samchain/econo-pairs-v1 huggingface dataset:
Recently, a debate has begun on direct restrictions on some banking activities – in other words, prohibition. This is recognition of the social costs of systemic risk. Bankers are in uproar. This paper examines the costs of banking pollution and the role of regulation and restrictions in tackling it. In light of the crisis, this is the $ billion question. The last time such a debate was had in earnest followed the Great Depression. Evidence from then, from past crises and from other industries helps define the contours of today’s debate. This debate is still in its infancy. While it would be premature to be reaching policy conclusions, it is not too early to begin sifting the evidence. What does it suggest? Counting the systemic cost One important dimension of the debate concerns the social costs of systemic risk. Determining the scale of these social costs provides a measure of the task ahead. It helps calibrate the intervention necessary to tackle systemic risk, whether through regulation or restrictions. So how big a pollutant is banking? There is a large literature measuring the costs of past financial crises. 1 This is typically done by evaluating either the fiscal or the foregone output costs of crisis. On either measure, the costs of past financial crises appear to be large and long-lived, often in excess of 10% of pre-crisis GDP. What about the present crisis?

4  BIS Review 40/2010  The McFadden Act (1927) in the US gave nationally-chartered banks broadly the same branching rights as state banks within the state. But it also confirmed the effective prohibition on national banks opening new branches across state lines that had previously been implicit in the US National Banking Act (1864). It covered a wide range of banking functions, including deposit-taking and brokerage. The motivation behind the Act appears to have been in part political, reflecting lobbying by small unit banks under threat from larger competitors. But it also had an economic dimension, as a check on the dangers of “excessive concentration of financial power”. 14 The same too-big-to-fail arguments are of course heard today, though the concerns then were competition rather than crisis-related ones. Weitzman’s marginal social benefit curve was perceived to be steep, made so by state-level competition concerns. McFadden appeared to be fairly effective in limiting the size of US banks from the 1930s right through to the mid-1970s. Over this period, the average asset size of US banks in relation to nominal GDP was roughly flat (Chart 1). As recently as the early 1980s, it was still at around its level at the time of the Great Depression. The 1980s marked a watershed, with interstate branching restrictions progressively lifted. States began to open their borders to out-of-state Bank Holding Companies (BHCs). The 1982 Garn-St Germain Act allowed any BHC to acquire failed banks and thrifts, regardless of the state law.
In addition, while the level of vulnerabilities associated with banks remains well below that seen prior to the global financial crisis, some segments of the non-bank financial sector exhibit particularly high levels, similar in fact to those witnessed before the crisis. Some of these vulnerabilities may be traced back to the low-for-long interest rate environment, which could be encouraging excessive risk-taking behaviour by some financial intermediaries not subject to the strict prudential requirements of banks in a relentless search for yield. As a reflection of this pattern, in several advanced economies asset valuations appear stretched in key financial markets such as those for equity and high-yield debt, as well as in property markets. The same search for yield may also have fostered an increase in leverage among relatively risky firms. As such, in recent years there has been a swift increase in the volume of lowerrated investment-grade corporate debt; this debt is vulnerable to downgrades and hence the loss of investment grade status in the face of an economic downturn. Recent years have also witnessed a dramatic increase in the issuance of collateralised loan obligations (CLOs). In this regard, there are growing concerns about the quality of the leveraged loans (i.e. loans to highly leveraged firms) that are pooled into these securities, an issue that is particularly relevant for their lower tranches. Against this background, any negative surprise in terms of the macroeconomy or monetary policy expectations could have a sizable impact on market valuations and, more broadly, on global financial stability.

