samchain/econo-pairs-v1 huggingface dataset:
The capital adequacy frameworks also made it cheaper in many areas for the banks to expand off their balance sheets. After the event, we can also note that the regulatory frameworks focused too little on liquidity risks. Many of these gaps in the frameworks are now being closed. However, the eternal problem is of course that the markets are always faster at finding new ways of circumventing the regulations than the authorities are at closing the gaps. Perhaps a more fundamental problem was that there was too weak a link between financial supervision and macro factors and other factors that affect the risk of shocks in the financial system as a whole. There was quite simply too much focus on individual companies and too little focus on broader development trends. Nor did the supervisory arrangements adequately reflect the increased internationalisation of the financial sector. In recent decades, the financial markets have become increasingly interlinked and very large sums change hands around the world every day. Large, complex banks and other financial institutions now conduct extensive operations in several countries. At the same time, supervision was mainly conducted on the basis of national mandates and focused on companies within individual, national jurisdictions. Supervision thus lacked the oversight required. Many factors interacted A number of interacting factors thus lay behind the situation that arose.

The inter-connectedness of global financial markets and capital flows has been amply demonstrated. The resilience and current strong economic growth in Asia have therefore to battle against the strong headwinds and challenges from the global financial landscape. The sub-prime-triggered credit turbulence has, undoubtedly, created a lot of uncertainty. The adverse impact of the potential slowdown in the US economy is likely to be felt in Asia as the region’s economies are generally export-oriented. Large and volatile capital flows into the region have also placed pressures on exchange rates. This has posed risks of inflationary pressures, intensified by the recent high oil and food prices, spilling over into the Asian bond markets. Hence, it is crucial for regulators in the region to remain vigilant and to continue to control the risks that accompany the surging capital inflows while managing the currency and monetary conditions. Nonetheless, amidst this financial market turmoil, Asia’s resilience has thus far demonstrated its ability to weather the turbulence. Apart from Asia’s relatively limited exposure to sub-prime mortgages and related collateralized debt obligations (CDOs), the region’s strong economic growth and large liquidity pool, stimulated by the significant momentum coming from the domestic demand of China and India, and increasingly ASEAN, have cushioned the blow. Some may suggest that 2008 will be a difficult year for the credit markets and investors, especially those with weak credit profiles or the highly leveraged ones, may even divert exposures from equity and currency markets. However, the Asian bond market prospects, in my opinion, are not without bright spots.
Any loans they granted would have to be financed through savings deposits, debt certificates or equity. Proponents of this initiative believe that the introduction of sovereign money would create safer money, a more stable financial system and higher revenue from the note-issuing privilege (or ‘seigniorage’) for the general public. Opponents, however, claim that the measures demanded in the initiative are both inappropriate and ineffective for achieving these goals. The Federal Council and parliament have recommended the electorate reject the initiative, and have not offered a counterproposal. The SNB shares the Federal Council’s view. I would like to confine my remarks today to the possible consequences for lending and monetary policy of a switch to a sovereign money system. With respect to lending and the financial system, I regard the following three points as key: First, the switch to sovereign money would be a move away from the historical distribution of responsibilities between the central bank and commercial banks. In this tried-and-tested, twotier system, commercial banks compete with one another to supply households and companies with credit and liquidity, while the central bank acts as the bankers’ bank and conducts monetary policy. With the introduction of sovereign money, the SNB would be landed with a difficult role in lending. The initiative calls for the SNB to guarantee the supply of credit to the economy by financial services providers. In order to carry out this additional mandate, the SNB could provide banks with credit, probably against securitised loans.

