samchain/econo-pairs-v1 huggingface dataset:
2.3 Technological innovation Lastly, and as I said at the start of my address, I wish to focus on the challenge posed by technology and the changes it may bring in the banking sector. We unquestionably face a situation in which digital innovation is transforming traditional banking. This transformation is already apparent in our ability to communicate with banks without having to go to a branch, in the constant supply of new products and services, in the new ways that data can be used or in the improvement of market systems and infrastructures allowing instantaneous execution of transactions which previously took several days. Further, technological innovation is giving rise to the penetration of some areas of banking by new firms known as “fintechs”, which provide financial services under a wide range of business models. The implications of this technological revolution are complex and varied both for the banking sector and for regulators and supervisors, and must be analysed with caution taking into account the particularities of the banking sector and avoiding oversimplification. For example the use of technology for high-speed analysis of a large volume of heterogeneous data – known as “big data” – may have multiple applications in banking. Banks have a large amount of diverse information on their customers. Careful analysis of this information may give banks a better knowledge of their customers’ behaviour and enable them to refine their products by fine-tuning them to the particular needs and risk profile of each customer.

The establishment of ACE will support and indeed, further propel efforts to raise the calibre and dynamism of talent across all levels in the industry. ACE will provide a range of facilities for professional development and skills development including learning and training for all the different levels of financial specialisation. The institutions that are to be housed within ACE have all embarked on measures to deliver programmes and qualifications that are benchmarked against leading education and training standards. The high quality talent that ACE will develop will contribute to the vibrancy and progress of the Malaysian financial industry. BIS central bankers’ speeches  1  ACE is an initiative spearheaded by the financial services industry and it will house 10 institutions, involved in education, training and standard setting. With its strategic location in Kuala Lumpur, ACE has close proximity to the headquarters of financial institutions. Its integrated facilities will foster and facilitate collaboration amongst banking, insurance, capital market and Islamic finance industries to share intellectual capital, expert resources as well as benefit from economies of scale by the sharing of common infrastructure and facilities. Today’s ground breaking ceremony marks the official start of the construction for the ACE project. Let me take this opportunity to congratulate those involved in the Project to bring it to this stage of development.
According to Banque de France simulationsv for our country, a disorderly transition would lead to a loss in GDP of up to 5.5% by 2050 compared to an orderly transition scenario. To achieve these two transformations, we Europeans must more than ever unite our forces. And in this respect there are three "cross-cutting" levers that should guide our economic agenda: combining our clients, our talents, and our funding. Our clients are the single market, one of the largest in the world with 450 million people. This is not just the legacy of Jacques Delors. Thirty years on from 1992, we must have the courage to revitalise the single market and optimise its power by combining its different components in a much better way: freedom of movement, of course, but also regulatory power. We could use the power of regulation, in particular to steer innovation, as illustrated by the regulation of data, where Europe is at the forefront. Our talents and "human capital" reflect the strong correlation between growth and education. We have some of the best education and professional training systems in Europe - and you are the best proof of that! But there are significant differences: in the southern EU countries, including our own, there are more low-skilled workers - Spain and Italy have twice as many as Sweden, as a share of the adult population - and fewer highskilled workers vi – France has half as many as the Netherlands or Finland.