Such challenges relate, in particular, to the potential consequences of the “low for longer” scenario on the profitability of financial intermediaries in general, and of banks in particular, and on their attitude towards risk-taking. In addition, financial intermediaries are now facing a number of relatively new sources of uncertainty, including the simultaneous rise of new regulations, technologies and market players, against a backdrop of rising environmental, social and governance (ESG) concerns. Along with these novel factors, new risks are emerging, ranging from cyber-risks and risks related to crypto-assets to misconduct and legal risks, physical and transition risks associated with climate change, and risks related to regulatory arbitrage. Both regulators  3  and market players are just starting to learn how to deal with and address all these new threats. Let me now share some thoughts on some of the risks I have mentioned and then suggest some policy actions that policy makers could consider implementing in an effort to mitigate them. -  Low bank profitability  Starting with low bank profitability, I would like to highlight three messages. First, this is more a regional than a global issue. In fact, the profitability ratios of banks across countries show marked heterogeneity. For example, the return on equity of Canadian, Swedish and US banks is relatively high. In contrast, banks in Japan and the euro area find themselves in the lower part of the distribution.
For example, Charts 8A and 8B focus on the topic of the “labour market” in the MPC’s minutes. They suggest the fraction of time spent discussing this topic picked up in 2013, the year that the MPC issued forward guidance linked to the unemployment rate. 37  Charts 9A and 9B do the same for the FOMC’s deliberations, focussing on groups of words from FOMC transcripts related to “recession”. With individual FOMC transcripts, we can also track how much time each individual FOMC member devoted to this topic, shown in the range. The median FOMC member started talking more about recessions at the point the US downturn took hold, although there was a significant variation in the time different FOMC members devoted to this topic. Taking this literature together, it suggests the great strides forward in central bank transparency over recent years have delivered some significant stabilisation benefits, most notably for financial markets, inflation expectations, macro-economic forecasts and, to some degree, media reporting. So what the missing links when assessing the potential benefits of central bank communications? Three stand out. First, the vast majority of studies have focussed on the ex-ante informational benefits of central bank transparency. There is far less evidence assessing whether openness initiatives have affected central bank legitimacy – the ex-post accountability benefits. In other words, empirical evidence has focussed on the role of central bank transparency in fostering understanding rather than trust.

It is a game that gives people the chance to set monetary policy to steer the US economy. In the UK, “MyUK” allows people to put themselves in the Prime Minister’s hot-seat and invoke Article 50 on any day of the week. These are effectively single-person games, designed largely for educational purposes. But there is no reason a similar game could not be designed which was multi-person. This would allow interactions among the public, in their communications and choices, to take place. This is crucial for understanding the propagation of stories, and the contagion in choices, across the economy. Once those are captured, the game could offer important insights into public actions and reactions to central bank interventions, in an experimental setting. There are many existing games that are multi-player and interactive, many of them hugely successful. A small sample would include Second Life, Minecraft, EVE Online and World of Warcraft. A number of these games contain elements of the economy or financial system, albeit in a simplified form. Creating a game with a realistic economy, realistic psychology and realistic policy would not be a venture into the unknown. Robert Shiller has spoken of the role played by “narrative entrepreneurs” in catalysing and shaping the popular narratives that propagate across society. Central banks are narrative entrepreneurs, shaping views on the economy and on policy through their words, providing a hopefully benevolent “nudge” to expectations. In a world of new media, that narrative entrepreneurial role has probably never been more important.
This is the first time in 60 years or so that a sovereign crisis has hit the developed world, the rich world, not the developing one, the hardest. To demonstrate that: almost 80% of all the IMF’s rescue loans have gone to Europe! Over 40% have gone to the Eurozone itself, and the share is going to rise. The developed world is not accustomed to this. 3. This time the problem of sovereign debt has appeared at a time of peace and prosperity. 4. Moreover, the Eurozone – a monetary union without a state – is a completely new, unprecedented arrangement. Typically, the solution to such a crisis used to be: inflation, default or monetary reform, very often accompanied by currency devaluation, or a combination of all these. Please note that typically when the IMF organizes a programme for a developing country, it requires a partial default or devaluation to disburse funds. Nothing like that is possible within the Eurozone – monetary solutions are unavailable for the weakest sovereign links. And only default remains. Or, of course, a bail-out, i.e. shifting the debt burden from some countries to others. But, history seems to suggest quite clearly that without some form of debt reduction (or default, if you wish) it will be really hard to get sovereigns functioning normally again. Are there any OTHER alternatives? Yes, either very fast growth or slow deleveraging. The first option is possible, but unlikely. The second option might mean not one, but two “Japanese” lost decades.

