samchain/econo-pairs-v1 huggingface dataset:
Managing Machines: the governance of artificial intelligence  Speech given by James Proudman, Executive Director of UK Deposit Takers Supervision  FCA Conference on Governance in Banking 4 June 2019  I am very grateful to Philip Sellar for preparing these remarks, and to Sadia Arif, Jamie Barber, Jas Ellis, Magnus Falk, Orlando Fernandez Ruiz, Anna Jernova, Carsten Jung, Tom Mutton, Lyndon Nelson, Jennifer Nemeth and Oliver Thew for very helpful advice and comments. 1  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  Introduction Consider the well-known story of one Big Tech company’s attempt to use artificial intelligence to improve the efficiency of its staff recruitment. The machine learning system reviewed job applicants’ CVs with the aim of automating the search for top talent. The company’s experimental hiring tool used artificial intelligence to give job candidates scores ranging from one to five stars. Within a year, the company realised its new system was not rating candidates for software developer jobs and other technical posts in a gender-neutral way. That is because the computer models were trained to vet applicants by observing patterns in CVs submitted to the company over a 10-year period. Most came from men, a reflection of male dominance across the technology industry. In effect, the company’s system taught itself that male candidates were preferable. It penalised CVs that included the word “women’s” as in “women’s chess club captain”. And it downgraded graduates of two all-women’s colleges.

In 2018, an FT survey of banks around the world provided evidence of a cautious approach being taken by firms.5 And according to a McKinsey survey of financial and non-financial firms, most barriers to the more rapid adoption of AI were internal to the firms themselves: poor data accessibility; lack of suitable IMF (2019) ‘Global Financial Stability Report April 2019’ Carney, M., (2019) ‘AI and the Global Economy’ 4 IIF (2018) ‘Machine Learning in Anti-Money Laundering’ 5 FT (2018) ‘AI in banking reality behind the hype’ 2 3  3  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  3  technology infrastructure; and a lack of trust in the insights of AI, for example.6 Despite the plethora of anecdotal evidence on the adoption of AI/ML, there is little structured evidence about UK financial services. To gather more evidence, the Bank of England and the FCA sent a survey in March to more than 200 firms, including the most significant banks, building societies, insurance companies and financial market infrastructure firms in the UK. This is the first systematic survey of AI/ML adoption in financial services. The survey is focused on building our understanding of key themes. First, the extent to which firms have adopted, or are intending to adopt, AI/ML within their businesses and what they regard as the most promising use cases. Second, the extent to which firms have clearly articulated strategies towards the adoption of AI/ML.
Asset-backed securities with high credit ratings have proved not to be as sound, nor as liquid as they appeared. Some of those structured investment vehicles or conduits were extensively leveraged and strongly dependent on short-term funding. In the absence of liquidity, sponsoring banks had to fund off-balance-sheet vehicles from their own balance sheet. This led to de-leveraging and forced asset sales. 4. Higher default rates caused the first bankruptcies in the US and credit spreads started to rise. Risk aversion spread to all asset classes. Forced sales to cover margin requirements saw volatility rise sharply (VIX doubled from 15 to 30 %). The unwinding of riskier positions caused stock markets to fall (Stoxx50 -11 %) and carry trades were liquidated (EURJPY fell from 169 to 152, a 10 % appreciation). As markets fell, margin requirements rose further. The uncertainty about the pricing of some instruments added additional pressure. 5. As the credit crisis spread further short-term liquidity evaporated. Short-term funding in the interbank market became unavailable, causing casualties amongst banks and funds. In Europe, IKB and Landesbank Sachsen were rescued from insolvency. Northern Rock followed later. Funding in the primary market was impossible for banks. Trading in the secondary market stopped, with the exception of government issues. 6. The effective shut-down of the refinancing pipeline left banks to rely on shortterm funding from central banks. Neither primary issues nor short-term papers, such as ABS or ABCP, could be placed in the market.

