samchain/econo-pairs-v1 huggingface dataset:
It has also affected banks’ income and cost structures, as they have been able to make profits as a result of advances in technology. That is, banks have been able to specialise in the provision of information and the monitoring of credit exposures, for example in the context of loan securitisation, thus raising the share of non-interest income. On the other hand, banks’ profits have come under pressure in some areas, such as lending to large firms. This resulted from the fact that technological progress has opened these areas to competition from inside the domestic banking sector, from international banks and also from other financial intermediaries such as institutional investors. In point of fact, the development of institutional investors has been facilitated by technological changes reducing the costs of collecting savings, gathering and disseminating public information, and assessing risks. Technological development has also facilitated the rapid development of new financial products. While a large proportion of innovations would not have been possible without the breakthroughs achieved in financial theory, it has been predominantly technological progress that has made the widespread use of these innovations possible. The second factor underlying the structural changes in the financial system and banking sector is the process of financial liberalisation which has been ongoing for some time already. It has allowed an increase in the overall level of competition in financial systems. In the EU, financial liberalisation gained momentum with the Single Market programme.

Christian Noyer: The euro and the banking sector  Speech by Mr Christian Noyer, Vice-President of the European Central Bank, at the Duisburger Banking Symposium, organised by the European Center for Financial Services, on 27 September 2000. *  *  *  Ladies and gentlemen, It is a pleasure for me to speak here at the Duisburger Banking Symposium. The famous American comedian, Bob Hope, once typified a bank as “a place that will lend you money if you can prove that you don’t need it”. As we all know, this description does not give credit to the extremely important role that banks play in a modern economy. Nowadays, economic life simply would not be possible without the wide range of services and products that banks offer to various groups of society. The issue that I shall address today - the euro and the banking sector - cannot be fully comprehended without considering the particular, and to a large extent unprecedented, nature of the introduction of the euro. The single currency does away once and for all with internal exchange rate fluctuations, completes the structure of the Single Market and, by virtue of its availability to almost 300 million people, increases the efficiency of currency use in an unprecedented manner. The introduction of the euro was a regime shift that will undoubtedly have a major impact on the euro area economy and its financial structure in the years to come.
See also Northern Rock’s 2008 Annual Report and accounts P25/6. BIS central bankers’ speeches  7  large. Introducing a break clause allowing either counterparty to terminate the contract effectively shortens the maturity of the swap, since the bank (or the company, in case it is owed money and the bank’s credit appears more shaky) can demand payment at that time. In reality, most corporates do not expect such a break clause ever to be exercised. The concern would be that, if the corporate expects the bank to ignore the break clause regardless of the circumstances, exercising the clause would be a surprise for which the firm may not have put appropriate contingencies in place – perhaps even making default more likely. Or that the market may start to interpret the enforcement of “break clauses” as a sign of weakness on the bank’s part. In other words, such behaviour could be seen as so antagonizing to customers that a bank would only do it if it is absolutely desperate. Yet if the bank cannot in fact enforce the break clause, its credit pricing and risk management has been faulty. Another example, comprising elements of the break clause and the SIV problem, is the behaviour of managers of money market funds when faced with the prospect of “breaking the buck”. A money market fund calculates its net asset value (NAV) on a daily basis. The NAV is its price per share, which reflects the total value of the fund’s investment holdings.

In essence, the CDS protection is not really being used to insure against default but to reduce market price volatility. Let us now turn to a second example of a bank hedging its corporate lending. Banks lend to a broad range of companies. In many cases they would be expected to hold these loans on their books until maturity (as opposed to selling them off to other investors). In order to reduce its measured outstanding credit risk, a bank may choose to purchase off-setting CDS protection, probably on a portfolio of loans. By so doing, the bank can make greater use of its internal credit risk limits and may get regulatory capital relief. In most cases, another leveraged market participant (bank or hedge fund) would write the CDS. (In some cases the insurance provider may be an unlevered institution, for which most of the concerns below would be reduced.) In the first example, the pension fund was concerned about short-term price swings. In this second example, the bank should be concerned to protect itself against clusters of defaults. But if the risk management of the ensuing portfolio of loans and CDS is not done with serious attention paid to the joint risk profile of the corporate borrowers and the providers of the CDS protection, the true net risk position might be worse than it appears. That could fool regulators as well as the bank’s own risk management function.
Also, insufficient financial sector policy reaction on the side of governments exacerbated the detrimental dynamics and represented itself as a source of risk and uncertainty during the crisis, ultimately fostering dynamics of self-fulfilling prophecies. The ECB’s non-standard measures In this environment the ECB took bold and decisive action. The disruptions in banks’ short-term funding led to a strong tightening of credit standards to both businesses and households. This threatened to undermine bank lending to the real economy with risks of a severe credit crunch. In turn, the transmission of monetary policy became seriously impaired. And, central banks were less effective in steering term money market rates via the setting of their policy rates. Ultimately, the interest rate set by the central bank did no longer reach the real economy across the euro area in the same way. The size of the shocks and the extent of global and intra euro area adjustments required exploiting the ECB’s full toolkit to implement a wide range of non-standard measures. Here, we always had to keep in mind the importance of the banking system for the financing of the economy. In the euro area, two-thirds of external financing – and even a larger share for small- and medium-sized enterprises – originates from banks. Our measures included the provision of unlimited funding support to banks at maturities up to three years, the extension  6  The Japanese experience since the 1990s was widely seen as an exception.

