samchain/econo-pairs-v1 huggingface dataset:
Perhaps, even more important, one of the key benefits of ensuring that certain creditors know they can be bailed in is that those creditors have a much stronger incentive to monitor and, if necessary, constrain the risks banks are taking.13  Transition to new resolution regime Moving to an effective resolution regime, including for the largest cross-border banks, will require a major transition. Many larger banks will need to make changes to their structure and financing. There will inevitably be higher costs as the implicit public subsidy is removed. There is no free lunch. This transition needs to be carefully managed. So in conclusion, I want to set out the principles that the Bank of England is following to guide the implementation of the new regime. Proportionality First and perhaps most important is proportionality. The resolution requirements for a bank should be what is necessary to deliver the resolution strategy for that bank – no more and no less. 12  See Bank of England (2015). 13  The Financial Stability Board has calculated that a withdrawal of government guarantees could reduce banks’ probability of failure by a third. This draws on evidence in IMF and Fed NY working papers that evaluate the relationship between the ‘government support assumptions’ that rating agencies express and measures of bank risk-taking. BIS central bankers’ speeches  7  Large banks cannot be allowed abruptly to cease operating. They have to be stabilised and resolved. Resolution is not resurrection. It takes time.

The public authorities of 14th century Barcelona hit upon a novel policy approach to the liability of bank owners – not only would bankers who failed be publicly vilified by the town crier, they would be forced to live on bread and water until they repaid their creditors.3 How to deal with failed banks is of course only part of a much larger public policy issue – how to deal with the failure of commercial enterprises generally. Arguably, the development of the limited liability corporate body – in which the owners’ liability is limited to their  1  See Button et al (2015). There was a reluctance from banks and from depositors to limit shareholder liability. Unlimited liability, it was thought, reassured depositors and noteholders that their claims were safe. So hybrid solutions were established in which shareholders’ liability was capped at some multiple of the capital they had invested, or in which they were subject to a call for extra capital if the bank got into trouble. 2  3  See Usher (1943). BIS central bankers’ speeches  1  investment – and corporate insolvency, is one of the most important foundations of modern capitalism. But banks are different for two reasons. First, their underlying business of maturity transformation means they depend on confidence. Loss of confidence in one bank can quickly become a run on all banks. And given their leverage and interconnectedness, failure of one bank can lead to failures of others.
At that point, their balance sheet was almost 11 times GDP, with the foreign currency part constituting ⅔, or almost 7½ times GDP. And as is always the case in banking, there was a significant maturity mismatch between the asset and liability sides. Compare these numbers to the reserves of the Central Bank of Iceland, which were 21% of GDP at the time; a swap agreement with the Nordic countries amounting to € bn, or around 12% of GDP; and committed credit lines of around 2% of GDP, or a total of around 35%. This is dwarfed by the foreign currency liabilities of the banks, even if some of them were, of course, longer-term. These defences could only buy limited breathing space in the face of a full-scale run on cross-border operations of banks this size. Further research is needed before we can assess to what degree such breathing space would have facilitated a more orderly and less costly episode than the complete collapse that took place. At any rate, it is clear that this limited ability was one of the factors behind the decision not to grant Glitnir a loan of last resort amounting to € m, which it requested on 25 September in order to cover a loan repayment in mid-October.

International financial market liquidity and the króna exchange rate Liquidity index  The króna exchange rate and bank stock prices  Index, January 2005 = 100  Index, January 2005 = 100  2  120  1  110  Index, January 2005 = 100  250  120 110  200 100  0  90 ‐1  100 90  150  80 ‐2 70 ‐3  80 100  70  60  60 50  ‐4  50 40  ‐5 2004  2005  2006  2007  2008  50 40  0 2004  2005  2006  2007  2008  Financial market liquidity (left axis)  Real stock prices for financial institutes (left axis)  Effective exchange rate (right axis)  Effective exchange rate (right axis)  The liquidity index shows the number of standard deviations from the mean (exponential moving average) from a simple average of nine liquidity measures,  Source: Bank of England, Central Bank of Iceland. Source: EcoWin Reuters, Central Bank of Iceland. As so often occurs in great tragedies, the two stories converged in a grand finale in early October 2008, when nearly nine-tenths of Iceland’s banking system collapsed when its three large cross-border banks – Glitnir, Landsbanki, and Kaupthing – were taken into special resolution regimes on the basis of the emergency legislation that had just been passed by Parliament.
By contrast, a policy change designed to increase efficiency might not come with those undesirable outcomes. In practice, however, it can be difficult to differentiate among drivers of policy change due to measurement and assessment challenges, the potentially long impact horizon, and different views from a social and private perspective. I’ll turn now to describe this efficiency framework and then discuss some of the practical issues. Policy Efficiency As a point of departure, I’ll begin with an idea that I expect is familiar to most of you. Standard finance theory suggests that investors face a trade-off between risk and return that outlines the set of feasible options across portfolios. An investor can choose a portfolio with higher expected returns and higher risk, or a portfolio with lower expected returns and lower risk. I think there is a useful analogy for supervisory and regulatory policy. On one hand, the official sector cares about the provision of financial services such as credit, deposit-taking, payments, and risk transfer, where effective intermediation supports economic growth and consumer wellbeing. This is the basic function of the financial sector and can be thought of as the return on banking. On the other hand, the official sector also cares about reducing disruption in the provision of those services and broader financial stability risks. It is only a decade since the financial crisis in 2008–2009 that imposed such an enormous social cost on the U.S. economy, so those risks remain salient for many of us.