-  6  this applies to the instruments used to provide liquidity: the MRO and LTRO  BIS Review 120/2007  -  this applies to minimum reserve features  -  this applies to the number of counterparties with direct access to central bank money  -  this applies finally to the range of eligible collateral  Let me say a word about each of these features of the Eurosystem operational framework: 1. At moments of term structure difficulties and shortening of the liquidity constraints, it is of advantage to have both: one-week and three-month liquidity providing tenders conducted weekly and monthly. Fine tuning operations and extraordinary additional tenders, according to standard procedures, allowed a commensurate response within a familiar context, rather than adding to prevailing uncertainty by introducing, in an emergency context, untested new facilities, instruments or procedures. 2. In monetary policy operations, the Eurosystem grants direct access to liquidity to a large number of credit institutions. All euro-area institutions subject to minimum reserve requirements and which fulfil the relevant contractual or regulatory arrangements applied by their respective NCB, may access the standing facilities and/or participate in open market operations based on standard tenders. At the end of August 07, 1 676 counterparties had access to the open market operations, 2 809 to the facility, and 2 141 to the marginal lending facility. 3. The combination of relatively high reserve requirements at 2% and the monthly averaging principle allowed banks to dip into their reserves to meet their liquidity needs.
With the sustained budget surplus and accumulated surplus on the Exchange Fund and Land Fund assets, the actual amount of foreign reserves in Hong Kong amounted to $ billion at the end of September, the third largest in the world. This is more than seven times Hong Kong dollar cash in circulation or over three times $ M1. 30. The currency board system has an automatic adjustment mechanism to maintain exchange rate stability. When there are outflows of funds from the Hong Kong dollar, the Hong Kong Monetary Authority (HKMA) will sell US dollars to banks for Hong Kong dollar. On settlement day, the HKMA will debit the clearing accounts of the banks for the necessary amounts of Hong Kong dollars in return for the US dollar that will be credited to the New York accounts of the same banks. Since banks may have sold more Hong Kong dollars than they have in their clearing accounts with the HKMA, they can only obtain Hong Kong dollars by borrowing from other banks, by bidding up the interbank rates, or selling back the US dollars to the HKMA, that is, by reversing their short position. In fact, the banks do not hold excess Hong Kong dollars because they are generally long in foreign currency. The latest data at the end of July shows that the Hong Kong banking system is short roughly $ billion or $ billion. 31.

From having increased by almost one million during the years 1950 to 2000, they will now increase by only 70,000 over the coming fifty years. This will increase the demands on the older population to participate in the labour force. According to a study by Statistics Sweden, half of old-age pensioners will need to work to support themselves in year 2035. The age composition will also make tremendous demands on welfare services, which will further increase pressure on the labour market and the need for an increased supply of labour. The average costs for care and welfare increase drastically as people become older and public expenditure on pensions, medical treatment and care of the elderly can be expected to increase from approximately 18 per cent to approximately 23 per cent of GDP around the year 2030. When the long-term growth rate receives a weak contribution, or none at all, from the labour supply, the dependence on labour productivity will increase. Compared with other countries, Sweden has managed fairly well in this respect; it is productivity growth rather than labour supply that has created growth in recent years. Labour productivity increased particularly strongly during the 1990s, which was due to several factors. One important factor was that many companies with a low level of productivity were put out of business in connection with the recession at the beginning of the 1990s, while other companies chose to cut back on unqualified employees with simple work tasks.
This has the further advantage of not requiring a complex adjustment to term rates to take account of market expectations for changes in overnight rates. To get a sense for dispersion within money markets, we can use overnight transaction-level data in the unsecured market (federal funds and Eurodollars) collected by the Federal Reserve on form FR 2420, and in the customer-to-dealer triparty repo market collected from the triparty clearing banks. (Figure 11) and (Figure 12) show dispersion indices for activity within each of these markets, calculated the same way as done by Darrell and Arvind. (Figure 13) combines all this activity into a single combined transaction level dispersion index. When I look at these figures, I see three things. First, I don’t see a pronounced move upward in dispersion within either the secured or unsecured markets individually, either in general or around FOMC meetings at which monetary policy was tightened. This suggests to me that recent increases in the federal funds rate have passed through, immediately and one-for-one, to virtually all activity in these markets. In fact, within the secured market, we see dispersion ticking down. This appears to relate to the general decline in secured rates after money market fund reform, which caused trading in the repo market to become more concentrated at or around the ON RRP offered rate.