The Federal Council, parliament and the SNB have all come out in opposition, but the final decision rests with Swiss electorate, who will vote in a referendum on the matter later this year. As an alternative to the concept of sovereign money, some academics have launched the idea of making digital central bank money accessible to all. This means that sight deposit accounts with the SNB would no longer remain the sole preserve of banks and a few other financial market participants. The aim of this proposal is thus to broaden the public’s access to central 1  Accounts of the current situation published by the Bank of England and the Deutsche Bundesbank found considerable resonance in the media and the economic blogosphere. Cf. M. McLeay, A. Radia and R. Thomas (2014), Money Creation in the Modern Economy, Bank of England, Quarterly Bulletin, Q1, pp. 14–27; Deutsche Bundesbank (2017), Die Rolle von Banken, Nichtbanken und Zentralbank im Geldschöpfungsprozess, Monatsbericht, April, pp. 15–36. Page 2/12  bank money, without prohibiting banks from creating deposits through lending. However, as I will show, this too leaves a number of questions unanswered. We therefore take a critical stance on this proposal. Let me now turn to the basics of money creation in our present-day financial system. Money creation in today’s financial system Types of money  When speaking about money, we need to distinguish between various types of money.
In this regard, we would like to note that:   If the external scenario should worsen significantly, many EMEs with flexible exchange rates and inflation-targeting regimes would have scope to adjust monetary policy, thanks to a timely process of raising interest rates to contain overheating risks. Going forward, these economies will be able to react flexibly to changing global circumstances in a context of anchored inflationary expectations.   Other EMEs have limited room for maneuver, as their economies have expanded beyond their potential output, with widening fiscal and external deficits, and thus today face the risk that external shocks might unhinge inflationary expectations and force pro-cyclical monetary and fiscal policy adjustments.   A third group of EMEs has maintained structurally high national saving rates throughout the expansion phase of the global cycle and might be subject to a natural deceleration as the global economy cools down. In these cases, undertaking reforms to boost domestic demand would help sustain both medium-term global rebalancing and short-term policy accommodation.   Economies that are being affected by high commodity prices, particularly LowIncome Countries (LICs), should strive to develop targeted policies to the most vulnerable groups through efficient cash transfers, instead of across-the-board subsidies. The international community should strive to support these efforts through similar measures, as demand subsidies or export constraints in non-LIC economies exacerbate commodity price pressures. Policy advice by the Fund should be tailored to these different groups of economies.

The crisis has opened a political window for tighter regulation of the financial system, but it is uncertain how long the window will remain open. 4  163/2009
For instance, effective supervision and stress testing could inform the decision to release the CCoB with an ex-ante assessment of the banking system ability to absorb potential future losses without breaching minima – a number of authorities did and published such tests in the midst of the pandemic. We would also need to ensure that an effective capital conservation mechanism is in place. This would prevent the released capital from being distributed inappropriately and ensure that firms would be able to rebuild the buffer in the future. The current tool, known in the UK as Maximum Distributable Amounts (MDAs), cannot serve this function because it does not apply to the portion of released capital. MDAs restrict dividends, AT1 coupons and bonuses when non-releasable buffers are used and appear to have two effects – one intended and one unintended. The intended effect is to prevent banks distributing away capital that could be otherwise used to build capacity to absorb losses and support lending. This is exactly what some global banks did in the early stages of the subprime crisis, which left them weakly capitalised when the Lehman shock hit the system later on. But MDAs can also have an unintended effect – they can disincentivise banks from using their regulatory buffers, for fear of market stigma, pushing them to cut lending and hurting the economy and therefore ultimately themselves. Page 5  A recent study co-authored by colleagues in the Bank of England sheds light on both these effects.

Less than 150 thousand private dwellings, on average, were built in the UK between 2005 and 2014 – compared to estimates that 200-250 thousand that would be needed to keep up with growing demand (Barker 2004). 7 The FCA carried out its Mortgage Market Review over 2011 to 2012. The recommendations were implemented in early 2014 and required lenders to test the affordability of new loans. The test was not prescribed by the FCA but rather for each lender to implement their own. 8 In 2017 the FPC clarified that the 3pp stress should apply to the reversion rate at the moment of origination. 5  5  All speeches are available online at www.bankofengland.co.uk/news/speeches  5  The stress test on the major banks then in train indicated that they had sufficient capital to absorb very major losses from their mortgage portfolios.9 The risks did not seem to lie primarily on the lender side. And the experience in the UK, with full recourse mortgages was that households would do everything possible to pay their mortgages, cutting consumption to do so.10  But even though, as a result, mortgage defaults were relatively low in the crisis, high mortgage debt did appear to have had an impact more generally. Evidence from the crisis supported the view that more debt is associated with deeper downturns.
At the start of 2018, when the economy was growing well above trend and interest rates still were still quite low, gradually raising rates was the obvious and necessary choice. Twelve months later, the tailwinds have lost their gust, interest rates are closer to normal levels, and inflation is tame. The approach we need is one of prudence, patience, and good judgment. The motto of “data dependence” is more relevant than ever. If growth continues to come in well above sustainable levels, somewhat higher interest rates may well be called for at some point. However, if conditions turn out to be less robust, then I will adjust my policy views accordingly. I assure you that I have my eyes wide open and my ear to the ground when it comes to thinking about how the economic outlook will unfold in the year ahead, and as ever I’ll be guided by the data in all its forms. The Balance Sheet Aside from my views on interest rates, the other issue I get asked about is the normalization of the balance sheet. When we first announced our plans in June 2017, I was poised to expound on them in great detail.4 But when I raised the topic I was sorely disappointed to be met with glazed eyes and general indifference. Sadly, nobody seemed to care! Now that’s changed, and I’m getting more interest on this topic. It’s important to remember why the Fed took unconventional monetary policy actions in the first place.

