samchain/econo-pairs-v1 huggingface dataset:
BIS central bankers’ speeches  1  As an EU institution that has played a central role throughout the crisis, the ECB has become a focal point for those frustrated with this situation. This may not be a fair charge – our action has been aimed precisely at cushioning the shocks suffered by the economy. But as the central bank of the whole euro area, we must listen very carefully to what all our citizens are saying. There are some, like many of the protestors outside today, who believe the problem is that Europe is doing too little. They want a more integrated Europe with more financial solidarity between nations. And there are others, like the populist parties we see emerging across Europe, who believe that Europe is doing too much. Their answer is to renationalise our economies and reclaim economic sovereignty. I understand what motivates these views, why people want to see a change. Yet in truth neither offers a real solution to the situation we face today. Solidarity is central to European integration and it is right that countries have supported each other during the crisis. But the euro area is not a political union of the sort where some countries permanently pay for others. It has always been understood that countries have to be able to stand on their own two feet – that each is responsible for its own policies.

This building will inevitably become known as the “house of the euro”. It provides a sound foundation for the ECB to pursue its mandate of maintaining price stability for all euro area citizens. In that sense, the building is a symbol of the best of what Europe can achieve together. But it is also a symbol of why we can never again risk to split apart. We are standing here today in what used to be Frankfurt’s former wholesale fruit and vegetable market, a state-of-the-art functional building from the 1920s that has largely been preserved and incorporated into the new structure. Between 1941 and 1945, more than 10,000 Jewish people from Frankfurt and nearby were deported from here to the concentration camps. A memorial on the east-side of the building has been built to remind us, and those who come after us, of deeds that cannot and must never be forgotten. An integrated, democratic and peaceful Europe was one of the key lessons from this dark chapter in history. We have come a long way since then – but nothing we have achieved should be taken for granted. European unity is being strained. People are going through very difficult times. A recent Eurobarometer survey on how households in several countries are coping with the crisis showed that all respondents had been affected by a loss of income, and almost all said life was worse since the crisis hit.
Using the broadest measure, Total Management Expenditure – which captures all areas of public spending, the Budget projects an average spending increase of 1.7% per annum in the five years to 2015/16. Should inflation remain at around the 2% level over the next five years, that would imply that government spending in aggregate is likely to be broadly flat in real terms. While that represents a change from the very significant increases seen over the last decade, it points to a milder drag on growth than some of the more lurid headlines about the spending review have been suggesting. On the detail for individual spending areas, we will learn more next week following the public spending review that has been going on over the summer. And that will hopefully help to remove some of the current uncertainty around future public spending which has been affecting business and consumer confidence in the UK recently. A second point to note about the impact of the government’s deficit reduction plan is that all previous recoveries in the UK economy – in the late 1970s and in the 1980s and 1990s – have taken place against a background of fiscal austerity and public spending restraint. It is  6  BIS Review 134/2010  true that the level of public borrowing has now reached a higher level than in previous downturns – peaking at 11% of GDP, compared to just under 8% of GDP in the early 1990s and 5% in the early 1980s.

As Chart 11 shows, we have seen two major spikes in CPI inflation within the last two years. And it is possible that another one is in prospect when higher VAT comes into effect early next year, particularly if this is accompanied by a continuation of the recent surge in energy and commodity prices. These repeated episodes risk eroding confidence that UK policymakers remain committed to low and stable inflation, with a knock-on effect on inflation expectations in financial markets, among the business community and the public which could be self-fulfilling. In the depth of the recession in the first half of last year, we could be fairly relaxed about upward pressures on inflation. At that time, the MPC was worried about the opposite trend – a lurch into deflation with prices and wages on a downward spiral. But these deflationary fears have not been realised. Instead, inflation has run above the target and wage freezes introduced to help businesses weather the storm of the recession are coming to an end. The current period of above-target inflation risks being prolonged by monetary policy which is too lax – creating a climate in which higher inflation is not just the product of one-off shocks but becomes more deeply ingrained. 12  BIS Review 134/2010  The economy is now recovering at home and abroad. The world economy is growing above its pre-crisis trend, and domestic spending in money terms is also following the same pattern, as Chart 12 shows.
Indeed, in most circumstances, global capital markets are deep and liquid enough – having a sufficiently wide range of participants able to trade with each other, and with different risk appetites and different actual risk exposures – to absorb shocks. But history suggests that strains can appear at times. And as the system develops, we need to be alive to whether cracks might show up in new places or old weaknesses manifest themselves in new ways. 4  BIS Review 50/2005  The two challenges I have sketched out for today’s markets – the incidence, now and then, of structural short option positions amongst short-term traders; and of controls occasionally lagging behind innovations – have a common feature. They both entail understanding markets as something more than the positions of atomistic agents. In the first case, market participants have an interest in factoring into their risk management an assessment of whether a market has structurally imbalanced option (or option-like) positions. In the second case, market participants have an interest in working together to establish robust practices and infrastructure when a particular innovation takes off. Many risk managers are, of course, well seized of this. Let’s hope they are empowered too. As practitioners, you can, and should, play a part in buttressing the system – by continuing to innovate, and by factoring collective outcomes into your private calculus and risk management. BIS Review 50/2005  5