During the financial crisis, this spread rose and fell with changes in investors’ perception of bank credit risk. In contrast, its recent moves are related to money market fund reform: term rates rose considerably as prime money market funds both shrunk in size and reduced their maturities to remain highly liquid, and have recently come back a bit as the market has stabilized and markets have adapted to the new industry structure. Shown in (Figure 15) are customer-to-dealer versus dealer-to-dealer Treasury repo rates. The customer-to-dealer market consists primarily of cash investors like money market funds lending to dealers, while the dealer-to-dealer market reflects dealers lending amongst themselves.31 The 8 / 13  BIS central bankers' speeches  spread between these two rates is thus a proxy for the cost dealers with ready access to cashinvestor financing charge to act as intermediaries between these two markets. Since all the lending is secured by Treasuries, this intermediation entails very modest risk. U.S. versus currency-hedged 3-month interest rates, as reflected by foreign exchange basis swaps, are shown in (Figure 16). U.S. and foreign money markets are linked together by a dealer-intermediated foreign exchange derivatives market, which allows firms to essentially convert money market loans and borrowings from one currency into another. A dealer that intermediates this spread can be thought of conceptually as making a secured loan, in which it lends out dollars and takes in foreign currency cash as collateral.
Assessments under the RCAP are currently underway for Singapore and Switzerland. Later this year will follow China, Australia, Brazil and Canada. As with all of the RCAP work, transparency is critical to success – all of these reports will, of course, be published in full when complete. It is important to note that, in undertaking this work, the Basel Committee has no enforcement power, so it would be meaningless to think we can force jurisdictions to change their local regulations if we find gaps. Our goal is therefore framed more positively: to deepen the implementation process and to help jurisdictions identify the gaps and address them. Ideally, the assessments provide a roadmap by which identified gaps can be closed. They also provide stakeholders and markets with a much higher degree of transparency about the extent of any local divergence from agreed international standards, and the importance of these. In this way, we believe we will establish the appropriate incentives for local rulemakers to apply the global standards, and for markets and others to apply appropriate pressure where banks may be subject to weaker-then-expected prudential requirements. More consistent domestic regulations will be an improvement. But beyond looking at how local regulators have transposed Basel agreements into domestic regulations, the Committee has also begun examining whether the framework(s) are producing consistent outcomes. Ultimately, what counts is that the capital ratio calculated and reported by individual banks provides a meaningful and comparable representation of their capital strength.

The fox and the hedgehog: preparing in a world of high risk and high uncertainty Speech given by Charlotte Gerken, Executive Director, Insurance Supervision InsuranceERM Risk and Capital EMEA Virtual Conference 3 December 2020  I would like to thank Alan Sheppard, Zachary Morris-Dyer, Gareth Truran, Anthony Brown, Robin Swain, Manuel Sales, Olga Filipenko and Sarah O’Sullivan for their assistance preparing these remarks. 1  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  Good morning. Thank you to Insurance ERM for inviting me to speak at your conference. When I told a colleague I had been asked to give a talk on responses to risk, he told me: “the fox knows many things; the hedgehog knows one important thing.” I was curious to learn more: this idea came from a fragment of text by an Ancient Greek poet Archilochus of Paros; it inspired Isaiah Berlin’s 1953 essay on Tolstoy’s view of history; and has been used in Jim Collins’s book From Good to Great. What it boils down to is a way of thinking, one that guides how you prepare for and respond to risk: the fox looking at every eventuality; the hedgehog’s one big idea being to curl into a ball and wait for the peril to pass. I’m left with the image of the fox hopping about and getting ever more frustrated as it schemes how to get at the hedgehog.
Ardian Fullani: Latest economic and financial developments in Albania Speech by Mr Ardian Fullani, Governor of the Bank of Albania, at the press conference on the monetary policy decision-making of the Supervisory Council of the Bank of Albania, Tirana, 26 October 2010. * * * At today’s meeting of 26 October 2010, the Supervisory Council of the Bank of Albania analyzed and approved the Monetary Policy Report for the third quarter of 2010. After scrutinizing the latest economic and financial dynamics at home and the expected performance in the future, the Supervisory Council of the Bank of Albania decided to keep the key interest rate unchanged at 5.00%. In what follows, I will elaborate upon the analysis and the main conclusions today’s decisionmaking of monetary policy was based on. *** The performance of the Albanian economy during the third quarter of 2010 reinforced the main developments in the first half of the present year, featuring gradual recovery of aggregate demand, lower risk premiums and consolidation of macroeconomic stability. Broadly in line with our projections:   economic growth has accelerated (resurged) and its base seems to have broadened;    CPI inflation and expectations have been anchored close to the Bank of Albania’s target for inflation;    The external position of the Albanian economy has recovered and the exchange rate is more stable;    liquidity in the system has increased and the interest rates have generally been downward.

