samchain/econo-pairs-v1 huggingface dataset:
We want to make sure that investors have all the facts they need. Such transparency should dispel investor doubts where they are not warranted. It should encourage proper pricing of risk where it is misaligned. And it should encourage corrective actions where they are needed. As such, we trust that it will have a similar effect to the Federal Reserve’s stress test in 2009 that helped lift the fog over the US banking sector. 1  T. Hoshi & A. Kashyap (2013), “Will the U.S and Europe Avoid a Lost Decade? Lessons from Japan’s Post Crisis Experience”, paper presented at the 14th Jacques Polak Annual Research Conference, November 2013. BIS central bankers’ speeches  1  Looking further ahead, next year we will have a new European supervisor in place and the year after a new resolution framework and potentially a single resolution mechanism. This will allow for tougher supervision on weak banks, and ensure that non-viable banks can be wound down safely and effectively. Though I expect most banking sector repair to be complete by then, this banking union gives us the powers to ensure that banks contribute to the recovery rather than hold it back. We have also seen a good deal of structural reform in the euro area, in particular in countries under stress. Thanks to early labour market reforms, according to the OECD index labour market institutions in Portugal, Spain and Greece are now more flexible than those in France, Germany and the Netherlands.

While the crisis did substantial damage, it has not fundamentally affected Asia’s prodigious economic strengths. But if Asia is to realize its potential, it is critical that authorities attend to the unfinished business that remains while continuing to put in place longer-term measures to promote financial resilience and sustainable growth. Asia is at an important crossroads and there is now a unique  BIS Review 57/2000  6  opportunity to consolidate recent reforms and implement lasting change that will pay dividends for years to come. Korea’s history, both longer-term and more recent, gives me every confidence that your country, assisted ably by the Bank of Korea, will rise to these challenges with skill and vigor, ensuring that the next 50 years will be even more successful than the last. Thank you for your kind invitation and attention. Supported by the miracles of modern technology, I would be happy to take any questions you may have. 7  BIS Review 57/2000
What is more, monetary policy and low rates also have positive effects for banks, such as a reduction in their cost of risk and increase in their lending volumes. However, the fact remains that the current environment is compressing net interest margins for retail banks, which finance themselves with deposits – and not at variable rates in the markets – and is lowering returns on insurers’ investments. The second risk, which is more structural, is the digital transformation of finance, which is revolutionising modes of use and bringing significant benefits to customers. However, adapting to this change requires huge investment by banks, to adjust their information systems and develop new, personalised service offerings. The digital transformation is also putting downward pressure on revenues due to increased competition from new market entrants (neobanks, GAFA, etc.). In response to this, financial institutions need to unleash new productivity gains, by exploring even further the possibilities of automation and artificial intelligence (AI), and adapting their branch networks on all levels (size, , density). The digital transition is also leading to a rising threat of cyber risk and, more broadly, operational risks (large-scale theft, data corruption), to which financial institutions are more than ever exposed. 4/7  BIS central bankers' speeches  Last, financial intermediaries also have to adapt to a new imperative – the need to take account of the risks linked to climate change, which I shall come back to later.

Even though the unemployment rate has declined by 2.7 percentage points from its peak of 10 percent in October of 2009, there are still many people that want jobs but are not counted as unemployed because they are not actively looking for work. An alternative measure of labor market conditions, the employment to population ratio, which is not influenced by changes in the number of these workers, has shown limited improvement. Job loss rates have fallen, but hiring rates remain depressed at low levels. Taken together, the labor market still cannot be regarded as healthy. Numerous indicators, including the behavior of labor compensation, are all consistent with the view that there remains a great deal of slack in labor markets. Nevertheless, as I have stated in earlier speeches, I see persuasive evidence of improving underlying fundamentals for much of the private sector of the U.S. economy. Key measures of household leverage have declined and are now near the lowest levels they have been in well over a decade. Household net worth, expressed as a percent of disposable income, has increased back to its average of the previous decade, reflecting rising equity and home prices and declining debt. Banks have eased credit standards somewhat recently after a prolonged period of tightness. As a result, we are now experiencing a fairly typical cyclical recovery of consumer spending on durable goods. For example, light-weight motor vehicles sold at a seasonally-adjusted annual rate of nearly 16.1 million in August, close to the number sold in 2007.
Because this cost both time and money, it took a while before these changes were implemented. 10  Conclusion – most indications point towards a slowdown Historical averages are usually a fairly good starting point for forecasts of future developments, particularly in the slightly longer term. But in the case of productivity, history gives us different answers. The reason for this is that the trend in productivity growth has varied so substantially over time. The average increase in productivity growth in the business sector was around 4 per cent a year during the past five years, but only around 3 per cent a year if one instead looks at the past fifteen years. If one goes further back in time, one can find both higher and lower rates of increase. During the 1960s the rate of increase was around 6 per cent a year and during the 1980s it was only 2 per cent a year. It is thus not history giving us the answers, but the two parts I mentioned just now – changes in the economic cycle and structure. The cyclical factors indicate a slowdown. Productivity has been unusually strong in recent years during the initial phase of the economic upturn, but will probably be weaker in future when economic activity slows down. The structural factors also indicate a slowdown. While globalisation will continue to contribute to stiff competition and IT will in future contribute to continued rationalisation.