5 [6]  References Diewert, W.E and Fox, K.J. (2020), “Measuring real consumption and CPI bias under lockdown conditions”, NBER working paper series, No. 27144. Statistics Sweden (2020), press release (2020), ”Svårare beräkna inflation under coronapandemin”, (More difficult to calculate inflation during the corona pandemic) www,scb,se Statistics Sweden (2020), report to Consumer Price Index Board, ”Hantering av effekter av Corona-pandemin i KPI och HIKP”, (Managing the effects of the corona pandemic on the CPI and HICP) www,scb,se  Appendix Table 1. Products affected by lack of consumption Weight in CPI (per cent) Air package tours  1.2. Foreign air travel  0.6. Tickets to sporting events  0.4. Cinema tickets  0.2  Theatre tickets and entertainment  0.2  Entry tickets to entertainment  0.3  Total weight in CPI  2.9  Source: Statistics Sweden  6 [6]
More locally, FPC asked the FSA’s bank supervisors to ensure that banks’ liquidity management takes proper account of any maturity mismatches associated with using ETFs as a direct or indirect source of funding. Although the main bank sponsors of synthetic ETFs are not currently UK banks, there is a signal here for UK banks – and, in fact, one for our international peers too. As I explained at last Friday’s FPC press conference, this is part of a bigger issue around the use of collateral swaps or other similar transactions for funding. The authorities have not done enough, in my personal view, to encourage robust practices in repo and securities lending markets. That is likely to form part of the FSB’s work on shadow banking. The broader point here is that the FPC will try to nip incipient problems in the bud. If only someone had taken action to contain the mutation of securitisation a decade ago. On each of these fronts, the FPC is acting through the microregulator, the FSA. That is partly because the legislation has not yet passed, and so the statutory powers lie with the FSA. But, more basically, it is because macroprudential interventions will nearly always involve the systematic application of microregulatory instruments in the interests of the resilience of the system as a whole. In the future, that will sometimes involve the Financial Conduct Authority as well as the PRA.

But the experience of credit risk during the Asian crisis shows that they are all too easily forgotten. Thank you for giving me the opportunity to issue this reminder. BIS Review 53/1999  6
Perhaps markets have - after all - learnt something from previous crises in Europe and Latin America. They did not see the crisis coming but once it started, they reacted more rapidly. 4. Crisis management I will now turn to the issue of how to resolve a crisis, once it has erupted. It is obviously necessary to tackle macro and micro problems in parallel since the two are interlinked. As I stated earlier, I believe that the origin of the Swedish crisis was primarily macroeconomic, due to policy mistakes in the 1980s and early 1990s, and triggered by the policy shift to a low inflation regime. (Although there were also structural weaknesses in the financial sector). The solutions were also primarily macroeconomic in kind. Once the krona peg had been abandoned, demand got a stimulus. The task confronting policy makers was to restore the credibility of economic policy. This required in our case, given the weak fiscal position, very strong fiscal measures (some 8 per cent of GDP 1994-98). But it also called for a consistent monetary policy. However, and this is important to underline in the present context, if the financial problems had not been managed properly, they could easily have been a drag on the macro economy. For example, by taking prompt action it seems that we largely avoided a “credit crunch”, which was a possibility that worried people a lot at the time. Credit volumes obviously fell, but this could be explained by the reduction in demand.

To understand the handling of a crisis, it is useful to know which factors generated the problems. Hence, my narrative will include the events that led up to the crisis in Sweden. I will also comment on the developments in Asia, with some emphasis on Korea. Having sketched this background, I will turn to the actual handling of crises, explaining why we found certain types of solutions useful in Sweden - leaving it to you to consider whether the same might apply to some extent to your country. 2. Background The macroeconomy First, let me say a few words about the macroeconomic background to the crisis in Sweden. There are both similarities and differences between Sweden and Asia. In the following I will touch on some of them. It should also be remembered that substantial differences also exist between the Asian countries. One common factor is the fixed exchange rate. In Sweden this led to high levels of foreign borrowing, particularly in the private sector. In addition it made it difficult to counter the gradual overheating of the economy by applying contractive monetary measures - raising interest rates tended to increase capital inflows which, to the extent they were monetised, further contributed to the overheating. Following the deregulation of the domestic financial market, the crisis in Sweden was also preceded by a rapid expansion of credit; in the course of five years, private borrowing grew from 85 to 135 % of GDP.
The social value of such a capital structure might, of course, be greater still – for example, because the social costs of crisis are higher than the private costs. That would justify a regulatory capital backstop. This capital structure shares the risk-sharing benefits of some other reform proposals. For example, it has similar risk-shifting properties to a mutual fund or limited purpose banking model.17 When required, risk is shared across the capital structure, as in a mutual fund whose equity claims adjust in value. But risk-spreading would only kick-in when it needs to. Banks are banks when nature is kind and mutual funds when it is cruel. They can be butterflies in summer, provided they are hedgehogs in winter. From here to there If such a structure is for the best in most states of the world, why does it not already exist? At least two legitimate concerns have been raised. First, might market-based triggers invite speculative attack by short-sellers? The concern is that CoCo holders may be able to shortsell a bank’s equity to force conversion, then using the proceeds of a CoCo conversion to cover their short position. There are several practical ways in which the contract design of CoCos could lean against these speculative incentives. Perhaps the simplest would be to base the conversion trigger on a weighted average of equity prices over some prior interval – say, 30 days.18 That would require short-sellers to fund their short positions for a longer period, at a commensurately greater cost.