These and many more questions need to be addressed in the months to come. Let me only mention the most obvious: •  A European banking supervisor only for the euro area or for the EU 27? A well-functioning financial market union is primarily in the interest of the monetary union. Nevertheless, non-euro area member states should be welcomed to put their institutions under the control of the European banking supervisor. •  A European banking supervisor for all banks or for the systemically important banks only? From my personal perspective, the European banking supervisor should only be entrusted with the supervision of the systemically important institutions on European or domestic level, at least at the beginning. Anything more is neither feasible nor desirable at the beginning of 2013. •  What shall be the division of labour between the ECB and the European Banking Authority (EBA)? From my perspective, EBA could be tasked with any future work on the Single Rulebook in the single market, ie for the EU 27. •  And finally, what shall be the division of labour between the ECB and the national supervisory authorities? It will be key to strike the right balance between relying on local know-how and expertise while safeguarding a single standard of supervision and a level playing field. The implementation of a European banking supervision is closely linked to the possibility of direct banking recapitalisation via the ESM in the future and should not least therefore be advanced without undue delay.
And I believe it is particularly worth noting that investment in equipment ended the year at a rate of increase of close to 9%, highlighting the robustness of business activity in the closing months of 2007 against a backdrop of sound corporate earnings and a favourable demand outlook. The demand for housing, which had moved onto a mildly slowing path in mid-2006 in response to higher borrowing costs and lower real estate appreciation expectations, appears to be showing greater sensitivity to the deterioration in agents' confidence, according to the latest available information. Recent figures reveal a loss of momentum in activity and employment in the construction and related sectors, as they do more generally, but on a lesser scale, in the rest of the economy. In any event, when considering the ongoing adjustment in the residential sector, which was largely inevitable following a prolonged phase of growth in supply, we should not overlook the considerable forces underpinning the demand for housing in the medium term in Spain, which should help temper the scale and intensity of the adjustment. The performance of trade in goods and services with the rest of the world has been relatively favourable in recent quarters, and has helped net external demand to make a positive contribution to GDP growth and, therefore, to alleviate the loss of momentum in domestic demand. I would highlight the resilience of exports in the past year, despite the significant appreciation of the euro and the somewhat diminished dynamism of export markets.

