 (Sveriges Riksbank 2012c, page 21). 5  Chapter 1, article 2 of the Sveriges Riksbank Act (SFS 1988:1385) states that “the objective of monetary policy is to maintain price stability”. According to the government bill (Swedish government 1997, page 1), that proposed the act also states that “as an authority under the Riksdag, the Riksbank, without prejudice to the inflation target, should furthermore support the goals of general economic policy with the aim to achieve sustainable growth and high employment”. High employment should be interpreted as the highest sustainable rate of employment. The idea behind the bill is hardly that there is any conflict between “sustainable growth” and “high employment”. See Svensson (2012b) for a further discussion of this. 6  It may be interesting to note in this context that the Riksbank has in principle the same mandate as the Federal Reserve.
Despite all that, foreign exchange market participants and central banks in 1974 found Herstatt risk to be an intractable problem. All that was left to banks was to manage it. And so it went for 20 years. Then, in the mid-1990s, Bill McDonough, president of the New York Fed, identified the continued existence of Herstatt risk as a challenge to be met. As chairman of the Committee on Payments and Settlement Systems of the G-10 Central Bank Governors, he spurred the central bank community to take a fresh look. This time, the combination of new financial analysis and the rapidly expanding availability of raw computing power made the difference. •  In what today still stands as a landmark in analysis of the connection between operational and financial risk, the 1996 Allsopp report demonstrated in a straightforward manner just how much financial risk existed in the bilateral settlement of gross principal amounts of foreign exchange – an analysis that provided the insight into how a settlement facility could reduce that risk, and into understanding how settlement management could improve in the interim. •  Raw computing power was essential for the design and risk management of any proposed new settlement facility. Through scenario analysis and stress testing, CLS’s founders could determine the necessary capital and liquidity needs, default handling procedures, and the general benefits of multilateral vs. bilateral netting. The inherently multicurrency nature of foreign exchange settlement of course enhanced the challenge.

Philipp M Hildebrand: Liquidity - a challenge for banks Public lecture by Dr Philipp M Hildebrand, Member of the Governing Board of the Swiss National Bank, at the Swiss National Bank Conference “Liquidity - a challenge for banks”, Zurich, 11 January 2005. The complete speech can be found in German on the Swiss National Bank’s website (www.snb.ch). *  *  *  The resilience of the international financial system has been strengthened in recent years thanks to the extensive efforts of financial institutions, central banks and regulatory bodies. Nonetheless, given the steadily increasing volume of transactions in global financial markets, securing liquidity remains a fundamental task for banks. During times of crises, liquidity can suddenly contract or dry up altogether. The challenge for banks is to set up liquidity planning procedures to secure reliable liquidity sources for exceptional circumstances. Liquidity risks must be correctly assessed and assets must be secured to serve as collateral when necessary. In Switzerland, the repo market is the forward-looking liquidity management instrument for the banks. It minimises counterparty risk in lending and provides access to a crisis-resistant, collateralised interbank market. The Swiss National Bank is itself a participant in the repo market. It uses the repo platform to implement monetary policy and to provide for liquidity in both normal and exceptional circumstances. BIS Review 1/2005  1
My view is that the reason why academics, market participants and public authorities devote more time and resources to identifying and assessing risk-related issues is not only the severity of the crisis and the uncertainty currently surrounding our economic and financial systems, but more fundamentally the fact that not only the roots, but also the trunk and branches of the crisis are closely related to risk management and governance aspects. In this regard, a number of thoughtful explanations of the causes and dynamics of the financial and economic crisis have been put forward. There is no doubt that risk managers can extract valid lessons from all of them, since there may be indeed some truth to all. Indeed, there is probably no single argument that can alone explain everything that has happened over the past few years and we also must remain objective enough to separate ideology from facts, when assessing the different versions of the history that have or may become best-sellers.

This is why it is crucial for central banks to continuously re-think their risk management framework to stand ready, even in the “good times”, to switch to the “crisis mode”, and also to ensure that the decisions taken in the midst of a crisis will not jeopardise their ability to pursue their institutional objectives in the future. 5. Concluding remarks  To conclude, it is crucial for a central bank to fulfil the highest governance standards in organizing its risk management function and applying state-of-the-art tools, in order to ensure that the right decisions are taken in the design of the risk control framework and the implementation of monetary policy and investment operations. By doing so we may also be encouraging other market participants to follow. Therefore, our responsibility is twofold. As you see, the challenges we face may be slightly different from those faced by private institutions. But the lessons learned from the crisis, and the actions to be taken in the near future may not be so different. We are all on the same boat, learning how to sail towards a safe port. Thank you for your attention. BIS central bankers’ speeches  7