29 There is no contradiction between regulation for safety and prudence vis-à-vis regulations that are open to, or supportive of, good financial innovations. These may be new business models or use of a technology that promote competition, improve customer experiences or simply a more efficient or pleasant delivery of services. So far from adopting a Luddite instinct, many financial regulators have in fact set up dedicated teams to both support and to monitor new FinTech developments. 30 But as with any innovation in any era, FinTechs can also bring about new risks. In this regard, international organisations such as the International Monetary Fund, FSB, IOSCO and the Basel Committee have all produced several useful public reports on the potential risks. 31 As examples of new risk typologies, there may be increased vulnerabilities to anti-money laundering and efforts to counter the financing of terrorism, given the anonymity of digital currencies. Cyber-security is another area as FinTechs vary in size and risk management capabilities. There can also be an increase in macro-financial risks from contagion, procyclicality, or excess volatility given the increased speed of financial transactions, and new networks of relationships. Open banking and the ease of moving funds can also lead to potentially destabilising movements of money, posing liquidity risks. 32 I welcome more research and studies to guide such developments. It is probably too early to determine whether and how FinTechs or BigTechs may change the behaviour of incumbent financial institutions.
In the phase of debt-financed balance sheet ballooning seen between 1995 and 2007, the amount of credit available did not rise accordingly, nor did it decline in the following period when debts were being cleared. This observation is even more striking, given that, in autumn 2008, the regulatory authorities stated that as of 2013 both big banks will have to have twice as much capital as the Basel II minimum international standard specifies: According to current findings, the capital adequacy rules did not have a negative impact on lending levels nor did they increase lending rates (cf. charts 5 and 6).6 With a view to other possible economic repercussions of tighter regulation of the big banks, the question also arises as to whether and to what extent employment and value creation in Switzerland are at all affected. A glance at the statistics covering the period when UBS and CS saw their balance sheets expanding between 1995 and 2007 shows, among other things, that there is no clear-cut positive connection between the size of a balance sheet, on the one hand, and jobs and contribution to value creation at these banks in Switzerland, on the other. This implies that reducing the balance sheet as a result of stricter regulation would not necessarily have negative consequences in these respects (cf. chart 7). To conclude, it appears that there are no theoretical or empirical grounds to indicate that the Swiss economy will be adversely affected by the proposed regulation.

For example, some banks are marketing synthetic ETFs tracking an index which are not collateralised by the underlying investment in the index but by other assets with the return guaranteed by a swap with a counterparty which involves counterparty risk. Some ETFs are offering a leveraged return up to 3x that on the index. The IMF, among others, has expressed its concerns (in the Financial Stability Report April 2011) and pointed out that the computer-driven trading used by these products could lead to another “flash-crash” like that of April 2010. 8. Conclusion  In conclusion, a supportive macro and regulatory environment is critical to attracting domestic and global sources of capital. Saudi Arabia has been going about this process for many years, backed up by a prudent monetary and fiscal track record. We welcome longterm capital inflows in various sectors of the economy to gain mutual benefits from the economic potential of Saudi Arabia. To promote this, the government has adopted an “open door” policy towards foreign capital which has provided excellent returns to FDI investors. Saudi Arabia has opened up the financial sector to foreign financial institutions by granting licenses to foreign commercial & investment banks as well as asset management & insurance companies to optimize the level of competence and coverage in different financial disciplines. In terms of regulation of financial institutions, we will continue with the prudent policy which has served us well in the past.
Let me point out first that neither the potential growth rate, resource utilisation nor the inflation propensity in a wide sense is something that can be measured directly. For some years now the Riksbank has been drawing attention to questions of this type, analysing them and presenting detailed accounts in the Inflation Report. Although we have mainly referred to various supply shocks as explanations for inflation’s relatively high rate in the past year, we have also drawn attention to other conceivable factors right from the start. In the Inflation Report last May, for example, we wrote: The risks for inflation connected with domestic demand and the relationship between growth and inflation in Sweden are somewhat more on the upside than foreseen in the March Report. The inflation forecast in the main scenario has admittedly been revised upwards in view of the unexpectedly high domestic inflation but this has been done mainly for the coming year. It is conceivable that the higher registered inflation is partly a sign that resource utilisation is more strained than assumed in the main scenario. (Inflation Report 2001:2, pp. 24–25) Some upward revision of resource utilisation is incorporated in the Inflation Report the Riksbank is presenting today. That was done partly because the underlying rate of price and wage increases has been moving gradually upwards for a time. This resembles our response, though with the opposite sign, when inflation repeatedly turned out to be a positive surprise in the late 1990s.

After that, however, it is foreseen that the more strained resource utilisation connected with stronger economy activity will lead to a renewed increase in inflation. The risk spectrum mainly concerns domestic inflationary pressure. If resource utilisation is more strained than the Riksbank now assumes or if potential growth has been overestimated, there is a risk of future inflation being higher than in the main scenario. When the risk spectrum is taken into account, underlying inflation, measured by UND1X, amounts to 2.3 per cent both one and two years ahead. Monetary policy conclusions I should like to conclude with some words about monetary policy. In the light of increasingly clear signs of an economic recovery and resource utilisation that is somewhat more strained than expected, the Riksbank has decided to raise the repo rate 0.25 percentage points, to 4.0 per cent. By safeguarding price stability, we aim to create conditions for a stable and sustainable development of production and employment in the Swedish economy. Last year’s higher inflation and our assessment that it was not solely transitory have already left their mark on monetary policy. That was the case not least last summer, when we raised the repo rate because of concern that the weak exchange rate combined with comparatively high resource utilisation might lead to the higher inflation becoming entrenched. In September we, like other central banks, cut the interest rate 0.5 percentage points; later in the autumn, however, we were more cautious about lowering the instrumental rate than, for example, the European Central Bank.