Nevertheless, when you take up a position as a board member, you also have a responsibility to discharge your responsibility in a very professional and systematic manner. My dear friends, it is necessary for everyone to exercise a certain financial discipline within the organization. If the top people are lax, or if the board members do not ask the questions that need to be asked, then the tendency is for financial discipline to erode within the company. My dear Chairmen and CEOs, don't be frightened of, or upset with, the people who ask tough questions at Board Meetings. My dear Directors, don't feel over-awed or shy to ask the tough questions at Board meetings. You must do that. We want you, as Directors, to do that because it is not possible for the Department of Supervision of Non-Bank Financial Institutions to be doing all the questioning from the Chairmen & CEOs. We are performing a regulatory function. We will see whether the overall framework is in place. We will want to see whether your overall risk assessment positioning is acceptable. But, the actual running of the business is your responsibility. You have to ask the tough questions. You have to ensure that sound internal controls are in place. You have to look at the future plans to ascertain whether you are on the right track. Often, I have seen eminent and respectable people accepting board positions, but not getting involved in the governance of the company. That is not good enough, especially in finance companies.
This may indicate that there is a relationship between the degree of openness and deviations from target, although Canada is an exception. It should also be noted that the figures for the twelve-month rise in consumer prices are considerably more volatile here than in other countries. We see from the figures that consumer prices in Norway, even when tax changes and energy products are excluded, are more volatile than indices in other countries where these products are included. Developments in recent years have also been influenced by the pronounced favourable disturbances to which the Norwegian economy has been exposed. Developments in Norway’s terms of trade provide an illustration. As consumers, we enjoy the benefits of falling prices for many imported goods. As a nation, we benefit from a fall in prices for the goods we import relative to prices for the goods we export. Norway’s terms of trade have improved. The impact of the rise in oil and gas prices is particularly strong. However, there have also been terms-of-trade gains in the mainland economy. The situation in Norway differs from that of our Nordic neighbours. Although the domestic economy is partly insulated from oil price fluctuations through the oil fund mechanism, terms-of-trade gains have been a challenge to monetary policy in Norway. Low imported inflation has put downward pressure on our rate of inflation. At the same time, our currency has remained strong, partly reflecting an improvement in Norway’s terms of trade.

To be able to evaluate our policy – not only the political authorities – but also financial markets and the general public need to know how we interpret our mandate, our view on how the economy works and trade-offs. Therefore, monetary policy must be transparent. Transparency and communication are also important for monetary policy effectiveness. Monetary policy works mainly through expectations and is only effective if the central bank is able to influence interest rate expectations. Professor Michael Woodford has expressed this very clearly in stating that monetary policy is “management of expectations”. “For not only do expectations about policy matter, but (…) very little else matters”. The central bank determines the shortest money market rates through the key rate. The shortest rates, however, are of limited importance. Economic agents’ spending depends more on their interest rate expectations. In recent years, Norges Bank has strived to achieve greater transparency with regard to its monetary policy strategy. As from the beginning of 2003, the Board has published its monetary policy strategy document for the next four months. The strategy was initially published at the end of the period to which it applied. Since June 2004 it has been published ahead of the period. While the document was initially an appendix to our Inflation Report, it is now the first section of the Inflation Report with monetary policy assessments. The strategy includes a recommended interval (red bars) for the policy rate over the following four months, conditional on economic developments that are broadly in line with our projections.
Outstanding export performance, strong domestic fundamentals, and continued GDP growth will unavoidably attract foreign capital into the country and, as in the recent months, exert upward pressure on the currency. While the economy now enjoys a more flexible adjustment mechanism compared with the past, a huge influx of foreign capital relative to the size of domestic financial and capital markets can nevertheless cause substantial market volatility and, if persists, can even lead to the emergence of asset price bubbles. 4  BIS Review 46/2003  Regarding the upward pressure on the baht, the Bank of Thailand has been monitoring the currency movements closely and has introduced a number of measures to ensure that the adjustment is orderly, in particularly that the exchange rate volatility is kept at a manageable level for the corporate sector. Let me emphasize here that the Bank of Thailand regards the current appreciation of the baht as a natural occurrence for an economy on the recovery and is not concerned with a trend movement that is in line with improved economic fundamentals. However, with realization that Thailand has always been more open on the inward than the outward direction, we have taken this opportunity to liberalize the outflow side of the capital account to make things a bit more balanced. With this intention, institutional investors have been permitted to invest in overseas securities, and the establishment of mutual funds to invest on behalf of local individuals in Asian Bonds issued by sovereign and quasi-sovereign entities has also been encouraged.