So there is a degree of intrinsic uncertainty both about where in the risk bucket the true PD lies and indeed about whether it lies in the assigned risk bucket at all. To gauge the importance of these uncertainties, the mortgage portfolios of two large banks were examined and capital calibrated using their reported models. These capital ratios were then simulated under two counterfactual assumptions: (a) that true PDs were uniformly distributed within the risk bucket; (b) that true PDs were higher than recorded PDs by one risk bucket. The results are illustrated in Charts 1 and 2. Chart 1 looks at the distribution of the reported capital ratio, indexed to 100, assuming model uncertainty only exists within each risk bucket and is symmetric. Even under this assumption the confidence intervals are significant, with the “true” capital ratio lying anywhere between 15% above or below the reported ratio. Once we allow for the possibility of PDs being systematically under-estimated, the degree of uncertainty is greater still. The “true” ratio then lies up to 35% below the reported ratio. That equates to several percentage points of capital. A different way of gauging the effects of model uncertainty is to look at how different banks value essentially identical exposures. For UK banks’ wholesale credit portfolio, the FSA conducted just such an exercise in 2009.6 A hypothetical portfolio was constructed based on 64 externally rated corporate, bank and sovereign exposures.
Second, inflation expectations may be used by policy makers to gain information about the setting of short-term interest rates, whereas changes in the nominal yield curve, on their own are of no use. An increase in long-term nominal interest rates may be driven by a rise in the long-term expected inflation rate or a rise in the inflation risk premium, but it may also reflect an increase in long-term real interest rates, driven by some real factors. The two first movements could justify a change in the monetary policy stance, once the nature of the underlying shock and its likely duration have been clearly identified, but such a change may be inappropriate in the last case. Third, information on long-term inflation expectations can provide monetary authorities with a measure of the credibility of their commitment to price stability. The existence of a market for inflation-indexed securities may provide central banks with very useful information, since it may then enable them to identify whether changes in nominal yields mainly reflect changes in the expected long-term inflation rate or rather whether they are due to changes in real yields.

Christian Noyer: The role of inflation - indexed bonds in the process of setting monetary policy: a central banker’s perspective Speech by Mr Christian Noyer, Governor of the Bank of France, at the Morgan Stanley seminar on indexed bonds, Paris, 9 June 2004. *  *  *  Ladies and Gentlemen, [Dear Friends], It is a great pleasure for me to address you here in the context of the first “Séminaire de Paris” on inflation-linked securities organised by Morgan Stanley. Today, I will focus more specifically on “The role of inflation - indexed bonds in the process of setting monetary policy” from a central banker’s perspective, based on my own experience as the former Vice-President of the ECB and the current Governor of the Banque de France. Throughout my presentation, I will occasionally refer to the monetary policy strategy framework implemented by the Eurosystem in which asset prices, in particular inflation-indexed government bonds, can play a role in the context of our economic analysis. Having said this, I will neither elaborate further on the ECB’s framework nor comment on the last Governing Council’s monetary policy decision. Price indexation of financial contracts is not a new phenomenon. According to Robert Shiller1, the world’s first known inflation-indexed bonds were issued by the Commonwealth of Massachusetts in 1780 during the Revolutionary War. These bonds, the so-called “depreciation notes”, were issued to US Soldiers as deferred compensation for their services. They were mainly designed to deal with severe wartime inflation.
The key development in the housing market however has been the rise of mortgage lending to “buy to let” purchasers – ie landlords – rather than to owner occupiers. The private rental sector in the UK has been growing rapidly over the past 15 years partly due to structural reasons. The stock of mortgage lending for buy to let has increased from £ to £ over the last decade. And it is growing quickly now, by around 9% a year. Buy to let now represents 16% of the overall mortgage stock and accounted for 80% of net lending over the past year. Buy to let mortgages pose different risks to owner-occupied mortgages. Buy to let mortgages are typically interest-only, so loan to value reduces more slowly than for owner occupiers. New owner-occupied mortgages are now almost entirely amortising. There is normally a larger initial equity cushion as buy to let mortgages in the UK are typically at lower loan to value ratios at origination than loans to owner occupiers. It is not clear how buy to let investors will behave when interest rates go up or if house price growth moderates. The greater initial equity in buy to let may mean that investors are more  BIS central bankers’ speeches  3  resilient to small falls in house prices and higher servicing costs than owner occupiers. But they may prove more vulnerable to larger falls in house prices and increases in rates that stretch their rental cover.

