samchain/econo-pairs-v1 huggingface dataset:
Using the earlier forest fire analogy, it was as if the Fed could not drop water directly on the burning section of the forest; rather, it had to drop the water on an adjacent section of forest and hope that somehow the water got to where it was needed. Several problems became apparent with this strategy. First, few discount loans were being taken out. There is a history of “stigma” associated with borrowing from the Fed’s discount window. Given the high degree of uncertainty in the financial markets in the autunm of 2007, this stigma effect likely became amplified. Second, given uncertainty about their own future liquidity needs, banks developed a strong “precautionary demand” for liquidity. This implied that they were less willing to lend out liquidity to other financial firms. Finally, it was becoming increasingly difficult to assess the credit risk associated with lending to other firms even if only for short terms. To use a medical analogy, the progression of a fever can be measured by a person’s temperature. The progression of problems in the interbank lending market can be measured by the spread between LIBOR and the overnight index swap (OIS) rates for a given term. Chart 7 shows the 3-month LIBOR/OIS spread. Prior to the onset of the financial crisis, this spread had been very narrow. Very soon after the BNP Paribus announcement, the “fever” shot up dramatically. The first new liquidity facility that was introduced to deal with these problems was the Term Auction Facility or TAF on December 12, 2007.

Securitization markets developed where loans could be funded through the market by investors. In addition, money market mutual funds, securities lenders, institutional investors and businesses needed a safe way to deposit funds where they would earn interest but retain ready access to their funds. Repurchase agreements or “repos” developed to serve this need. A repo is a short-term collateralized loan that shares many characteristics with a demand deposit except that repos are not guaranteed. At the same time, large firms increasingly raised funds by issuing commercial paper in the market rather than relying on bank loans – with the money market mutual funds being large investors in this paper. Large banks, as well, came to rely at the margin on non-deposit funding through the interbank funding market. The Fed acted as the lender of last resort for this market. This system of market-based credit intermediation has been called the “shadow banking system”. The shadow banking system grew at a very fast rate over the past several decades. Chart 1 shows that by 1990, mortgage originations in the shadow banking system equaled originations in the banking system, and grew to more than double the level in the banking system by 2008. Chart 2 highlights the growth in securitization across many different asset categories besides residential mortgages, such as commercial real estate loans, auto loans, credit card loans and student loans.
Nevertheless, the word “uniform” might sound a little strange to us today, when we prefer to use softer terms such as “convergence”. But of course Mr Delors was not thinking about uniformity of the services themselves, but rather about the need to ensure that they could be offered and accessed on an equal basis across the EU. But what it is remarkable is that Mr Delors was referring to the steps that should be taken in Stage One of EMU. He expected the integrated financial market to be in place at the beginning of the EMU process, before going to the subsequent stages. Almost seventeen years have passed since Stage One was launched. And we entered Stage Three almost eight years ago. EMU has proved to be a successful reality, but the single financial area as defined in the Delors Report has not yet been fully achieved. Of course, there has been impressive progress in some areas, for instance, the European money markets. And there has been good progress in others, like corporate bond markets and Government bond markets. In some fields, however, we are a long way from Mr Delors’ vision of integration. Looking at stock exchanges, for instance, we have certainly witnessed a decrease in the home country bias in investor portfolios. But the overall level of home country bias remains high, indicating that a significant degree of fragmentation remains. And progress has been very limited in the retail financial services sector, where the cross-border provision of services is still almost symbolic.

Jean-Pierre Roth: Central bank communication policies and the challenges posed by the financial crisis Summary of a speech by Mr Jean-Pierre Roth, Chairman of the Governing Board of the Swiss National Bank and Chairman of the Board of Directors of the Bank for International Settlements, at the presentation of the “BZ-Preis für Lokaljournalismus”, Berne, 27 November 2008. The complete speech can be found in French on the Swiss National Bank’s website (www.snb.ch). *  *  *  The financial crisis has prompted a rekindling of press interest in central bank operations, following a long period in which monetary authorities scarcely attracted any media attention. Our communication policy has thus been faced with new challenges in recent months. Today, central banks operate with the market, rather than “against the market”, as in the past. Financial market participants are therefore able to foresee central bank actions. Since the early 2000s, our communication policy has focused on transparency, and our experience with this has been positive. Thus, transparency increases the effectiveness of monetary policy. Yet, in the recent financial turbulence, transparency in monetary policy operations also turned out to be a double-edged sword, as communication problems arose. Indeed, there is a risk that operations to provide extraordinary liquidity assistance will impair the reputation of the recipient organisations, and thereby destabilise the market. There are a number of possible solutions with which a balance can be achieved between transparency and stability. BIS Review 147/2008  1
For example, hedge funds that specialise in identifying mispriced assets contribute to prices that better reflect the underlying risk. When the prices are more correct, resources may also be distributed more efficiently and the risks may be better managed. In new and complex markets hedge funds are often important agents with the opportunity and will to take on risk. This, in turn, improves liquidity in these markets. 1  According to the Barclay Hedge database. 2  See also the ECB Financial Stability Review 2007:2. BIS Review 11/2008  1  But there is often little insight But the flexibility hedge funds have also entails risk. Problems that arise in a hedge fund can spread to the fund’s counterparties; in the first instance the major banks. What is often highlighted in this context is the hedge funds’ high leverage. High leverage of course increases the risks, and the effects of a fund failing. Hedge funds are often accused of showing herd behaviour, that is, of imitating one another's behaviour and taking similar positions. But I find it difficult to believe that hedge funds to a greater extent than other investors just follow the prevailing trend. The fact that the required rate of return is absolute rather than relative in most hedge funds should actually indicate the opposite. Another source of concern is that there is little public insight into hedge funds’ activities. To take one example, in the United States hedge funds do not need to publicly report their activities or even register them.