On this, the contribution from the organization and people like yourself has played no small part, and I would like very much to use this opportunity to acknowledge this. Going forward, the challenge is to translate the current momentum into a sustainable growth well into the medium term. This, as I noted earlier, would require a continued fostering of the export and consumption expansion so that capacity utilization could increase to the point that private sector capital investment would gain an even firmer footing. During this period, monetary policy must remain supportive of the growth process. At the same time, we will continue to keep watchful eyes on certain areas of the economy that may expand too fast and impose risks to economic and financial stability. Should some of these excesses occur, however, the Bank of Thailand will make sure that appropriate measures will be employed to prevent and mitigate such risks. Ladies and gentlemen, Thank you for your attention. I think I would just stop now to give time for questions. I’ll do my best to answer any questions you may have. Thank you. BIS Review 46/2003  5
One needs to go back to the Bretton Woods era to get volatility levels as low as at present. 2  BIS Review 124/2006  BIS Review 124/2006  3  Of course the reduction in the volatility of returns – and the lower compensation for future volatility embedded in risk premia – is responding to some real changes in the world. You might break down sources of uncertainty about future returns into three components: macroeconomic risks, financial risks and risks in the broader environment. Macroeconomic volatility has fallen considerably over the last decade in many economies [Chart 5]. In the real economy, greater flexibility in labour and product markets, especially openness to foreign competition through trade and immigration, has enabled smoother adjustment to shocks. On the price side, central bank independence and inflation targeting have contributed to greater price stability. There is also greater depth and sophistication and fewer rigidities in financial markets. Innovation has created a variety of products enabling more and better risk transfer by financial market players and greater choice for end-investors. Greater financial market flexibility can support macroeconomic stability by keeping credit and liquidity available during periods of stress. But risks in the broader environment haven’t gone away. Threats from ecological or biological disasters, fraud, political conflict and terrorism seem as high as ever. And these are risks we have identified. As ever there may be some significant “unknown unknowns”.

Both are bound to be tempted to take on greater risk to generate absolute returns. Of course this syndrome is widely recognised. Investment mandates and management remuneration are often measured against a risk-adjusted benchmark to avoid rewarding such activity. But it can take considerable efforts to spot such behaviour. The proliferation of new and highly complex financial instruments is making it harder to assess the incidence of underlying risk. The assumptions underlying the valuation of positions in such instruments are often unclear. Many of these products have the effect of selling insurance against unlikely financial market events. In so far as there has been a genuine increase in the stability of the economy and financial markets, selling volatility is less risky than it used to be. But it can be more risky than it appears. Our market contacts often cite the example of selling ‘out-of-the-money’ options as a popular strategy recently. Here the seller receives a steady stream of small payments today in return for paying up in the unlikely event that the price of an underlying instrument moves significantly from its current value. With sufficient leverage, a small payment stream can be turned into a tidy return. But as all insurers know, the key to long term return is to spread your risks widely or to avoid correlated risks. In assessing risk in financial markets, a common metric is correlation of positions with the market return. But this is quite inappropriate in this case.
However, in more recent weeks, the more positive data in the US has resulted in some flow-back to the US markets. This more variegated and dynamic landscape means financial markets are likely to remain volatile in the months ahead. We need to be prepared to manage this volatility. 9. Second, policymakers not only have to grapple with the aftermath of the financial crisis, but also the medium term structural challenges facing their countries. There are significant differences in the pattern of saving and investment across economies. Many of these reflect structural factors such as demographics, as well as the particular path of growth and development. To sustain global growth, some changes in the global saving-investment pattern will be necessary. This cannot happen overnight. Instead, we need sustained and coordinated policy action across all the major economies. The IMF and global bodies like the G20 will have to continue to focus and provide direction on these structural issues. 10. Third, the financial crisis shows how critical the nexus is between the health of the financial system and the health of the economy. Global regulatory reforms are necessary to address many of the weaknesses uncovered during the crisis. Yet, we have to tread a fine balance to build not just have a resilient global financial system, but also one that can support sustainable economic growth. Given the varying pace of economic recovery and the different phases of economic transition, regulations need to be appropriate to local circumstances, while preventing regulatory arbitrage.

In particular, job growth has picked up in Buffalo, and the Capital Region continues to see sturdy growth coupled with significant manufacturing job gains. However, not all parts of upstate New York are seeing the same degree of economic progress. There has been little to no growth in the center of the state, and Utica and Binghamton continue to see employment declines. Binghamton stands out as being particularly challenged, as its economy has yet to see any meaningful recovery from the Great Recession. Steep manufacturing job losses have weighed heavily on the area, though these losses appear to be nearing an end. I had the opportunity to visit Binghamton earlier this summer, and I was encouraged by what I saw. The region is making serious efforts to boost economic growth, with Binghamton University playing a key role in fostering local business activity. And, like many places dealing with steep manufacturing job losses, there is a large swath of displaced workers that need assistance returning to the labor market. This has proved challenging and remains a priority. Update on Puerto Rico On balance, I think it’s fair to say that the economic news from much of the Second District has been quite positive. An important exception, though, has been the fiscal crisis faced by the Commonwealth of Puerto Rico, home to 3.5 million U.S. citizens. Unfortunately, Puerto Rico continues to struggle under the weight of economic stagnation, employment declines and outmigration.