We expect to enter the next phase over the coming years when GDP growth will slow down. This indicates a lower rate of increase in productivity. Another factor that indicates a lower rate of increase for productivity is the composition of the labour force. The rapid increase in employment means that an unusually large number of new job-seekers are entering the labour market. It is reasonable to expect that those who now obtain jobs have a slightly lower productivity than those who already have jobs. In addition, employment is mainly increasing in the service sector, which also indicates a lower rate of increase in the future. Structural factors also indicate a slowdown It is more difficult to assess how globalisation, deregulation, IT investments and other structural changes will contribute to productivity growth in the future. Some structural changes are of a one-off nature while others are ongoing processes without any clear ending. And even if these changes are of a one-off nature, such as the fact that Sweden joined the EU, they may have significance for a long period of time. Globalisation is a factor that will probably continue to be a driving force behind productivity for a long time to come. Integration within the EU is deepening. The countries in eastern and central Europe who  6  4  Greenwood & Krusell (2007)  BIS Review 61/2007  have moved away from planned economies have many years of rapid development ahead of them before they reach levels corresponding to those in western Europe.
The past five months has been the first stressful period since those changes. Many market contacts have suggested that liquidity during the recent sell-off has been worse than it would have been because the dealers are no longer willing or able to absorb volatility by taking client positions onto their balance sheet. They argue that the dealers’ ability and willingness to make markets has been much reduced. This is a subject of ongoing consideration in the official community. But we have to bear in mind that in a rapidly moving market, regardless of the regulations, no one has ever really wanted to “catch the falling knife”. And investors have always needed to be aware that crowded trades will hit a bottleneck if everyone tries to exit at the same time. On EME assets for example, liquidity during a “risk off” period has always been limited. In my view, we can’t draw any hard conclusions on this topic yet and more evidence is needed. Forward guidance It was in an environment of increased volatility that the MPC decided at its August policy meeting to provide some explicit guidance regarding the future path of our monetary policy instruments. Since our announcement it has been suggested that this policy is overly complicated. I disagree.

If I, as a policy maker, am uncertain about how policy will evolve, how can the market be so much more certain? I am continually struck by the degree of certainty some market participants seem to have about prospective monetary policy decisions, particularly those of the FOMC. In general, communication from monetary policy setters aims to convey details of our reaction functions – how policy might change in reaction to future data or other news – it is not aimed to convey the outcome of a decision that has yet to be made! The best we can usually do is to set out how we are thinking about the outlook so that market participants and others might be able  1  Real Estate Investment Trusts  2  Exchange Traded Funds  3  Record of the Financial Policy Committee meeting, 18 September 2013 (http://www.bankofengland.co.uk/publications/ Documents/records/fpc/pdf/2013/record1310.pdf)  4  BIS central bankers’ speeches  dynamically to gauge our response as the data and events reveal themselves. Forward guidance, on which more shortly, can add to that understanding but the actual outcome for policy will always be dependent on how the economy, and hence the outlook, evolves. Can we learn anything about the impact of large scale asset purchases – or quantitative easing – from this recent episode?
Likewise, in the medium and long term, additional resources could be given to specialist courts to expedite the resolution of these processes. As regards firms with inviable business models, the path should be smoothed for their orderly exit from the market. The swift resolution of these processes will prove conducive to the structural adjustment of the economy and the reallocation of resources to more productive firms. Fourth, our aim should be to prevent the current crisis from causing severe damage to our financial system. In the context of the uneven and uncertain recovery I have described, we cannot rule out the possibility that the risks identified may materialise or that their impact and persistence may be greater than expected. In this respect, the response by banks to the possible materialisation of these risks must be pan-European, given the commitment to the banking union. In this response, the completion of the banking union and the launch of a fully pooled European deposit guarantee scheme would contribute decisively to ensuring euro area financial stability. Moreover, it is essential to analyse to what extent European bank resolution and liquidation regulations are appropriate for a hypothetical systemic crisis, or the possible role of asset management companies in the event of serious impairment of European financial institutions’ balance sheets. Lastly, from a more medium-term perspective, other structural policies may smooth change in the composition of firms’ debt so as to give greater preponderance to capital.