capacity  Legitimacy: Appointment process and international role  Capacity: Treasury administration and advisory councils  Accountability: Stronger democratic control over euro area affairs  First, we need a legitimacy-enhancing appointment process. The Finance Minister could thus be appointed for a five-year period by the European Council acting by qualified majority on a proposal from the president of the EU Commission. The new appointment would be subject to the formal approval of the European Parliament, and the Finance Minister would be member of the Commission, as well as chair of the Eurogroup. Second, the euro area Finance Minister would need to be backed by a genuine Treasury administration. Such a civil service would also benefit from the public advice of two independent bodies, the European Fiscal Board and the Competitiveness Council. Last, if we succeed in implementing further integration, we will need stronger democratic control over euro area affairs. To this end, we will need to consider a euro area format of the European Parliament. Relationships between euro area MPs and national parliaments will also need to be enhanced. As I said, not only do we need to better coordinate public policies, but we also have to foster private risk-sharing throughout the Eurozone. To recall Wolfgang Schaüble, European leaders need to show “that balanced budgets, growth and investment are not mutually exclusive, but rather go hand-in-hand”5. 5  Wolfgang Schaüble, “Managing Europe – What is Germany’s responsibility?”, speech at the LSE, March 3 2016. BIS central bankers’ speeches  7  III.
The successful implementation of postpandemic measures, when the priority will be a return to economic and social normality as fast as possible, hinges on the extent to which macroeconomic stability is preserved. When I speak of independence I do not see the central bank secluded in an ivory tower, but working actively, and combatively, under the law, with the fiscal authority, with the government. Based on my experience, I do not think there is a better alternative to a balanced, coherent fiscal and monetary policy mix. And central bank independence implies accountability vis-à-vis the law, the mandate, the society. Or, in the words of 19th-century Romanian writer and politician Costache Negruzzi, the central bank needs to ‘stand accountant’ for what it does. By encroaching upon central bank independence, in favour of political decisions seeking shortterm electoral gains, the real costs will be borne from an economic and social perspective, in the long run, by the entire country. A recent study published by the European Central Bank, titled The Case for Central Bank Independence, shows that – while the de jure independence has largely remained intact – the de facto independence has deteriorated in almost half of the sample of central banks under review. This is a fact and, for me, it is a matter of concern. I shall not comment on it. Looking at central banking history that spans more than three centuries, I hope this is part of the long cycle of ups and downs in terms of central bank independence.

For this to happen in the best possible way, customers themselves need to pay due attention and obtain accurate information on bank products and services. When necessary in this process, more specialised external expertise may be requested. Secondly, Bank of Albania aims to offer a concrete incentive in this process for commercial banks, by further reducing their costs for the use of AIPS and AECH, payment systems during their transactions in Lek, on their own or their clients’ behalf. We believe that through a more competitive policy in products pricing by the banking sector clients get more benefits and we may see an increase in their number and, subsequently, generate an increase in the revenues of the banking sector. Third area, in which we are focused relates to the requirements to increase accountability in banking institutions management, asking repeatedly that professionalism, dedication and accountability be transformed into a work culture for all banking institutions staff. For that matter, we are continuously reviewing the processes through which the banks realise their decision-making, ensure control of certain activities and reporting chain within their institutions, as well as their interaction with the public. Internal control systems define, mostly, the capacity of an institution to operate securely. These are necessary to avoid any gap that may be abused to the disadvantage of the institution. Hence, in its regular communication with banks, the Bank of Albania has requested that they undertake all necessary measures; in terms of money, human resources and technology; to guarantee the security of any banking [trans] action.