The key distinction is that, whereas the speculator takes a view based on the price which he observes in the market and acts upon it, the manipulator uses his resources and the advantage of a dominant market position to try to influence the price - in other words, he is a potential price setter rather than a price taker. Particularly in small markets where relatively small deals may be able to move prices significantly, we need to be alert to this potential problem, which may, if unattended, seriously undermine one's vision of competitive, efficient markets. Information The prices at which derivatives trade contain information which may usefully supplement other market data available to central banks as a means of monitoring expectations and sentiment. Let me give just two examples. First, in the foreign exchange market, whereas the forward rate may provide a point estimate of the expected future rate, data on option prices for different strike prices can provide a probability distribution for the future rate. This additional information, available only as a byproduct of derivatives trading, may be of interest to market analysts, including the monetary authorities. Within the HKMA we have conducted some research into this, which we are in the process of discussing with academics and other technicians. Second, with exchange traded products, where levels of activity are clearly visible, sudden surges or collapses in turnover may hint at shifts in sentiment for one reason or another.
Brief description of the exercise  Before turning to the results, allow me briefly to recall the nature of the exercise. As you know, the Comprehensive Assessment comprised two components: an asset quality review and a stress test. Assessing asset quality involved a detailed review of bank balance sheets to determine, among other things, whether the classification of financial instruments, provisioning levels and the valuations of specific assets are appropriate. The process, conducted in a decentralised fashion, was very complex. It required the support of leading audit firms, and was subject to stringent quality assurance, where the national supervisory authorities – in our case the Banco de España – played a very important role. As a result of this part of the exercise, adjustments were made to the level of CET1 (i.e. maximum quality) capital, as defined under the Basel III Accord, which were taken into account to determine the starting point of the stress tests. The second key element of the Comprehensive Assessment was the stress test. This is an exercise that seeks to evaluate the resilience of banks in hypothetical scenarios. The stress test is an exercise basically prepared by the banks themselves, using the socalled bottom-up approach and applying the methodology of the European Banking Authority. The test was subject to strict quality assurance by the ECB and the national supervisory authorities.

The exercise assesses the foreseeable position of banks in two scenarios: one, a baseline or more likely scenario (a macroeconomic scenario approved by the European Commission); the second, an adverse – and severe but not impossible –  BIS central bankers’ speeches  1  scenario (set by the European Systemic Risk Board), in the period 2014–2016. The consolidated balance sheets at year-end 2013 were taken as the starting point for the exercise. 3. Scope of the exercise  The comprehensive assessment examined 130 banks from 19 countries. The main data from the exercise as follows: –  The assets reviewed account for 81.6% of the total assets of banks supervised by the Single Supervisory Mechanism. The remaining assets, somewhat more than 18.4%, are assets of banks supervised indirectly by the Single Supervisory Mechanism. –  15 Spanish banks were examined, accounting for 90% of the assets of Spanish deposit-taking institutions. –  Along with teams from all the supervisory authorities, including naturally the Banco de España, consultancies, appraisers, audit firms and, evidently, the banks themselves under examination all participated. –  More than 6,000 experts, 600 of whom in Spain, were involved at the European level. –  For Spain, the cost of the exercise was € million in total, of which € million correspond to the consultancy, Oliver Wyman, and € million to the audit firms and consultancies.
Further, based again on standard analysis, the assignment of instruments to objectives ought to be based on the principle of comparative efficiency. Monetary policy is the natural instrument for pursuing price stability. Using again the prisma of Deng Xiaoping, the success of central banks in stabilizing inflation since 1995 strongly supports this view. Macroprudential policies – defined as a set of policies aimed at limiting both excessive credit growth and the build-up of systemic risk within the financial system – will have to take care of preserving financial stability. From here onwards, however, things become less clear-cut, and sometimes positively complex. First, the two objectives are qualitatively different. On the one hand, price stability is very easy to define and to measure in terms of a specific price index. As a result, monetary policy is comparatively easy to communicate, and its performance can be assessed in a relatively straightforward way. Financial stability, on the other hand, is significantly fuzzier, as it deals with preventing the accumulation of systemic risks, the build-up of asset price persistent misalignments, that some call bubbles, etc.. As a result, it cannot be defined in a straightforward fashion, with reference to, in the extreme case, a single indicator, and ought therefore to be communicated and assessed in a more complex way. Second, and crucial, is the unchartered interaction between the two policies. On the one hand, recent thinking has stressed how monetary policy can contribute to sowing the seeds of future financial instability.