Because my view is that there are a number of trade-offs at play here, which need to be taken into account. For instance, if we don’t implement the necessary changes and succeed in properly restoring the credibility of risk-weighted capital ratios, a more important role will have to be played by other parts of the regulatory system, such as the leverage ratio. For now, our working hypothesis is a regulatory level for the leverage ratio of 3%, but to me this is more of a placeholder. What the final outcome should be will depend on the calibration of the whole system, in which the risk weights and leverage ratio are important pieces. 7  By end-2014 it is expected that all jurisdictions with GSIBs will have been assessed, in addition to some others (total 17 countries). By 2016, all Basel Committee member jurisdictions are expected to have gone through the assessment of their capital framework. BIS central bankers’ speeches  5  An important element in this calibration will be transparency – the more trans- parent banks are with methods and models to calculate risk weights, the better it will be for the credibility of the system as such. If we widen the perspective further, I think there is also an interesting issue of calibration linked to the concept of going-concern capital requirements on the one hand, and goneconcern capital requirements on the other.
*** To conclude, I hope I convey the obviousness and urgency of the case for macroprudential policy in the current circumstances. But as I said, it is one part of the answer to address the clouds looming on the horizon. Over the past ten years, we have ensured that the financial system has a stronger capacity to withstand shocks. But we need to develop it further: through achieving the implementation of post crisis regulations and deploy international standards as agreed. This also includes evaluating the effectiveness of these new regulations and possibly adjusting some of them. But evaluating is not a catch word for deregulating; through maintaining a supervisory steady hand. In Europe, this would include delivering on the NPL action plan, overseeing the implementation of robust lending standards, etc. ; through developing macroprudential policies; and through relentlessly filling the knowledge gap, to seize, understand and address the risks from market developments (e.g. leverage finance), cyber-risks, new systemic players (e.g. big tech as systemic solution providers or alternative suppliers of or hub to financial services). 4/4  BIS central bankers' speeches

Any exposures to the rest of the group must be limited and on commercial terms. All large UK banking groups – defined as those with ‘core’ retail deposits greater than £ billion – are required to implement ring-fencing by 2019. Currently, seven banking groups cross this threshold. Between them, these groups have around £ trillion of assets, both in the UK and overseas. The ring-fencing regime is designed to be consistent with the other parts of the post-crisis regulatory framework. The most systemically-important ring-fenced banks will be held to higher capital requirements. The Systemic Risk Buffer will be applied to ring-fenced banks to ensure they are adequately capitalised and resilient to shocks. We expect ring-fenced banks to have, on average, around 1.5 percentage points more high-quality ‘Tier 1’ capital than non-systematically important banks.2 And a ring-fenced bank will not be able to be capitalised by debt raised externally by its group, which would give rise to so-called ‘double leverage’. Overall, the Bank estimates that ring-fenced banks’ total loss absorbency will be, on average, around 27% of their risk-weighted assets, higher than the 17% recommended by the ICB.3 Ring-fencing also helps improve the resolvability of the big UK banking groups. The resolution strategy for groups including ring-fenced banks will typically involve a bail-in at the level of the holding company. Bail-in would recapitalise the relevant entity by passing losses up to the holding company to be borne by shareholders and debt-holders. This should stabilise the group.
20  Baranova, Y., et al. (2017), ‘Simulating stress across the financial system: the resilience of corporate bond markets and the role of investment funds’, Bank of England Financial Stability Paper, no. 42, (July) 21 Baranova, Y., et al, (2015), ‘Has corporate bond market liquidity fallen?’, Bank Underground, available here. 22 See the December 2015 edition of the Financial Stability Report issued by the Bank of England. Also see ‘Has corporate bond market liquidity fallen?’ https://bankunderground.co.uk/2015/08/27/has-corporate-bond-market-liquidity-fallen/ 12  All speeches are available online at www.bankofengland.co.uk/speeches  12  Our work here explores the depths of how open-ended funds, hedge funds, dealers, insurance companies, unit-linked funds and pension funds might, through responding separately to their incentives and constraints, together amplify market shocks. These are only simulations and the work is still at the development stage. None of the developments I have listed is conclusive of a problem but we have a duty to take the possibility seriously. With markets and funds having evolved so much, the absence of problems in the past is no guarantee for the future. There is enough here to be of concern not just to investors but also the wider economy and macroprudential authorities. I’ll allow you now to re-surface and decompress. But rest assured, we’ll be diving again to keep track of any new icebergs developing below the surface that could one day compromise the resilience of markets. Just as we’ll be working to ensure the moonwalking bears do not disrupt the wider economy.