As regards the scope of supervision by the ECB, there were no doubts that all banks had to be covered. The problems often stem from small- or mediumsized banks, as we saw in Ireland and Spain. To ensure credibly vis-à-vis the markets, across-the-board coverage is necessary. BIS central bankers’ speeches  1  In practice, how will the tasks be divided between national supervisors and the ECB? The legal responsibility for supervision would be transferred to the ECB, but in concrete terms, national supervisors would continue to supervise banks on a day-to-day basis. In fact, it is a mechanism similar that of the Eurosystem: under the authority of the Governing Council, the supervision committee, bringing together the ECB and the heads of national supervisory authorities, will coordinate supervisory actions and the allocation of tasks with the national supervisors. In practice, the ECB would be responsible for major decisions regarding prudential supervision: assessing capital adequacy in relation to risk, compliance with regulations, etc. I would also like the ECB to have decision-making powers in dealing with cases of distressed banks. Questions remain as to division of powers between the ECB and the European Banking Authority (EBA) The distribution of tasks seems clear to me: the EBA is the European body responsible for banking supervision. It sets prudential rules and standards and ensures that they are applied; the ECB will be the euro area bank supervisor. The EBA’s governance arrangements will have to be changed slightly, as the Commission proposes, to take account of the banking union.
These changes will help reduce the likelihood of crisis and contain the impact of a systemic failure to the level that can be managed by conventional policies. In parallel with this, on the economic front, adjustment to the financial crisis will continue and, in the process, the global economy will likely move into a world of two halves. The first half is the corecrisis countries whose immediate policy concern will be to rebuild financial fundamentals and resume growth. The second half is the less-affected economies, including emerging markets in Asia, whose policy focus will be to sustain growth and avoid financial instability. This latter point is important because, given abundant liquidity, the shift in the pattern of global growth towards the less-affected economies will spark a new financial cycle driven by a resumption of large capital flows to emerging markets. The challenge for emerging markets, therefore, is to grow safely by managing all the attendant risk associated with the strong capital flows. In this context, it is important that the experience of the last ten years, when the fall in Asian  BIS Review 92/2009  3  demand after the Asian financial crisis was offset by a boom in US residential investment, must not be repeated. Otherwise, the crisis risk will remain high, and globalized finance will be seen only as a threat to long-term economic stability. Managing this risk and growing safely will be the stake of emerging market economies going forward.

Bandid Nijathaworn: Where is global finance heading? Speech by Dr Bandid Nijathaworn, Deputy Governor of the Bank of Thailand, at the Conference entitled, “Where is Global Finance Heading? The Stake of Emerging Economies in the International Financial System”, organised by Central Bank of Peru and Reinventing Bretton Woods Committee, Cusco, Peru, July 13-14, 2009. *  *  *  Thank you Chair First, let me thank the Central Bank of Peru and Reinventing Bretton Woods Committee for the invitation. It is an honour to be speaking to you today. The topic of this first session is “Time of upheaval: Where global finance is heading?”. This is definitely an important question given the current crisis is now almost two years old and is still evolving. Judging from the implications that the crisis has had so far on the world economy and financial markets, this is truly the first crisis of globalization. The crisis shows that financial upheaval can happen in any country, regardless of whether it is large or small, emerging or developed, and once happens, it can impart huge externalities on the rest of the world given the globalized nature of the world’s trade and payment systems. But more importantly, the crisis points to the weakness in the configuration of policies and financial regulation in the period leading up to the crisis that led to excessive risk-taking in the intermediation of global savings and investment across economies.
Since I will essentially concentrate on the first possibility, i.e. incentives, let me recall, by a way of contrast, a recent study by Fahlenbrach and Stulz (2011). These authors show that the losses of the banks whose managers’ incentives were most closely aligned with the long-term interests of the firm they managed were at least as large, in the last crisis, as those at the financial institutions where governance was more obviously lacking. This suggests that wrong incentives were not the only factor in the behaviour and decisions that led to the crisis. Knowledge and competence were also at play. ... or a misalignment of incentives? Incentives are an important component in risk and risk-taking. If there is an important lesson in economics and finance that has not been invalidated by the financial crisis, it is that incentives really do matter. The excessive risk-taking that was observed prior to the financial crisis is likely to have been – among other things – the result of the fact that key decisionmakers were not provided with the right incentives to carefully analyse and balance the possible consequences of the risks they agreed to take. Let us take a bank as an example. The main relevant stakeholders are the depositors, the shareholders, the managers and the bondholders.

