samchain/econo-pairs-v1 huggingface dataset:
It should also be borne in mind that the rule of action with a two-year horizon should normally give us enough time in which to act. Being forced to confront one’s observations and assessments with a rule of action has in my opinion helped to focus the Riksbank’s thinking in these matters. When the time comes to make a decision, it is of course a question of balancing the different risks. 5. Should the risks of financial instability be taken into account? The Riksbank is responsible by law for Sweden’s payment system, which means we have to oversee financial stability and take it into account in our policy. But as I touched on earlier, financial imbalances also affect the general economy indirectly. An extensive academic literature in this field has grown up in recent years. The financial sector’s role in the national economy is becoming increasingly important. And as financial markets are now global, the horizon has to be widened. This was evident from the Asian crisis. It is reasonable to assume that stable prices reduce the risk of financial imbalances. With lower inflation, economic agents are less likely to misinterpret prices and make imprudent investments. The wave of property speculation in the 1980s was occasioned in part by the misleading signals which the high-inflation economy transmitted. A favourable economic trend that is accompanied by a strong expansion of credit which people use in the hope of getting a quick return, is liable to generate financial bubbles.

Over the years there has been clear evidence of this in connection with excessively high expectations in the stock market or the property market, for example. In the end, it becomes difficult to justify prices in terms of economic fundamentals. Elements of this have been apparent in recent years, for instance in the United States. One issue is whether central banks ought to consider asset prices when setting the interest rate. The notion here is that asset prices may influence the path of inflation. An increase in household wealth on account of rising share prices, for example, is likely to affect consumption and thereby demand in general and the price trend. Effects from expectations are also involved. Rising share prices may mirror expectations of permanently higher corporate profits and lead to expectations of higher lifetime incomes. If confidence in the future becomes much stronger in this way, the effects on demand may be considerable. Share price increases may perhaps affect the corporate investment propensity in a similar way. The Riksbank takes this into account as far as possible in the inflation assessment. But much remains to be done, theoretically as well as empirically, when it comes to understanding the nature of these relationships. A lively discussion is in progress, at the Riksbank as well as among those who scrutinise us, about what a given development of asset prices should imply for monetary policy. There is even less agreement as to whether central banks should conduct policy so that the development of asset prices is affected directly.
But the projections of the Banco de España will simply confirm that the Spanish economy is immersed in a deep contraction, where the unemployment rate, if no measures are taken, will rise to a very worrying level and where practically the only positive features are the improvement in inflation and progress in the adjustment of the external sector. It is clear today that the various adverse shocks - both real and financial - triggered by the international crisis impacted the Spanish economy when it was in the process of reabsorbing the imbalances it had built up during 15 years of high growth that had brought us progressively closer to the standards of the core EU countries. These external and domestic contractionary forces, having unfortunately superimposed themselves, sharply accelerated the adjustment, turning it into a deep recession similar to  BIS Review 43/2009  1  that affecting virtually all the developed economies. This recession, however, displays certain specific features in our country derived from the imbalances built up during the previous expansion and from the inadequacy of the measures adopted to strengthen our productive and market structures. In Spain the contraction is affecting residential and real estate construction more severely. In these sectors excessive productive resources were concentrated and prices posted growth rates that were too high, taking them beyond levels consistent with their fundamentals.

For one, the persistence of national borders in a European financial market has in the past created compliance costs and reduced the synergies of banking integration. A European Commission survey in 2005 found that opaque supervisory approval procedures were a major deterrent to cross-border banking M&As.4 Moreover, national considerations may have reinforced the fragmentation of retail markets during the crisis. For example, some commentators have argued that supervisors erected de facto “internal capital controls”5 within the euro area, which restricted the flow of funds between banks and within cross-border banks. A similar pattern can be observed in how national authorities in the euro area have dealt with failing banks. In general, non-viable banks were merged with other national banks, rather than being wound down or broken up and sold off. Thus, what could have been an opportunity to increase foreign competition in domestic markets, and indeed to work through the crisis more quickly, in some cases ended up increasing national concentration. To give a comparison with the US, the FDIC has resolved around 500 banks since 2008, mainly by selling parts of banks to other banks, whereas the equivalent figure for the euro area is around 50.6 All this suggests that the move towards a genuine Banking Union in the euro area could help create the conditions for deeper retail banking integration. A Single Supervisory Mechanism (SSM) should lead to harmonisation of rules and standards, and also remove distortions created by national borders.
They argue that successful decision-making under such uncertainty relies on collaborative processes, judgement, close attention to reliable data, and the use of narrative, rather than an overreliance on economic models. 1  Bank of England  Page 3  I want to frame my observations by going back twelve months. At that point the economy was recovering from the worst of the Covid pandemic and CPI inflation had started to rise. Market expectations showed a 50:50 chance that Bank rate would be increased from 0.1% to 0.25% at the upcoming December 2021 MPC meeting. Source: Bloomberg L.P., Tradeweb and Bank calculations Notes: Realised volatility is a 5-day moving average of the difference between the highest and lowest 2-year nominal UK government bond yield within a day. The MPC had recently published its November 2021 MPR, summarised in Table 1. The MPC forecast that GDP would continue to grow, though at a slowing rate, at 2.9% in the year to 2022Q4. CPI inflation would rise in the short term reaching a peak of 4.3% in 2021Q4, before falling back to 3.4% by 2022Q4 and be close to the 2 per cent target by  Bank of England  Page 4  2023Q4. Other forecasters were predicting a similar outlook for activity, although their average CPI inflation forecast for 2022Q4 was somewhat lower at 2.7%2 . In its November 2021 MPR, the MPC stressed that there was a high level of uncertainty around the outlook, including for energy prices.

