samchain/econo-pairs-v1 huggingface dataset:
Looking after our money Speech given by Sir Jon Cunliffe, Deputy Governor Financial Stability, Member of the Monetary Policy Committee, Member of the Financial Policy Committee and Member of the Prudential Regulation Committee  University of Warwick Monday 26 February 2018  1  All speeches are available online at www.bankofengland.co.uk/speeches  I want to talk tonight about money. It is not something we talk about very much. We spend a lot of time talking about what we could, or should, do with money – who has it, who hasn’t, how it is distributed and so on. But money, the thing itself, rather than what it buys or does, is not really something we think about much. That is not surprising. Like other basic things we depend on in society – electricity, water supply, nowadays the internet – it only has to be reliable and safe. You don’t have to understand how it works. And yet, I suspect, we generally understand even less of what money, the ‘thing’ itself, actually is than we understand of the other basic essential technologies we use. While we use it every day, unless it goes wrong, we don’t actually notice it much. This is not new. J S Mill described money itself, for most of the time, as an ‘insignificant’ thing, simply a ‘machine for sparing time and labour… for doing quickly and commodiously’, only ‘exerting an influence of its own when it gets out of order’.

Even though I was a commercial banker for over 20 years of my career and fully share and understand the challenges facing this profession, I would not be able to witness the recovery and resilience of our banking system today if not for your remarkable efforts and hard work. Let me conclude by thanking the management of the “Banker” magazine for honoring me with this award and all of my colleagues at the BOT for their untiring support. The award is a great encouragement for me to continue dedicating myself to the cause of my work. Finally, let me leave you with a quote that has always been close to my heart. These were the words of one of my mentor, Dr. Puey Ungphakorn, one of the finest Governors we’ve ever had, who once said that: “If one is not concern about holding on to one’s position, then one can always make the right decisions.” So you can rest assured that I will continue to do what is right and in the best interest of our country. BIS Review 10/2006  1
At the end of the day, culture is fundamentally about people. •  No organization can fully identify all policies or procedures for every type of issue that might occur. •  The culture needs to be embedded deeply enough in the organization and be strong enough to ensure that sound decisions are made throughout the organization – from top to bottom and from side to side. •  So, a strong culture identifies risks or issues that are new or unexpected and quickly escalates problems. Bad news needs to travel quickly. Culture can be a difficult characteristic to measure, but there is good work underway at the international level to further the dialogue on risk culture in particular. Following on the FSB’s work on risk appetite, the FSB’s Supervisory Intensity and Effectiveness group has undertaken additional work on risk culture and how firms and supervisors should be assessing risk culture within firms – and we expect to see the results of that work in the next month or so. FRBNY organizational changes I’d like to close with a couple of comments about some recent changes we’ve made to our internal organization. Earlier this year, we formed two new units within the Financial Institution Supervision Group – the Large International Financial Institution (LIFI) unit and the Regional, Community and Foreign Institution (RCFI) unit.

•  Through the work of our business line specialists, we are developing a better understanding of the businesses you all are engaged in, including improving the dialogue with the front office and getting to know those business leaders. This has given us a much improved window into your strategies – into how you are thinking about the changes you will make and need to make in the face of increased regulation, increased regulatory pressure, competition and future economic growth. Areas where work remains Of course, there are many more areas where progress is being made, but those are the ones that I would highlight for you today. And, while I tend to be a “glass half-full” kind of person, I am also a realist and recognize the tough road ahead to continue implementing the kinds of changes needed across the system to achieve the end state of a more resilient, better managed and less complex financial system. In this regard, I’d highlight four areas where additional work is needed across firms and supervisors/regulators: 1. Resolution planning  2. Coordinating supervision across global organizations  3. Bank Secrecy Act/Anti-Money Laundering (AML/BSA) compliance  4. Culture of firms and the system  1. Resolution planning  I noted earlier that resolution planning was an area where progress had been made – and it has.
Would two loans of £ each to the same customer represent a higher level of activity than one loan of £ Methods for measuring FISIM at constant prices are based on conventions. In the UK, real FISIM is calculated by applying the base-year interest margins to an appropriate volume indicator of loans and deposits. The latter is estimated by deflating the corresponding stocks of loans and deposits using the GDP deflator. This method means that any volatility in the current price measure of FISIM caused by changes in interest margins does not feed into the real measure. (c)  Refining the measurement of FISIM  While the introduction of FISIM into the national accounts was an important step forward, it is not difficult to construct scenarios where the contribution of the financial sector to the economy could be mis-measured under this approach. A key issue is the extent to which bearing risk should be measured as a productive service provided by the banking system. (i)  Adjusting FISIM for risk  Under current FISIM guidelines, which use risk-free policy rates to measure the reference rate, banks’ compensation for bearing risk constitutes part of their measured nominal output. 2  4  1993 System of National Accounts, paragraph 6.128: http://unstats.un.org/unsd/sna1993/toctop2.asp. BIS Review 95/2010  This can lead to some surprising outcomes. For example, assume there is an economy-wide increase in the expected level of defaults on loans or in liquidity risk, as occurred in October 2008.