This is a very strong encroachment on the principles prevailing in a free market  7  The argument outlined here is particularly relevant for holders of senior bonds. 8  See Pigou, A. (1920), The Economics of Welfare, London: MacMillan. 9  10  There are a variety of advocates of this view. Cf., for instance, King, M. (2009), speech at the Lord Mayor’s Banquet for Bankers and Merchants of the City of London at the Mansion House, June 2009. It is fair to acknowledge at this point that there is a lot of controversy and only weak evidence on the existence and size of returns to scale and scope in banking. BIS central bankers’ speeches  5  economy, which is – among other things – based on the principle that firms are best positioned to select their business plan and should do so freely within the appropriate incentive structure. Increasing capital requirements and imposing a capital surcharge The “Pigovian” approach is often more suitably and closely aligned to the principles of a dynamic market economy. In the problem at hand, the Pigovian approach may take the form of the imposition of higher capital requirements together with a capital surcharge, modulated to take account of the systemic risk of a financial institution. The benefits of increasing capital requirements are manifold. First, imposing more equity capital naturally makes an institution more robust and able to withstand adverse scenarios. This reduces the probability of bankruptcy, thus the severity of the externality.
16  For fund holdings, see the NBIM website: http://www.nbim.no/en/Investments/holdings-/  17  National income in OPEC countries decreased on average by 1.3 per cent annually in the period between 1965 and 1998 while OPEC oil production increased. 18  See “Globalisering, olje og pensjonsfondet” [Globalisation, oil and the pension fund] by Ragnar Torvik, available on the Ministry of Foreign Affairs website (Norwegian only): http://www.regjeringen.no/nb/dep/ ud/kampanjer/refleks/innspill/oekonomi.html?id=491448  BIS central bankers’ speeches  5  Over several decades, the investment share of GDP 19 was close to 30 per cent, markedly higher 20 than in other western economies. But the Norwegian economy still expanded at a slower pace than nearby countries. A more efficient use of capital could have boosted consumption without negatively affecting economic growth. The high investment level entailed human costs in that consumption of important goods were rationed. A visible cost was limited imports of fruit. As I recall, the selection of fruit and vegetables at that time would have made the recommended “5 a day” serving of fruit and vegetables far more difficult to follow than today. In recent years, 15–20 per cent of GDP has been invested in the mainland economy, or about the same percentage as our neighbouring countries. But we are always faced with demands for more investment, which is perhaps not that surprising. All of us have probably been stuck in a traffic jam and felt irritation over poor road conditions. It is easy to agree that investment in knowledge is sensible and of benefit for the future.

 The demographic problem: the equivalent of approximately 30 percent of the labour force in Romania and of 13 percent of the total population work abroad (from 3 percent in 2005). This is Romania’s lost GDP. 2   Moreover, even now, when Romania’s economy reports above potential growth rates, the country continues to record negative birth rates. The ageing of the population affects potential GDP; and it is not only about ageing – ageing is doubled by a high rate of people at risk of poverty (around 40 percent in 2016).  According to in-house studies that refer to a panel of 6 Central and Eastern European countries and cover the period from 2005 to 2016, a 1 percent increase in the share of population aged 65 and above triggers a 1.3 percent decline in potential GDP.  Real convergence is measured not only in quantitative terms, in cold figures, but also in qualitative terms. For instance, over 90 percent of the population owns a house, but housing quality is the lowest in Europe (about 30 percent of the individuals have no access to basic sanitary facilities and around 70 percent live in overcrowded dwellings).  The living standards and the wage differential further account for emigration waves even amid the high economic growth. This is a deeply uneven growth at both interregional and intergenerational levels, which is unbalanced in terms of structure and which reinforces inequalities within the society (the Gini coefficient stood at 38 percent in 2015).
There is a further issue of whether and how this pre-funding should be calculated, and in particular whether it should be done on a basis which takes into account the riskiness of each bank and thus the probability of causing a call on the FSCS. Since the FSCS is an insurance scheme, there is clearly a case for calculating the premium on a basis that reflects risk. But a lot more thinking is needed before we can be sure that this can be done in an appropriate way. The second area in which we need to work to ensure that the resolution regime is as good as we can get it concerns the whole area of safeguards. There is a natural tension between the desire for precision in defining the protection of property rights at a very detailed level and the need for flexibility in a regime that has to be able to react to the situations that come our way. We don’t get to choose the problems we face. I recognise that tension. I don’t have a radical plan for changing the current regime, but I recognise that we have to keep a very careful eye on striking the right balance between having the discretion to deal with problems and ensuring that banks and markets know as much as they can about what we would, and would not, do in a resolution. This is why the Code and the Liaison Panel are important parts of the machinery.