And notably, riskier forms of debt – those most sensitive to a change in market conditions – have recently been growing most rapidly. Issuance of leveraged loans and high yield bonds reached a record level last year. 8  6  Paragraph 5 of ‘Record of the Financial Policy Committee Meeting on 12 March 2018’, available here. See Chart 11 in Deloitte (2018), ‘The Deloitte CFO Survey Q1 2018’, available here. 8 Leveraged loans are loans to companies that typically display some of the following characteristics: high levels of indebtedness, a non-investment grade credit rating or ownership by a private equity sponsor. The latter is defined as bonds rated below investment grade. 7  6  All speeches are available online at www.bankofengland.co.uk/speeches  6  Last year more than half of the issuance was used to refinance existing debts more cheaply. In the early stages of this year, however, there are signs of that changing. Issuance has been higher than in the same period last year and less is being used to refinance. 9 (slide 9)  These forms of debt accounted for around only 10% of bond and bank loans issued to UK companies last year. But if the pattern of the first 3 months of the year were to continue, they would still – alone – add 3% to the overall stock of corporate debt this year. So recent developments demand careful scrutiny. If they continue, we’ll need to assess, in particular, whether they increase the risks faced by banks.
Share prices have fallen by around 20% since their peak in March 2000; and technology stock prices have fallen even more, by 50%. Forecasts for economic growth in the United States for the coming year are still being revised down and are only one half of their levels of a few months ago. Equally, only a few months ago, some currency traders were openly deriding the euro. The euro reached a low of 0.82 to the dollar - the lowest level for the euro or its antecedents for over 15 years. Since then, however, the euro has recovered, and the euro economy itself appears to be relatively stable. In the other major industrialised part of the world economy, Japan, output has barely risen in recent years. Real GDP in Japan has grown by only just over 1% a year over the past decade, compared with over 4% a year over the previous ten years. Unexpected changes in the economic weather have also had a significant impact on the oil market. Oil prices rose from below $ a barrel (for Brent crude) in December 1998 to a recent peak of over $ last September, falling back to around $ in December only to rise again to around $ a barrel. The standard deviation of daily changes in oil prices rose by a factor of three from the first half of 1999 to the second half of last year: an indication of just how much volatility has risen. Moreover, volatility has not been confined to the industrialised world.

To encourage the incorporation of climate risks into risk management, both the Single Supervisory Mechanism and the Banco de España, within their supervisory remit, have recently published supervisory expectations relating to proper risk measurement and management. Naturally, as supervisors and central banks we should consider these risks in our analyses, whether in our work as macroprudential supervisors or in economic forecasting. As in the case of the banking sector, the inclusion of these impacts in our analyses does not only pose no problem whatsoever, beyond the methodological challenges, but is also patently necessary. For instance, in our work we clearly cannot ignore the changes posed by the transition law, given that they will have most considerable – even systemic – effects on certain sectors of activity. In fact, we are collaborating with the Ministry for Ecological Transition in assessing this impact on sectors and the economy. Lastly, it would be remiss of me not to mention in this forum the role of investors. The creation and subsequent development of green bonds, aside from official initiatives and, essentially, in response to private investor demand, shows the growing interest for responsible investment. A brief look at the press will prove that this is a consolidated trend. In sum, the financial sphere, including both the banking sector and investors, supervisors and central banks, is committed to achieving sustainability goals; but, as is known, transparency and information must be enhanced in order to continue moving forward.