But when the new EU resolution framework is completed and working properly, such concerns about depositors should be allayed. The Bank Recovery and Resolution Directive already places depositors at the top of the creditor hierarchy in resolution. And the new minimum requirements for own funds and eligible liabilities should ensure that there is a sufficient buffer of loss-absorbing capacity to make depositor bail-in extremely unlikely.23 What is still missing, however, is a backstop for the Single Resolution Fund. Resolution needs financing24, and the Resolution Fund, which is funded by banks, will ensure that it is paid for by the private sector. But in a very deep crisis, the resources of such funds can be depleted. That is why in all the other large jurisdictions, such as the US, the UK and Japan, resolution funds are backstopped by the fiscal authority. The aim of such backstops is not to bail banks out: any funds borrowed are repaid by the private sector over time. Rather, the aim is to create confidence that bank resolution can always be enacted efficiently, which has a stabilising effect in a crisis and prevents more banks from being dragged into difficulties. In other words, policies that reduce risks for the banking system as a whole will also lead to larger risk-reduction for individual banks. A good example of this is the Federal Deposit Insurance Corporation (FDIC) in the US, which is also the resolution authority, and is backstopped by a credit line with the US Treasury.
1, Spring 2003. 34 Such communications are a form of Odyssean forward guidance about the balance sheet. See Jeffrey R.  Campbell et al, “Macroeconomic Effects of Federal Reserve Forward Guidance, ” Brookings Papers on Economic Activity, Spring 2012. The authors distinguish between central bank forward guidance that simply forecasts macroeconomic performance and likely monetary policy actions (Delphic guidance), and guidance that publicly commits the central bank to a set of future actions (Odyssean guidance). 35 Because market prices are forward-looking, an announcement that affects expectations about the stock of  assets held by the Fed should have an immediate impact on market prices. However, the overall size of the market impact will depend on the expected path of portfolio holdings over time. In addition, completion of purchases may be perceived as strengthening the central bank’s commitment by making it more difficult to deviate from announced plans. 36 However, since term premium effects decay as securities age, selling securities with relatively short remaining  times to maturity may not be materially different than redeeming those securities. 37 The Fed’s first two purchase programs were launched with pre-announced sizes and time frames (although the  first program was later expanded). In contrast, the third program was open-ended and state-contingent.

7/15  Implementation of Basel III  I have previously referred to the need for banks to plan their future capital requirements, whether as a result of their business projections or of regulatory changes. In this connection, the importance of strengthening, as far as possible, current capital levels should be interpreted against the background of the challenge – a further challenge – entailed by the entry into force of the final stage of Basel III. Last week the EBA published an update of the estimated impact that the implementation of the outstanding elements of Basel III will have on European Union (EU) banks. According to this estimate, risk-weighted assets (RWAs) will increase in the EU as a whole by 24.4%, meaning additional capital totalling € billion in order to respond to new needs. Naturally, we should qualify these figures. Let us not forget that they reflect estimates made under conservative assumptions that banks will not adjust their portfolios to lessen the attendant impact. The EBA itself indicates that needs would fall to € billion if banks decided to retain all their profits during the transitory period. The reforms will not affect all banks equally. Large banks, in particular those that use internal models (IRB), will be most affected, with the impact being restricted to an 11.3% increase in RWAs for medium-sized banks and of only 5.5% for the smallest banks. The main impact will stem from the application of the regulatory floor for those risk-weighted assets calculated using the internal ratings-based approach.
However, this, in turn, raises some concern on how to justify “rare circumstance”. Again, implementation is a challenge, and no doubt you would have valuable discussions here. As for the efforts to mitigate procyclicality, various models have been proposed for the buildup of reserves and capital buffer. Each model has its pros and cons. On the capital side, there are proposals to increase capital charge for securitisation product and market risk, as well as harmonising the definition of capital. We agree that the banks’ capital buffers need to be improved both quantitatively and qualitatively. However, timing of implementation of guideline on definition of capital is quite crucial, and must be carefully considered. On the provisioning side, the current discussion is on which approach to be used as an alternative to the incurred loss model. The Bank of Thailand supports the principle of expected loss and dynamic provisioning, although it will be technically challenging to implement. As a regulator,  BIS Review 146/2009  5  we need to weight the balance on pros and cons of various models proposed as well as consider if it fits the national context. Turning now to the third dimension where a balanced approach is required. The balance in relationship and responsibility of home and host regulators, and a balanced voice of emerging markets on cross-border systemic risk. This is all the more important now, as regulatory reform across countries can create regulatory gaps and un-level playing-filed, that could cause instability down the road.