On the other hand, policies are possibly more short-term oriented and large policy errors more likely. Investors may therefore demand a higher risk premium. In direct democracies, the speed of reform is typically slower. Grid-locks are possible through referenda and therefore more common. On the other hand, political stability in direct democracies tends to be higher and economic policies typically have a more long-term orientation. As policy changes take more time to be introduced, the risk of large policy errors tends to be smaller. Over the long-term, investors appear to be willing to pay a premium for higher stability. Beyond differing parliamentary systems, our two countries’ political structures are organized along different principles. Whereas the political process in the United Kingdom can be broadly characterized as top down, Switzerland’s federalist structure implies a bottom-up political process with a great deal of political autonomy for our nearly 3000 communes and 26 cantons. It is interesting to note that there are at least some tentative signs of converging trends: In the United Kingdom, Tony Blair’s government has initiated constitutional reforms by establishing the Scottish Parliament and the Welsh Assembly in 1998 and by advancing the Regional Assemblies in England. In Switzerland, a number of centralization proposals are debated such as directly enhancing the power of the federal government or alternatively, merging a number of cantons with the aim of ending up with larger and fewer regional authorities.
For example, one would expect that different inflation rates across countries would lead to exchange rate fluctuations, so as to equalise the cost of internationally traded goods and services. If there had been a shock to inflation overseas there may be no additional inflationary consequence for the UK of our exchange rate changing to reflect that shock. But the 25% depreciation of sterling since August 2007 in my view more likely reflects a re-appraisal of the UK economy given the financial crisis and the significance of the financial sector to the UK (in the context of what was a very large and growing current account deficit). In such a case, we would expect to see a large part of the exchange rate depreciation reflected in higher prices for goods and services imported into the UK and hence higher CPI inflation. The size and timing of such an effect, however, would be very uncertain, and would partly reflect whether firms think the lower exchange rate would be sustained and what they believe the monetary policy reaction might be. I think that the depreciation of sterling since August 2007 has had a substantial – but likely temporary – impact on inflation. Estimates are uncertain but my best guess is that it is probably adding between 1 and 2 ½ percentage points to the current inflation rate.

But I also believe that, if the exchange rate is reacting to a re-evaluation of real economic prospects – and not to some other inflationary shock – the effect should be a one-off change in relative prices, albeit spread out over time. It is important to stress that the MPC could try to offset all the price level effects of such shocks in order to leave the inflation rate unchanged. The problem with that idea in practice is the time it takes for Bank Rate to affect inflation. To counter short-term movements induced by relative price shocks would need very large and frequent changes in Bank Rate – including to offset the lagged responses of earlier changes. That sort of policy response would be very de-stabilising, likely to cause undesirable volatility in output, and be damaging to the economy as a whole. This is where the full remit of the MPC becomes effective – requiring us to support the Government’s objectives for growth and employment. Once there has been a shock to inflation, the Committee have to decide how quickly it should bring inflation back to target. To do that we have to judge the underlying state of inflationary pressure. And we have to monitor inflation expectations to check that they are not adversely affected by a succession of temporary shocks to the price level.
They should provide three kinds of stability in a delicate combination of “synchronisation without domination”. To overhaul the changing balance between an ex ante written music score and a real-time human interpretation, let us aim at least for “mutual predictability”… And this is what today’s conference is about, for the macroprudential part of the piece. Thank you for your attention. 1 Interview of Philip R.Lane with Expansión, 26 february 2021. 2 See for instance Colletaz, Levieuge & Popescu (2018): “Monetary policy and long-run systemic risk-  taking," Journal of Economic Dynamics and Control, 86(C), pp 165–184, and Dell’Ariccia, Laeven & Suarez (2017): “Bank Leverage and Monetary Policy’s Risk Taking Channel: Evidence from the United States”. The Journal of Finance, 72: 613–654. 3 This issue of the Financial Stability Review contains several excellent articles on related subjects, see for  example Gabriel Makhlouf, “Lessons from Covid: a Macroprudential Framework for the Market Based Finance Sector”. 4 Istrefi, Odendahl and Sestieri (2020) provide evidence on this direction for the case of the Federal Reserve  before the global financial crisis. See, “Fed Communication on Financial Stability Concerns and Monetary Policy Decisions: Revelations from Speeches“, Banque de France Working Paper Series No. 779. 4/4  BIS central bankers' speeches