Banks can in a variety of ways assume tail risk on particular instruments – for example, by investing in high-default loan portfolios, the senior tranches of structured products or writing insurance through credit default swap (CDS) contracts. In each of these cases, the investor earns an above-normal yield or premium from assuming the risk. For as long as the risk does not materialise, returns can look riskless – a case of apparent “alpha”. Until, that is, tail risk manifests itself, at which point losses can be very large. There are many examples of banks pursuing essentially these strategies in the run-up to crisis. For example, investing in senior tranches of sub-prime loan securitisations is, in effect, equivalent to writing deep-out-of-the-money options, with high returns except in those tail states of the world when borrowers default en masse. It is unsurprising that issuance of asset-backed securities, including sub-prime RMBS (residential mortgage-backed securities), grew dramatically during the course of this century, easily outpacing Moore’s Law (the benchmark for the growth in computing power since the invention of the transistor) (Chart 32). 5 Tranched structured products, such as CDOs (collateralised debt obligations) and CLOs (collateralised loan obligations), generate a similar payoff profile for investors to sub-prime loans, yielding a positive return in stable states of the world – apparent alpha – and a large negative return in adverse states. Volumes outstanding of CDOs and CLOs also grew at a rate in excess of Moore’s Law for much of this century.
Durmuş Yilmaz: Economic governance – the Turkish case Opening remarks by Mr Durmuş Yilmaz, Governor of the Central Bank of the Republic of Turkey, at the Conference on Current Issues in Economic Governance, Ankara, 3 April 2007. *  *  *  Ministers, academicians, bureaucrats, guests, It is an honour for me to address a distinguished audience on such an important issue. The conference will do much service by bringing forward the issue of “economic governance”, which we as the Central Bank have emphasized at numerous occasions. Let me thank Bilkent University for creating such a productive environment. Today, I would like to devote some time to highlighting the importance of principles of good governance in general and economic governance in particular. In the context of economic governance, I would also like to mention some issues on how to create good institutions. Then, I will proceed with the Turkish case and the Central Bank of Turkey. But first of all, I will start by outlining the basic definitions of the concepts I am going to use. Although the concept of governance is not new at all, in recent years it has started to be widely used in economics, especially in the development literature. While governance, or rather good governance, has been introduced as an effective tool to harness globalisation, it is not easy to define in one sentence because of its many interacting elements.

The definition that I found most meaningful is: irrespective of the size of system, whether it is a country or a small firm, good governance, as a concept, ensures that the rules of the system are equal, fair and clear to everyone. Although I will focus mainly on economic governance, let me briefly mention that in order to completely grasp the notion of good governance, one has to look at its subtitles. Political governance, legal governance, economic governance, and corporate governance are the most well known among several others. In fact, these subtitles overlap with each other. For example, political governance has common issues with economic governance, while economic governance has implications on corporate governance. Accordingly, economic governance is defined as the nature and practice of economic management, regulation and development; or the institutional environment that constraints and coordinates economic action. Distinguished guests, Another point associated with the analytic evaluation of governance is that good governance provides a very important set of pillars, which are effectual in the design of an economy. The four of them are 1 the most useful ones for every economy: transparency, accountability, rule of law and participation . First, transparency means that the needed and the necessary information is freely available and 2 directly accessible to those who will be affected by decisions and their enforcement . Second, accountability is a mirror image of the responsibility and liability of an organization or institution for its decisions and actions to those who will be affected.
On the other hand, financial market participants and public authorities responsible for financial stability require information to monitor the risks related to the hedge fund sector. On those remarks, I leave the floor to the panelists, and first to Jaime Caruana, who has kindly accepted to kick start the panel. 2  BIS Review 42/2007