The range of policy proposals that have been supported by G20 leaders and finance ministers, the Financial Stability Board, the Basel Committee on Banking Supervision, and international accounting standards setters, include calls for strengthening of micro- and macro-prudential regulations that aim at capturing risks of individual institutions and risk arising from interconnectedness of the financial system, as well as more robust governance framework. The shift in policy paradigm from this crisis has been the increasing recognition of the concept of macro-prudential policy in dealing with the problem of systemic risk posed by the interconnectedness within the financial system, as well as between the financial system and the real economy. The key macro-prudential policies are, for example, a proposal on build-up of capital buffer and the introduction of a simple leverage ratio as a supplement measure to the BIS ratio. We look forward to the BCBS’ proposals on these measures by the end of this year. While vital, this is a tall order, and demanding on supervisory capacity, especially in emerging markets. Let me highlight some of these challenges. The standards being discussed are complex, with still many unresolved issues on technical aspect such as calibration. Among the new guidelines, some key coefficients may be base on data of developed markets, and therefore might not be representative of emerging market conditions. Both calibration and actual implementation will require adequate data, which is often a constraint in emerging markets.
These measures proved successful in curtailing the negative consequences and in fully restoring confidence in the banking system. Subsequently, the Albanian banking system maintained sound balance sheets and was in full capacity to carry out its function as a financial intermediary and supplier of the economy with payment instruments. The developments of the first quarter of 2010 attest to the full restoring of public confidence in the banking system. Currently, the level of deposits has exceeded that of end September 2008, prior to the beginning of the withdrawal of deposits. In what follows, I would like to dwell on the aforementioned topics. 1. Monetary policy and price stability  In accordance with its legal mandate, the Bank of Albania’s monetary policy has been designed and implemented in order to achieve and maintain price stability. During 2009, the main risks to price stability have arisen from the slowdown of economic activity, wavering of economic agents’ confidence, imbalanced external position of the Albanian economy and the exchange rate depreciation. Despite these challenges, the Bank of Albania managed to keep the CPI inflation within the target. Let us dwell on these elements further. 1.1  Economic growth  The global context that accompanied Albania’s economic and financial performance over the past year was not at all favourable. The year 2009 featured contracted global economic activity as a result of the economic downturn in advanced economies and considerable economic slowdown in emerging countries. Global economy posted the first negative growth rate of the last 50 years.