Indeed the repercussions from their impending exit from these measures may be even more significant. Therein lies the importance for emerging and developing economies to strengthen our economic and financial foundations, reduce our risks and vulnerabilities and spur a balanced and inclusive growth. The events since the eruption of the global financial crisis have also altered our view of the world in a number of other fundamental ways. Global reforms in the financial system are re-shaping the regulatory landscape. The lines that define financial intermediation activities, and which connect the financial system to other parts of the economy and other parts of the world, are also being re-drawn. In this environment, emerging and developing economies need to be engaged to ensure that unintended consequences on our financial systems and consequently on our economies are minimised. A key concern in this environment is thus the strengthening of the protection of segments of society, in particular, small businesses and households, from being marginalised by market forces, and from the disproportionate impact of instability, crises and reforms. Related to this is the need to reinforce socially responsible finance, and to ensure that financial systems serves the real economy and to address the new and growing risks of financial exclusion which can result in part of our community to be disenfranchised, particularly, but certainly not only, during periods of financial crises. In this environment, financial inclusion has gained greater prominence as a key priority for the reform and development agenda.
At end2021 they accounted for 5% of total outstanding loans, the same percentage as prior to the pandemic. 5  Pursuant to Circular 4/2017, a loan is classified as a Stage 2 exposure when credit risk has increased significantly since initial recognition, even if no event of default has occurred. 6  Forborne loans are also typically associated with possible repayment difficulties for borrowers; indeed, more than half are classified as non-performing. 8  In any event, the developments in Stage 2 and forborne loans were encouraging in 2022 Q1: the former’s year-on-year growth was negative (-2.2%) while the latter’s slowed to 8.8%. Vulnerability is most acute among the sectors sensitive both to the effects of the pandemic and to the rising energy costs. In particular, the combined share of NPLs and Stage 2 loans in the sectors most severely affected by the pandemic stood at almost 24% at December 2021, compared with 17.7% in the moderately affected sectors and 15.5% in those least affected. These shares held stable during 2022 Q1. The credit quality of loans backed by the State through the Official Credit Institute (ICO) has deteriorated somewhat in recent quarters. At March 2022, 22.7% of ICObacked loans were classified as Stage 2 exposures (up 6.4 pp on June 2021) and 4.1% as NPLs (up 2 pp on June 2021). Further, it must be noted that a significant share of these loans continue to benefit from grace periods, which will come to an end in summer 2022.

In Hong Kong, banking, in a rather narrow definition, is estimated to contribute about 7.5% to gross domestic product and about 3.5% to employment. Despite the withdrawal of a number of individual banks, particularly Japanese, from Hong Kong in the late 1990s, the share of banking in GDP appears to have remained roughly stable for a number of years now. However, the share in employment has declined somewhat of late – as has also been evident in, for example, the USA and UK over a slightly longer period. This implies that there have been significant productivity gains, including no doubt those arising from the process of consolidation, which has been evident among international banks with presences in Hong Kong for some time and has now been spreading to the local banks. Permit me one further historical reflection, related partly to my earlier comment about attitudes towards banking. When I first studied economics, there was a respected body of literature which argued that productivity growth in manufacturing would always outstrip that in other sectors because manufacturing was more amenable to the application of new technologies and economies of scale. In services, output was regarded as too firmly dependent on the specific input of labour for there to be much scope for productivity gains.
As a significant part of the credit growth was being financed from abroad, countries built up large capital account surpluses and corresponding large current account deficits as the mirror image. The mechanism that connected these financial and real trade flows was the loss of competitiveness – that is, an appreciation of the real exchange rate caused by economic over-heating. As this audience knows well, all these developments later implied major problems in the financial sector in peripheral countries when the cycle turned. On the asset side, loan quality deteriorated, while on the liability side, those loans could no longer be funded from abroad. It was only at this point, due to the economic downturn and the need to backstop banks, that sovereign debt began its steep rise and became a driver of the crisis in itself. Drawing the right lessons for the euro area In emphasising this private debt-focused narrative for this crisis, my aim is not to negate the importance of fiscal policies. Fiscal policies certainly should not have been pro-cyclical, and fiscal discipline today is essential to ensure sustainable debt levels in the future. My aim is rather to ensure that we recognise the central role played by the financial sector in the crisis and so draw the right lessons for the future. The most important such lesson is that the euro area needs stronger governance of financial policies – an ability to identify and curb cross-border financial flows and hence prevent debtdriven imbalances.