Moreover, the second option might also endanger the strong economies. So, once again, without one form of debt reduction or another, it will be really hard to move forward. BIS central bankers’ speeches  1
Let that be a warning to those countries which have not yet signed up to the monetary integration project. The fall of the former hegemon is relevant not only for the current crisis, but also for the future of the monetary order in Europe. And here I do not see any positive perspectives, I must bitterly admit. I am not saying that the euro has to collapse, but I am pretty sure that if it prevails, it will be a completely different currency implying completely different monetary conditions from what the Germans in particular hoped for. And Germany faces a tough choice – further integration or a perfect monetary order. This question is rather new and painful. The answer to it will influence all of us, I believe. So let’s wish them good luck. Thank you for your kind attention. BIS central bankers’ speeches  3

With a diverse population and a growing middle class, Malaysia is an ideal test bed for developing and commercialising fintech solutions. The emergence of fintech has opened up new opportunities which can greatly benefit the financial industry. At its core, fintech has led to the creation of various business models that help improve and simplify financial transactions, which 10 or 20 years ago seemed impossible. Here, I would like to highlight three key areas that Islamic finance stand to gain from fintech. Entrepreneurs too stand to gain from fintech. First, fintech provides the technological underpinnings to realise the goal of Islamic finance in creating a risk sharing economy. This will in turn benefit entrepreneurs who will gain wider access to bank-intermediated credit. An example is the Investment Account Platform (IAP). IAP is Malaysia’s first multi-bank online 1/3  BIS central bankers' speeches  platform that combines the credit evaluation expertise of Islamic banks and the power of technology to channel funds from investors to economic ventures. This virtual “multisided” platform facilitates a collection of interesting investment ventures and projects, with transparent risk-return rewards for investors. Second, fintech has opened up new sources of funding to entrepreneurs, in what is increasingly being referred to as the alternative financing space. Crowdfunding and peer-to-peer (P2P) funding platforms have emerged as highly efficient “matchmakers” between entrepreneurs and investors. From the USD10 million raised globally in 2009 through nine major platforms, crowdfunding platforms mobilised over USD767 million in 2016 with backers from over 200 countries.
True, this situation also arises in other developed economies that are ahead in the cycle, as is the case of the United States, where the latest inflation figures have been surprisingly on the downside and wage pressures are also low. But in the euro area an added difficulty is the absence of mechanisms that provide for the support of other economic policies to monetary policy. And on this point we must look at fiscal policy. Fiscal policy in the EU In the case of fiscal policy, it is true that despite the improvement recorded in the euro area in recent years, the high levels of public debt leave little leeway in various countries to pursue an expansionary policy. These economies, Spain among them, should see through the process of fiscal consolidation, harnessing the room for manoeuvre that may result from changes in the composition of taxes towards figures more conducive to growth and a greater gearing of public spending towards investment, education and innovation. But nor are there mechanisms in the European framework to encourage economies that have a favourable budgetary situation and fiscal space to use them if the circumstances of the area as a whole so require. Euro area-wide fiscal policy is, at present, the result of the sum of national policies.

31.07.2017  The European economy and monetary policy Inauguration of La Granda courses Luis M. Linde Governor  Mr Chairman of the La Granda courses, Mr Rector of the University of Oviedo, Mr Mayor of Gozón, Mr Secretary of the La Granda Courses, Authorities, dear colleagues: Let me begin by thanking Professor Velarde for his invitation to me to participate in the inauguration of the thirty-ninth edition of the now-classic La Granda courses. But first I should like to congratulate Professor Velarde on the Menéndez Pelayo International Prize he has recently received and which is just one in a long list of accolades. Juan Velarde is much more than an eminent academic. He is a true humanist whose work, anchored in different areas of the economy, has always included historical and social concerns where his deep-seated and – I would say – benign liberalism prevails. Professor, my warmest congratulations on your Menéndez Pelayo prize. The European economic recovery Moving on to the subject of my address today, I should like to share with you some thoughts on the euro area economy and monetary policy. I shall begin by reviewing the key features of the current expansionary phase in the European economies and the fundamental role that monetary policy has played in providing for its take-off. I shall then refer to the main challenges over the course of these difficult years for the European economy and to the need to complete the institutional architecture of the monetary union.
Figure 15 shows that the population has increased much more than the number of completed homes over the past ten years, which is an indication that housing construction has been too low. Despite housing investment now increasing, it is important that structural problems on the housing market are discussed so that we can obtain greater efficiency on this market in the longer run. Several inquiries have put forward proposals regarding what needs to be done, most recently this was done in an annex to the Long Term Survey of the Swedish Economy. Not having an efficient housing market is not merely a problem for indebtedness, it can also comprise a threat to a healthy development of society and it can create conflicts between the generations. The Riksbank has long pointed out the risks linked to the high level of household indebtedness and has previously also weighed in them in the repo-rate decisions to some extent, by setting the rate somewhat higher than would otherwise have been the case. However, the effect these considerations have actually had on monetary policy – the amount by which the repo rate has actually been set higher – has been exaggerated substantially. There are quite simply limits as to how far the policy rate can be used for this purpose. And 6  BIS central bankers’ speeches  let me emphasise that the main focus for monetary policy has always been to bring inflation back on target and to attain a good development in the real economy.