In the domestic foreign exchange market, average annual depreciation of ALL against the EUR and the USD was 7.6 and 13.2 percent, respectively. 1.5  Inflation and monetary policy  1.5.1  CPI inflation  Consumer prices rose 2.2 percent on average in 2009, which is in line with the Bank of Albania’s target for inflation. As a result of the reduced inflationary pressures worldwide, annual inflation marked low rates – 1.8 percent on average – during the first quarter of 2009. In the following two quarters, inflation rates stabilized close to the lower limit of the Bank of Albania’s target, 2.0 percent. Annual inflation displayed an upward tendency in the last quarter, when it marked 2.9 per cent in average terms and converging to the inflation target. The highest inflation rate of 3.5 percent was marked in December. The increase of inflation in the last part of the year was mainly triggered by the more complete exchange rate devaluation pass-through to consumer prices, in the presence of upward primary commodity prices in the global markets. The slowdown of economic activity at home and the low inflationary pressures from the global economy created an environment of relatively low inflationary pressures. Core and non-traded inflation marked average rates of 1.3 and 1.6 percent, respectively, in 2009 attesting to the low inflationary pressures of the domestic economy. These factors offset the devaluation effect of the national currency, which led to higher prices of imported goods and a part of products that are still indexed to the exchange rate.
In fact, it’s been more than 15 years since the Basel II capital accord included a capital charge for operational risk. 2/6  15 years later, I believe we can draw two conclusions. First, measuring these risks is still challenging. Second, their importance for the banking business has not diminished a bit. On the contrary, it has become more relevant for banks and, certainly, supervisors. Indeed, looking at the 2020 priorities, released by supervisors worldwide, it is clear that nonfinancial risks are on the top of the list. Let me give you a few illustrative examples: the importance of IT has soared, since it has become a key component of any viable Business Model, which makes cyber risk an even greater source of concern. Second, considering recent scandals across the EU I believe I don´t need to emphasize that Anti-MoneyLaundering is more relevant than ever. Finally, it is also clear that the nature of retail banking business means that conduct risk is a major source of concern. In this regard, it is not easy to compile all the losses stemming from the wave of fines and lawsuits that has swept through the financial industry during the crisis and its aftermath. According to a report from the ESRB1, the cumulative losses to December 2014 stemming solely from misconduct exceeded 200 bn € worldwide, with more than 50 bn € affecting EU banks. But, despite the size of these losses, the direct financial consequences are not the only source of concern.

Unlike private cryptocurrencies, whose prices fluctuate wildly, these digital currencies are suitable as payment instruments on distributed ledgers as they combine the advantages of tokenisation with the reliability of fiat currencies. These private sector led cross-border payment and settlement initiatives are beginning to scale. Securely-backed stablecoins such as the USD Coin and Pax Dollar issued by FinTech players Circle and Paxos respectively, have been expanding their networks and partnerships with traditional finance firms. They have achieved near real-time 24/7 settlement and lower cost, with interesting programmability features. Visa has integrated popular stablecoins into its payment services, allowing users to make international payments in USD Coin. Partior – a commercial joint venture among JP Morgan, DBS and Temasek - has been able to achieve reductions in settlement time from days to mere minutes for Singapore Dollar and US Dollar exchanges, using a blockchain based multicurrency cross border clearing and settlement platform. These initiatives by the private and the official sector will help to achieve cheaper, faster and more transparent cross border payments and settlements internationally, and ultimately improving the lives of people. The second problem statement crying for a FinTech solution is ensuring a highquality, trusted ESG data ecosystem. Good ESG data is foundational for the climate agenda. First, it facilitates effective management of climate-related risks. Many central banks, including MAS, are very keen to understand the impact of climate risk for financial stability. Second, it enables robust sustainability reporting.
6 We urge all sterling lenders and issuers to consider following suit, making use of the guidance material now available or emerging from the sterling working group and other sources.7 For the more limited range of borrowers in cash markets who feel an operational imperative for a forward-looking term SONIA rate, it should in principle be possible to take daily ‘snapshots’ of the SONIA curve at periodic maturities. A number of potential providers have come forward to develop such functionality. 8 A third benefit of LIBOR transition lies in the opportunity it provides to modernise the technology and infrastructure supporting sterling markets. I have already mentioned the scope to bring the SONIA curve out of the shadows, deepening liquidity, increasing transparency and providing new term benchmarks. The emerging trading conventions for SONIA products will require new functionality in corporate debt management systems. In itself that is of course a cost. But that infrastructure upgrade provides a much-needed opportunity to rationalise aging architecture in both front and back office systems. Firms preparing to novate legacy LIBOR positions – one of the most challenging and sensitive parts of the transition programme – may choose to backload previously uncleared trades into clearing houses. That would allow them to take advantage of auction or trade compression mechanisms with providers working on developing innovative solutions specifically tailored to LIBOR transition.

Credit union meets robot Speech given by Sam Woods, Deputy Governor for Prudential Regulation and Chief Executive Officer, Prudential Regulation Authority  Mansion House, London Thursday 24 October 2019  I am very grateful to Hannah Schraer for her help in preparing this speech. 1  All speeches are available online at www.bankofengland.co.uk/news/speeches  Introduction Earlier this year I gave a speech, which fortunately for most of you in this room you did not have to sit through, on competition. I avoided the temptation to list all of the things we’ve done to facilitate competition and instead posed a set of seven questions which I think are more awkward for us. The three-line version of that speech is this: we’ve done a lot to lower prudential barriers to entry into the banking sector, with the result that we’ve got a lot of new banks. But have we done enough to lower the equivalent barriers to growth, given no little bank has recently become a really big bank? Since then I have unleashed the competition team within the PRA to roam about the institution digging up whatever they can find on the barriers to growth issue. They have already come up with two things.