Christian Noyer: Monetary policy and macroprudential policy Speech by Mr Christian Noyer, Governor of the Bank of France and Chairman of the Board of Directors of the Bank for International Settlements, at the conference on “The future of Monetary Policy”, Rome, 1 October 2010. *  *  *  Ladies and Gentlemen, It is a great pleasure for me to be here today at this joint Banca d’Italia, Einaudi Institute and Banque de France conference, which has provided a lot of stimulating ideas on the future of monetary policy frameworks. In my intervention, I will start with some reflections on the relationship between the objectives of price stability and financial stability, and I will then proceed to discuss several issues concerning the joint implementation of, and the interaction between, monetary and macroprudential policies. I. General considerations on the relationship between financial stability and price stability  Both the experience of the last decades and, looking much further back, economic history provides a useful perspective on the relationship between price and financial stability: first, price stability is not a sufficient condition for financial stability but second is necessary; third, a key reason why the authorities in charge of monetary policy have a stake in maintaining financial stability is that financial instability may give rise to “tail risks” to price stability. Let me elaborate on these two issues in turn. A.
At this point, two factors come into the foreground: The most important and principal factor to be underlined in both an economic and social aspect is chronic inflation and the uncertainty that its presence has caused in Turkey for thirty years. This period has seriously damaged the economy. For instance, money and capital markets have failed to develop, long-term financial resources have remained limited and it was not possible to develop markets, which occupy a significant share in the capital markets of developed countries, namely those for the provision of housing financing. Moreover, our economy has failed to achieve sound integration with international markets and a short-term vision has prevailed in all fields, including the social arena. Furthermore, chronic inflation triggered volatility in basic economic indicators, including growth and employment, as well as in variables such as exchange rates and interest rates. The excessive volatility in economic fundamentals resulted in a continuous increase in uncertainty and crises. Thus, after each economic crisis, uncertainty jumped to a higher level. Uncertainty and volatility caused a vicious circle and made risk management almost impossible. Dear Guests, At this point, let me elaborate on the concepts of uncertainty and risk, which have a key role in the development of derivatives markets and are of great significance for both policy practitioners and the economic agents acting as decision-makers. Although the word “risk” refers to both its literal meaning and uncertainty in daily use, in fact these two concepts differ from each other as to their effects on economic agents and events1.

Not only its monetary policy, and not only in Germany. We will keep explaining to our critics in Germany – and also to German savers – that their country is one of the main beneficiaries of the euro. A stronger euro area, with inflation of below but close to 2%, would be good for Germany. As for the debate we may have from time to time with some academics in Germany, I would say there is a certain irony in them taking us to task because we are focusing on our inflation target, since it is at Germany’s insistence that the ECB was given that mandate – and that mandate only – in the euro’s founding treaties, and in my view rightly so. 2  BIS central bankers’ speeches  Did the euro’s jump after your announcement on March 10 disappoint you? It doesn’t help your return-to-inflation goal… The ECB, as you know, doesn’t have a foreign exchange target. What I saw is that financial markets in general understood what we did, which is more important than the instant reaction of forex operators. The dollar/euro exchange rate is mostly driven by different monetary policies in the United States and Europe. What would be more worrisome for us would be a further decline of emerging countries’ currencies, and increased volatility of the pound sterling due to the EU referendum debate in the United Kingdom. Does the ECB have a plan for a possible “Brexit”?