In the context of these fundamental and far reaching changes, less attention has however been accorded to the necessary changes to the human capital development that is required for the effective participation and performance in this new financial landscape. Indeed, the talent required also needs to be transformed. These changes have also precipitated a revisit and review of education systems around the world over to address the current discontent that the education has not kept up with the changing human capital requirements of the financial services industry. The World Economic Forum has projected that “staggering” talent gaps will arise in large parts of the world by 2020, and this will have a bearing on national competitiveness while organisations compete for talent on an unprecedented scale. Managing talent has consequently become significantly more challenging and needs to be addressed with talent development. The objective is to harness the full potential of the workforce. This is particularly urgent for Asia as it emerges as an important growth centre in the global economy. With Asia’s financial services industry poised to grow rapidly, this growth must be supported by the development of capabilities among the financial industry professionals. Going forward, the investment in this core pillar will be a defining factor in the performance and the capacity of the industry to reinvent and transform and thus enhance its resilience and sustainability. The path forward needs to be guided by a strategic response to the forces that are shaping the new talent landscape.
Paul Tucker: Banking reform and macroprudential regulation – implications for banks’ capital structure and credit conditions Speech by Mr Paul Tucker, Deputy Governor for Financial Stability at the Bank of England, Member of the Monetary Policy Committee, Member of the Financial Policy Committee and Member of the Prudential Regulation Authority Board, at the SUERF/Bank of Finland Conference, “Banking after regulatory reform – business as usual”, Helsinki, 13 June 2013. *  *  *  Many thanks for input and conversations to Steve Cecchetti and Anil Kashyap and, at the Bank, James Benford. For secretarial support, to Sandra Bannister, Alexandra Ellis and Vicky Purkiss. Although the current reform programme rightly extends to the capital markets – over-thecounter derivative markets, clearing houses and shadow banking for example – nevertheless banking is at its core. So today I am going to draw out some of the implications for the credit system – starting with the micro regulatory regime and banks’ capital structure; and then moving on to the introduction of new macroprudential policies and their effect on credit conditions. Micro regulatory reform and banks’ capital structure At a micro-level, the banking reforms have two important components. A step change in regulatory requirements on capital, leverage and liquidity, in order to reduce the probability of banks failing. And recognising that failure cannot and should not be ruled out, establishing credible and effective resolution regimes. Separately and in combination, they will change how the risks in banks’ portfolios are distributed across shareholders, bondholders, depositors and, perhaps most important, taxpayers.

A few examples serve to illustrate the point (Figure 1). A first distinction is between interventions in the boom and bust phases of a credit cycle. Imagine that some information came along to suggest that the banking system, while adequately capitalised currently, will taken as a whole be stretched down the road if credit continues to expand rapidly. Assuming for the moment common information to the market and the authorities, in this case a macroprudential intervention to require banks to build up capital in order to underpin their resilience in the period ahead might add only a shade to the cost of finance, as banks lose a small proportion of their tax shield. And if banks choose to de-lever, shedding risk to achieve the temporarily higher capital requirement, that action in itself might slow the boom. Now imagine a scenario in which information came along to reveal the system was seriously under capitalised right now. Maybe a bubble had gone unnoticed until it burst or some banks or funds unexpectedly fail, revealing inadequacies in the regulatory regime. Once the market came to appreciate that capital levels were too thin, funding costs would rise sharply. In those circumstances, an injection of additional capital, if it could be achieved, could help to bring financing costs back down. Although reliance on relatively expensive equity would be increased, that is dominated by a large fall in the cost of debt finance as failure becomes a more remote possibility.
The settlement of a payment by Swish takes place on a platform known as “Betalningar i Realtid, BiR” (payments in real time), which is owned by Bankgirot. Swish payments are thus settled in money issued by a commercial institution and therefore differ from other payments that are settled in central bank money. Another difference between BiR and RIX is that BiR is accessible 24 hours a day, every day of the year, “24/365”. The average transaction in BiR is much smaller than the average transaction in RIX, which is a natural consequence of the payments made with the Swish app being small. However, there are no technological limitations preventing larger payments being settled instantly. But there will then be high demands on the safety of the settlement procedure, and settlement should then be in central bank money. 4 The Riksbank has decided to extend the opening hours for RIX from 0700-1700 to 0700-1800 with effect from  October. 5 Almost all central banks own and operate payment systems with the same kind of functions as RIX. These systems are referred to as “Real-Time Gross Settlement” (RTGS) systems or ”Large Value Payment Systems” (LVPS). 6 Instant payments is the most common term; other terms include “real-time payments” or “faster payments”. For a more detailed description, see The quest for speed in payments, BIS Quarterly Review, March 2017. 7 See Payment patterns in Sweden 2018, Sveriges Riksbank. 3 [8]  ... and in the future?