BIS central bankers’ speeches  5  The National Institute of Economic Research’s Economic Tendency Surveys, which summarise companies’ and households’ views of the Swedish economy, rose in July, see Figure 11. This is the third month in a row that the indicator exceeds the historical average and thus points to a somewhat stronger growth than normal in the Swedish economy. Households’ confidence in the economy as a whole slowed down further in July, although the view of their own economy is still more positive than normal. Inflation expectations according to money market participants in Prospera’s survey 1, 2, and 5 years ahead have remained broadly unchanged during the summer. Long-run inflation expectations 5 years ahead remain at around 1.8 per cent. CPIF inflation was measured at 0.6 per cent in June and at 0.9 per cent in July, see Figure 12. The outcome in June was lower than our forecast. It is difficult to point to any individual component that contributed to the forecasting error – goods prices services prices and food prices all increased somewhat slower than expected. The outcome in July, on the other hand, was higher than our forecast. It was in particular the volatile air travel and package holidays that were higher than anticipated, although food and clothing prices were higher than expected. All in all, the outcomes over the summer have been in line with our forecasts.
The challenge of managing risks in the financial sector is made greater by the tremendous spirit of innovation that fuels growth and healthy competition among banks and other firms. Bankers have long competed on their abilities to tailor products and services to each client’s unique needs. New opportunities for profit often change the nature of the known risks a bank may face - they may also expose an institution to unknown pitfalls. As a former commercial banker, I know that responsibility for understanding and managing risks and potential pitfalls rests with senior management and its board of directors. As a supervisor, I believe that we should create incentives to help motivate responsible behavior within firms. Further, as Chairman of the Basel Committee, I see the work of the Committee as helping to foster safe and sound banking systems by creating incentives for banks to improve their understanding and management of risk, and, in turn, to contribute to greater stability within the financial sector. Encouraging the improvement of risk management in banks, is, indeed, the overarching goal of the Committee's efforts to revise the Basel Capital Accord. In my remarks today, I’d like to focus on the challenges associated with implementation of the new framework now that the revision process is coming to an end. First, I'll spend a few moments discussing the evolution and structure of the New Accord.

That is, not to introduce large changes in the aggregate amount of capital currently held in the banking system while at the same time to provide tangible incentives for banks to adopt the most advanced and sophisticated approaches to capital adequacy. As we near completion of the New Accord, I am reminded that the tremendous progress we have made is a reflection of the steadfast commitment that so many have put forth to see the revision process through to its completion. The success of the New Accord will be directly attributable to the enormous support and assistance provided by both bankers and supervisors. Yet a Chinese proverb reminds us that, "On a journey of one hundred miles, ninety is but halfway." I suppose the last miles of any marathon are the toughest to finish. The wisdom of that proverb is borne out by the critical nature of the tasks ahead of us to complete, and then to implement, the new capital framework. Adopting the New Accord will be a challenging but also an exciting undertaking for us all. The potential benefits are many - including improving the management of risk, enhancing transparency and promoting greater financial stability. In short, this new framework will make all of us - bankers, supervisors and others - better at what we do. Thank you very much.