Until economic growth is able to significantly reduce unemployment, the authorities should not become complacent in their efforts to continue the structural and institutional reforms essential to overcome the crisis. It is clear that for the successful completion of the rebalancing process Europe needs more investment and higher domestic demand growth. We therefore need a more coordinated approach to macroeconomic policy at the euro area level to achieve higher demand growth,  BIS central bankers’ speeches  5  as well as the continuation of structural reforms in all member countries in order to increase growth and facilitate a more encompassing rebalancing process. At the same time, to support national structural reforms in stressed countries, the enactment of the announced contractual programmes with financial means to support their implementation should play a significant role. Finally, it would be important if a future decision could be reached to implement at the euro area level what is referred in the President Van Rompuy’s Report “Towards a genuine Economic and Monetary Union” as “….the establishment of a fiscal capacity to facilitate adjustment to economic shocks. This could take the form of an insurance-type mechanism between euro area countries to buffer large country-specific economic shocks. Such a function would ensure a form of fiscal solidarity exercised over economic cycles, improving the resilience of the euro area as a whole and reducing the financial and output costs associated with macroeconomic adjustments”.
John Gieve: Stability and change Speech by Sir John Gieve, Deputy Governor of the Bank of England, to the Engineering Employers’ Federation North West, Warrington, 20 July 2006. *  *  *  I am delighted to be here today. The Bank of England has long connections with this region. We first set up offices in Manchester and Liverpool back in 1820s. That was a time when North West of England was a key hub in an emerging international economy, with the Port of Liverpool providing the gateway for industry in Lancashire and Cheshire to trade with the rest of the world, particularly textiles. The structure of the economy in the North West has of course changed markedly since those days and the region is now more associated with the aerospace, defence and pharmaceuticals industries than with textiles. Here as elsewhere, recent years have been a time of rapid change in the structure of industry and the economy. We may have been talking about globalisation for years but that doesn’t mean it is complete; in fact it is still gathering momentum. Macroeconomic stability: a platform for change In the face of that rate of change, it may seem paradoxical that among central banks the last 10 years have been known as the “Great Stability”. The UK is an example of that. Since 1992, when an explicit target for inflation was first introduced here, inflation has been stable and very close to its target.

4 And, of course, the market for credit ratings is famously dominated by three signatures, which act as standard-setters for an enormous volume of financial transactions. Imitative strategies and market concentration make financial trends overly dependent on idiosyncratic decisions and market sentiment. What is clear is that while the end result – herd behaviour – seems to be individually rational, it is socially wasteful. Herd behaviour favoured the build-up of leverage. Leverage cycles have been a constant of many of the financial crises of the past. But the financial players that contributed to the boom before the crisis were able to use previously unavailable ammunition. In the run-up to the crisis, we saw the emergence and fast development of a new set of complex financial instruments such as ABSs, RMBSs and CDOs as well as hedging instruments like CDS. These were invented as instruments to repackage, disseminate and hedge risks. As they became available, they were viewed as filling a gap in an incomplete market structure. In fact, credit derivatives turned into potent vehicles for pure financial market participants to leverage their views. The distinction between arbitrage and directional positioning is critical here. Arbitrage is an essential market force. By eliminating differences in risk-adjusted returns, arbitrage promotes price discovery and fosters market dynamics. Directional positioning or “pure speculation” does not necessarily eliminate existing discrepancies between risk-adjusted financial prices: it might amplify or even create price gaps. It does so by acting on expectations of future price changes.
China’s imminent entry into the WTO is a major plus for China’s economic development. Asia will benefit from China’s continued stability and prosperity. But China’s entry will also mean stronger competition for ASEAN countries, particularly those which depend on labour intensive industries. ASEAN’s exports will be affected, as will its foreign direct investments. South East Asia In South East Asia, many countries are still tackling economic and political issues. Economically, the broad view is that progress in reforming the banking and corporate sectors has been slow, causing the region to remain vulnerable to any softening of external demand. Politically, Indonesia is in the midst of a wrenching transition, with the final resolution still unclear. In the Philippines, the political unrest and now the impeachment and trial of President Estrada has affected the peso, the stock market, and the economy. In Malaysia, UMNO is striving hard to win back the Malay ground, and is fending off a strong challenge from PAS, the opposition Islamic party. Thailand is preparing for general elections. ASEAN The crisis has also raised doubts about ASEAN’s credibility and relevance as a regional organisation. ASEAN appeared divided and slow in responding to the crisis, and even now is seen as weakened and drifting. The expansion of ASEAN to 10 members has made it harder for the organisation to maintain focus and reach consensus. From a long term geopolitical perspective, this expansion is crucial for ASEAN’s strength. But in the short term it has added to doubts about ASEAN’s viability.