Households are to a greater extent choosing electronic means of payment instead of cash, and there are increasing requirements that payments should be made easier and should reach the recipient faster. This development also means that the Riksbank's role in the payment market is changing. As the use of cash has declined, the Riksbank is wondering whether it is desirable and possible to issue electronic central bank money to the general public, so-called e-krona. But today I don't intend to discuss the e-krona. Instead I would like to focus on the role of the Riksbank in the payment infrastructure that  * I am grateful to Martin W Johansson who has helped me prepare this text. Thanks also to Anders Vredin and  Marianne Sterner for valuable comments. 1 A payment infrastructure can quite simply be said to consist of two parts; the technical platform (hardware, software and other technical components) required to execute a payment, and the regulatory framework and corporate form. 1 [8]  banks and other financial institutions use to pay one another. This infrastructure is used in the background when most of the payments in Sweden are executed, or settled, as it is also called. Central banks play an important role in enabling households and companies to make payments to one another by using financial institutions as an intermediary. The Riksbank functions as a hub and supplies a payment system with accounts where financial institutions can hold money (“central bank money”).
Projections for these repayments, drawn from the July 2017 update to our annual report that I discussed earlier, are shown in lefthand side of Panel 3. 6 / 15  BIS central bankers' speeches  The benefit of the cap, even though it is unlikely to bind, is that it limits the amount of variation in the pace at which securities, and particularly mortgages, will flow back into private hands. Recall that the left-hand figure in Panel 3 is based on rising interest rates over an ongoing economic expansion. For comparison, the right-hand figure in Panel 3 shows the projected MBS principal repayments for a scenario in which interest rates come in two percentage points below market participants’ expectations. In this scenario, the cap operates to constrain the flow of securities into the market. While such a lower-rate outcome is not a central expectation, it is certainly possible. By providing market participants some certainty that the pace of balance sheet decline will be gradual across economic scenarios, this plan should help mitigate the risk of unexpectedly sharp shifts in asset prices, liquidity, or market functioning should markets begin to put greater weight on lower interest rate scenarios. Indeed, by promoting greater confidence in the stability and liquidity of the Treasury and agency MBS markets across economic outcomes, the FOMC’s plan should result in lower risk and liquidity premia on these assets relative to normalization plans that do not promote such confidence.

The maturity composition of the Treasury portfolio, not shown in the figure, would be different from what it was before the financial crisis. On the liability side, at normalization, non-reserve liabilities in the median scenario would be considerably larger than they were pre-crisis. Some of the growth in the reverse repo programs we have observed since the crisis might be a second-round effect stemming from the growth in reserves, and therefore some decline in this category is possible as the overall balance sheet size declines. However, my overall read is that much of the increased demand for non-reserve liabilities, particularly currency in circulation, is likely to be persistent past normalization, and indeed demand for reserves is also likely to be higher.7 But what is the longer-run appropriate size for the balance sheet?
The high demand for labour brought unemployment down to 4–5 per cent of trade union membership. In the period from 1917 to 1920 the annual rate of wage increases averaged about 25 per cent. In 1919 and 1920 the balance of trade showed massive deficits of about 5–6 per cent of GDP. Sweden’s inflationary economy elicited mounting criticism. Knut Wicksell, one of our best-known political economists, took an active part in pointing to the grave injustices that rising inflation caused by skewing contracts that had been concluded earlier. Something ought to be done, he said, but no serious efforts to stabilise the economy were actually made. The subsequent adjustment occurred suddenly and unexpectedly. When the international boom came to an end, demand slumped. From 1920 to 1922, manufacturing output in Sweden dropped about 1 40 per cent and GDP about 35 per cent. Unemployment shot up to 25 per cent. The Swedish economy went into a deflationary spiral. The price level fell about 35 per cent from 1920 to 1922. Wages also plummeted; for an industrial worker, for instance, the wage level fell more than 35 per cent in the course of about 18 months. Firms were caught in a vice, squeezed on all sides by steeply falling prices. As always, the firms that suffered most were those with inflated profits, over-valued assets and large misplaced investments. The abrupt plunge into a depression was followed by an equally sudden recovery.

And yet, as I have said on countless occasions, drawing on former Dallas Fed board Chairman Herb Kelleher’s love for bourbon, once we had QE3 in place, I considered it unwise to go directly from Wild Turkey to cold turkey for fear of getting the financial equivalent of delirium tremens; indeed, we saw that with the “taper tantrum” the markets threw in May of 2013. So I was an eager proponent of the tapering program the FOMC initiated in January of this year. I want to be clear here. Especially at the beginning of QE3, when the nonsense term “QE infinity” was being broadcast by otherwise responsible analysts, journalists and pundits, rates dipped to lows that helped creditworthy businesses bolster their balance sheets and strengthen their wherewithal for future expansion. Again, even if you were living under a rock, you know that this gift of near-cost-free debt as measured in inflation- and tax-adjusted terms has thus far been used primarily to finance stock buybacks, increase dividends and fatten cash reserves, and recently, finance mergers by the most creditworthy companies. For those with access to capital, it was a gift of free money to speculate with. (One wag – I believe it was me – quipped that there was, indeed, a “positive wealth effect… the wealthy were affected most positively.”) We know that monetary policy acts with long and variable lags.