These developments  7  4  Not only is liquidity both challenging to define and measure, but the impact of technological change on liquidity is difficult to isolate. On a number of dimensions, technological change appears to have improved both the efficiency of price formation and the ability to transact in size without significantly affecting market prices. But recent “flash” events in various markets – including rapid round-trips in prices on March 18, 2015, in the eurodollar currency pair and on October 15, 2014, in the U.S. Treasury cash and futures markets – have suggested the possibility that advancements in automated trading and changes in market structure may have improved liquidity in normal times but left markets prone to more frequent bouts of illiquidity during which price formation appears disconnected from fundamental information. Structural developments and the connection to liquidity and price discovery across markets warrant further study. See also recent comments by Lael Brainard, member of the Federal Reserve Board of Governors. Recent Changes in the Resilience of Market Liquidity. http://www.federalreserve.gov/newsevents/speech/brainard20150701a.htm. BIS central bankers’ speeches  have resulted in damage to the integrity of the global FX market – damage that will not easily be undone. The behaviors that triggered these criminal and regulatory actions illustrate that, for many, self-interest and the lure of near-term gains were put above the preservation of the market’s integrity and long-term sustainability.
We have made very significant progress on a resolution regime for the 21st century. The powers, international standards and institutions are all in place. The authorities and the banking system have strong and common incentives to complete the implementation. It is in all our interests that we do so. 14  8  See Carney (2014). BIS central bankers’ speeches  References Afonso, G, Santos, J A, and Traina, J (2014) ‘Do 'Too-Big-To-Fail' Banks Take on More Risk?’, Federal Reserve Bank of New York Economic Policy Review 20(2). Bank of England (2015) ‘The Bank of England’s approach to setting a minimum requirement for own funds and eligible liabilities (MREL)’, Consultation on a proposed Statement of Policy, available at http://www.bankofengland.co.uk/financialstability/Documents/resolution/mrelconsultation2015 .pdf. Brooke M, Bush O, Edwards R, Ellis J, Francis B, Harimohan, R, Neiss, K and Siegert, C (2015) ‘Measuring the Macroeconomic Costs and Benefits of Higher UK Bank Capital Requirements’, Financial Stability Paper 35. Button, R, Knott, S, Macmanus, C and Willison, M (2015) ‘Desperate adventurers and men of straw: the failure of City of Glasgow Bank and its enduring impact on the UK banking system’, Bank of England Quarterly Bulletin Q1. Carney, M (2014) ‘The future of financial reform’, Monetary Authority of Singapore Lecture. Financial Stability Board (2015) ‘FSB issues final Total Loss-Absorbing Capacity standard for global systemically important banks’, Press release, available at http://www.fsb.org/2015/11/tlac-press-release/. Financial Stability Board (2015) ‘Assessing the economic costs and benefits of TLAC implementation’. Herring, R J and Carmassi, J (2014) ‘Complexity and systemic risk’, The Oxford Handbook of Banking, 77.