As regards negative interest rates, although there is no conclusive evidence to date that they have adversely affected the supply of bank credit, we cannot rule out that maintaining rates at very low levels for an additional, potentially extended, period of time, could ultimately have some negative consequences for the bank-based transmission of monetary policy. In this regard, the mitigating measures adopted by the ECB, consisting of a tiered system for remunerating excess liquidity holdings, are intended to soften the negative impact on bank profitability of the new reduction in reserve remuneration, and thus ensure the expansionary effect on activity and inflation of any additional cuts to interest rates in the current setting. 2. Banking sector profitability This is the economic environment that banks, economic agents and, in particular, financial institutions will face in coming years. If I may, I will now move on to analyse the developments in Spanish banking sector profitability and the determinants thereof. Profitability is one of the main variables that characterise the financial position of banks and it provides the first line of defence against adverse shocks. Indeed, the volume of a bank’s profits determines the return its owners can earn on the capital invested. This, duly adjusted for the risks assumed, will affect the bank’s valuation. Moreover, profit levels determine the margin these agents have available to address shocks. Indeed, low profitability reduces the possibility of generating capital internally through retained earnings.
The scorecard incorporates non-sales performance indicators, such as providing suitable product recommendations and making proper disclosures of material information to customers. 3/5  BIS central bankers' speeches  In all of this, the tone from the top is critical. Senior management and supervisors at all levels must make clear to their staff that meeting revenue targets must never be at the expense of treating their customers with fairness and honesty. This will go a long way in strengthening public trust in finance. Third, and more fundamentally, we must foster a culture of good conduct underpinned by strong standards of ethics. Regulations and controls can only go so far in shaping behaviour. Be it being alert to money laundering risks or dealing fairly with customers, mere compliance with regulatory requirements or internal rules is not enough. Ultimately, how professionals in the financial industry conduct themselves is shaped by the shared values, attitudes and norms in their organisations – in short, the culture. Rules can only tell us what we cannot do, it is values that tell us what we should not do. Those who work in financial institutions must look beyond the question: “Is this legal?” to “Is this right?” “Have I checked the box?” to “Have I checked the risk?” This is why some regulators, including MAS, have intensified their supervisory emphasis on the culture and conduct within financial institutions.

These adjustments have allowed us to learn how ON RRPs might be used to support the monetary policy objectives of the FOMC. Our testing has demonstrated that ON RRP operations can set a soft floor on short-term interest rates. That is, while some trades may occur below the ON RRP offering rate, the volume-weighted averages of most money market rates have been above the ON RRP rate on nearly all days (Figure 2). Data across a range of money markets provide evidence that changes in the ON RRP rate affected pricing for both unsecured and secured instruments and that the operations successfully set a floor on short-term interest rates. While market participants are aware of the success in producing a floor from such volume-weighted rates as the fed funds effective rate and GCF Repo Index®, the Desk has been also examining detailed transaction-level data for evidence that the ON RRP sets a floor on nearly all overnight money market transactions. 12  The payment of interest on reserves has been in place since October 2008, although the Federal Reserve Board recently requested public comment on proposed technical changes to the methodology for calculating IOER. The proposal intends to enhance the effectiveness of changes in the IOER rate in moving the federal funds rate into the target range when changes in those rates do not coincide with the beginning of a reserve maintenance period. Further information is available at http://www.federalreserve.gov/newsevents/press/ bcreg/20150413a.htm.