Philipp Hildebrand: Global financial system developments and the Swiss banking sector Introductory remarks by Mr Philipp Hildebrand, Member of the Governing Board of the Swiss National Bank, at the end-of-year media news conference, Zurich, 13 December 2007. *  *  *  Six months ago, when our Financial Stability Report was published, I stated that "the global financial system and the Swiss banking sector (…) are moving forward at a pretty fast speed". In view of the credit market turmoil we have experienced since then, I would like to give you a brief updated assessment of the situation. I will then talk about some initial lessons that can be drawn from the latest developments. In particular, I will present some proposals as to how similar situations could be prevented or at least mitigated in future. Deterioration of the situation in the banking sector as a result of the credit market crisis Let me first give you my assessment of the current situation. On the whole, the position of the most important international banks in Switzerland is not as good as it was last June. The deterioration was mainly triggered by the crisis on the US sub-prime mortgage market. The slowdown in the US real estate market as well as surging interest rates in sub-prime mortgages led to a rise in loan defaults. Consequently, from July the prices of mortgagebacked securities (MBS) collapsed, after having remained practically constant for a long time. Even top-rated securities were affected by this slump.
Examples of structural factors are the design of the taxation and social insurance systems,  6  See, for example, the article “The effects of the financial crisis on the labour market – a comparison of Sweden, the euro area and the United States”, Monetary Policy Report, February 2011, and “The relationship between the business cycle and the labour market in Sweden”, Economic Commentaries no. 2, 2010, Sveriges Riksbank. 7  Okun’s law shows the short-term relationship between the level of unemployment and GDP. 4  BIS central bankers’ speeches  competitive pressures in the economy, labour market legislation, the negotiating strength of employers and employees and so on.8 These are the factors that determine equilibrium unemployment. So affecting these would require broad-based economic policy measures. Although it is obvious, it is still important to bear in mind that monetary policy cannot affect these fundamental conditions for long-term growth and employment. Breaking down unemployment – a complicated story On the other hand, however, monetary policy is able to influence the cyclical part of unemployment via effects on the aggregate demand in the economy. In theory, this is a matter of using monetary policy to keep actual unemployment as close to the equilibrium level as possible. In practice, this is difficult, as equilibrium unemployment is not observable but must be calculated indirectly. These calculations are highly uncertain, something which is true of all gap calculations in which various actually-measured quantities are related to an estimated, unobserved quantity.

For the unemployment gap to be a practicable measure in monetary policy requires that the cyclical part of unemployment (which can be influenced by monetary policy) can be distinguished, with a reasonable degree of certainty, from equilibrium unemployment (which depends on how the labour market functions). As will be seen, this is not a trivial problem. In my speech today, I will discuss resource utilisation: specifically what is known as the unemployment gap and its role in monetary policy decision-making. Recently, there has been  1  This is usually called a flexible inflation-targeting policy. The term flexible inflation-targeting policy was introduced by Svensson (1999). The definition of the term entails the central bank minimising a squared loss function consisting of both inflation’s deviation from target and output’s deviation from potential output. A central bank that only considers inflation’s deviation from target is said to be conducting a strict inflationtargeting policy. BIS central bankers’ speeches  1  frequent discussion of the unemployment gap in monetary policy contexts, but this is not a new discussion.2 For my part, I’m extremely doubtful about placing too much importance on the unemployment gap when taking monetary policy decisions in the here and now. It may look easy in theory; but in practice, it is not. My view is that we should continue to use several different measures of resource utilisation instead. Taken together, these can serve as guidance for monetary policy.