Miguel Fernández Ordóñez: The biggest risk - complacency Address by Mr Miguel Fernández Ordóñez, Governor of the Bank of Spain, delivered to the Círculo de Economía, Barcelona, 31 January 2007. * * * I very much appreciate the opportunity provided to me by the Círculo de Economía to deliver this address at this time, just as the figures for last year have been released. In terms of the Spanish economy's performance, the figures speak for themselves and confirm a favourable short-term outlook. Against this background, I think it is very important to reflect on the underpinnings of the economy’s trajectory, in order to identify those factors that are genuinely relevant for projecting ahead the progress that has been achieved in recent decades. I have therefore thought it best to adopt a long-term approach for this speech, going beyond conjunctural analysis. And with the title I have chosen, I have sought precisely to stress that when things are going well and the outlook is favourable, the biggest risk is complacency. The year 2006 ended in Spain with growth at around 3.8%, outperforming the seven biggest industrialised countries. This is the first time in many years that this has happened. Not only has growth in Spain been higher than in the euro area countries, but it has also been higher than in the United Kingdom, Japan and the United States, which in recent years had been growing at a rate above Spain.
It is this underlying inflation that monetary policy can best treat, and which provides the best indication of the medium-term trajectory of headline inflation. Will this turnaround require actual and duly observed falls in underlying inflation, or a sufficiently solid forecast of an expected fall in the very near term? Prudence demands the first response, while the time taken for monetary policy transmission justifies the latter, so the Governing Council will have  11  Speech by François Villeroy de Galhau at Columbia University, New York, 11 October 2022, “What monetary policy narrative after forward guidance?”. 13  Page 14 of 19  to use its judgement. The other bigger question on an economic level is how best to define underlying inflation: I shall come back to this at the end. The duration of the stabilisation phase The other key variable is the duration the interest rate is kept at its so-called terminal level. It is our duty to repeat that the fight against inflation cannot be won without perseverance, and without keeping interest rates high for as long as necessary. We need to be wary of declaring victory too soon: the final kilometres of a long distance race are often the most decisive. Here again I think we can give some pointers on this other essential “lock”: what economic data could guide us as to the length of this phase and lead us to one day envisage a lowering of the level of rates?

Similarly, it reached a turning point in mid-2022, when the other indicators were still rising. That said, the PCCI is based on a complex statistical methodology and the signal provided by its recent changes remains to be confirmed. Along the same lines, indicators that focus on “momentum” and on quarterly rather than annual changes can provide useful additional information in the current phase. At this stage, there are no clear and convergent signs in all of these indicators that would allow us to assert that underlying inflation has indeed reached a turning point. Lastly, we are closely monitoring the changes in wages, which are notably crucial for services inflation. Nominal wage growth is still accelerating across the euro area, although has so far remained below price growth; however, this is not leading to a wage-price spiral beyond what is included in our projections. The inflation expectations of households and businesses As I mentioned in the first part of my speech, market expectations have clearly improved, admittedly against a backdrop of falling energy prices. However, the inflation expectations of economic agents (households and businesses), particularly over the medium term, are also essential as they are the ones that determine the path of prices and wages. These expectations, which traditionally change more slowly than those of the markets, are giving more mixed signals.
Most importantly, we introduced the Single Note Inspection (SNI) system to improve the quality of the newly printed currency notes with a view to ensuring zero defects in currency notes. Several other internal processes were also improved and upgraded to facilitate a more secure and uninterrupted flow of currency to the market. Going forward, maintaining the quality standards of the currency will continue to be the key focus in the Central Bank’s currency management policy. In this context, with a view to further strengthening the implementation of the Clean Note Policy and enhancing Sri Lanka’s image among non-nationals through the circulation of clean notes, licensed commercial banks (LCBs) have been instructed to refrain from accepting willfully mutilated, altered or defaced currency notes from 1 April 2018. We are also planning to issue a new coin series in 2018 by changing the metal of the coin, which would reduce the cost of minting, while also increasing durability. In the medium-term, we intend to establish a state-of-the-art cash center to improve currency operations. Also, plans have been made to set up coin dispensing/ recycling machines island-wide to smoothen the distribution and recirculation of coins in the country to meet the demand. 26  Public Debt Management We consider prudent debt management as one of the highest priorities given the challenge of managing a very large debt stock, while maintaining a proper mix between domestic and foreign financing.

Further, the reinstatement of the EU GSP+ facility, the expected conclusion of the free trade agreements with Singapore, China and India and strong institutional and policy support are also expected to drive the momentum in exports. We have seen an increased inflow of Foreign Direct Investment (FDI) in 2017 and we expect FDI to gain momentum through the commencement of the Hambantota industrial zone and the continuation of the Colombo Port City project. Higher inflows to the government securities market and the Colombo Stock Exchange (CSE) as well as long term financial flows to the government were also witnessed during the year. With these developments on the external front, the Central Bank was able to build official reserves of over US dollars 7.9 billion at the end of 2017. 4  On the fiscal front, the government has embarked on a revenue based fiscal consolidation path to strengthen the country’s public finances. The government expects to reduce the budget deficit to 3.5 per cent of GDP by 2020 and thereby reduce government debt to a sustainable level in the medium-term. It is in the process of implementing several reforms aimed at improving government revenue collection while rationalising government expenditures to adhere to the envisaged fiscal consolidation path over the medium-term. A positive primary balance is expected in 2017 for the first time since the early 1950s and a surplus in the current account is also expected in 2018 for the first time since 1987.