samchain/econo-pairs-v1 huggingface dataset:
That could be done either by making MMMFs hold capital, which essentially amounts to turning them into de jure banks; or by requiring MMMFs to mark-to-market daily, so that they become Variable Net-Asset Value investment vehicles. In other parts of the shadow banking forest, I hope that we can consider the merits of the industry establishing a Trade Repository for data on what goes on in the securities lending market, including on the reinvestment of cash or securities collateral. While that will sound technical, this is one of the world’s biggest financing markets: firms and the authorities need at least to be able to gauge broadly what is going on. And, to give a third example, I hope that we will treat ostensibly “non-bank” prime brokers as banks if they finance their business with client balances that can be withdrawn on demand. My FPC colleagues will not necessarily agree with all of that, but I hope the examples illustrate that we are not going to focus myopically only on the banking system. “Cyclical” instruments: how does macroprudential policy relate to monetary policy? The cyclical dimension of macroprudential policy is essentially about leaning against credit booms with a view to maintaining financial system resilience.8  7  See Chapter 2 of HMT’s Consultative Document, “A new approach to financial regulation: building a stronger system”, February 2011. 8  I set out the Bank’s developing thinking in this area in Tucker, “The debate on financial system resilience: macroprudential instruments” in the Barclays Annual Lecture, October 2009.

I am therefore delighted that we were able to organise this colloquium with such a set of distinguished speakers, all of which have their exceptional professional standing deeply associated with the financial crisis, either as policy-makers, crisis managers, academics or proponents of regulatory initiatives. My introductory remarks this afternoon are organised around the title of this colloquium. My aim is to review policies in the last few years and draw some policy conclusions. I will first touch upon some of the lessons for financial stability, where Lucas’s contribution was especially important, as responsible for the financial stability function, and then turn to the experience with monetary policy. Lessons for financial stability The financial crisis erupted in August 2007, when off-balance sheet vehicles that had been set up by banks to manage portfolios of complex structured credit securities ran into funding liquidity problems. Although initially a liquidity squeeze, concerns about counterparty credit risks quickly spread as uncertainties intensified about the nature and extent of exposures of banks to what we now call “toxic assets”. And, as we know, these escalating tensions culminated in the bankruptcy of Lehman Brothers in September 2008, an event which triggered an unprecedented surge of volatility across mature-economy financial markets and a broad-based decline of asset prices. With this, an adverse feedback between the condition of the financial system and real economic performance was unleashed, contributing to a sharp economic slowdown across the developed economies.
However, Asia has learnt from Europe that competition need not lead to conflict, and that conflict will destroy its dreams of a rising, prosperous region. The main challenge is to integrate all the key players within the evolving regional architecture. BIS Review 86/2006  3  The US, with its economic and strategic preponderance, will continue to provide the overarching stability and balance in Asia. Most countries in Asia, including China and India, welcome a continued US presence. The key relationships that underpin the region's stability are fundamentally sound. In the post-Cold War era, US-China-Japan ties underpin the East Asian landscape. Today, while this strategic triangle remains valid, India's re-emergence has added a new dimension. Relations between the US and China are the most important, and basically sound. So long as there is no miscalculation over Taiwan, occasional tensions over trade, democracy and human rights can be managed. US and Japan are steady allies. The US' Security Alliance with Japan will continue to anchor its presence in East Asia and the Pacific. Relations between Beijing and Tokyo have been historically uneasy. There has never been a period in history when both China and Japan were simultaneously strong powers. As geographically close neighbours, they will have to learn to accommodate each other. US-India relations are nascent but on an upswing. Japan has also started to actively woo India. Relations between China and India have continued to improve. Many current discussions of SinoIndian relations are based on a presumption of geopolitical rivalry. This premise is false.

As we all agree that it is impossible for the banks to totally know and guarantee for the cleanness of each of their clients, then we must accept the fact that the lacking of suspicious transactions reports means that the bank: •  has difficulties in setting up its structures to ensure the real analysis of the risk profile of its client;  2  BIS Review 49/2005  •  doesn’t have a good understanding of the problem and has been adopting formalism in fulfilling the law requirements;  •  is not taking a proactive role, to understand other relevant institutions difficulties and to come forward with reasonable and acceptable solutions, in accordance with the spirit of the law. If a bank has chosen to act in formalism and if this gets a widespread adoption in the entire financial system, I think we really risk that this approach be counterproductive to the financial industry firstly. It would be somehow normal in this instance to think about lowering the minimum threshold required by law, as a possible solution to avoid formalism and to capture potential cases of ML that lie below the current threshold. Hence, we risk imposing on ourselves a development with a much higher cost of compliance and potentially more formalism, when we consider the difficulties that exist in analysing the reported information in AML Directorate. In this context, I would like to highlight that formalism in terms of law implementation is unacceptable and harmful.
Most central banks therefore now use the quantity of money as one indicator of inflation among others. However, there are considerable differences between the assessments made by different central banks of the importance of the quantity of money as an indicator of price trends. The European Central Bank – the ECB – notifies, for instance, a reference value for the increase in the quantity of money that is considered to be compatible with their price stability objectives. The influence of monetary policy on the output gap The difficulty of using the quantity of money as an intermediate target for an ultimate price stability objective has contributed to an increasing number of central banks moving over to direct control through an inflation target. Put simply, they use the mechanisms that enable the inflation target to be described as follows: A change in the instrumental rate affects GDP which in turn has an effect on inflation. If GDP increases at a rate that makes full use of production resources, inflation is not changed although if demand is so high that production resources are under pressure, then inflation will increase. When resources are under pressure, it is said that there is a positive output gap and vice versa when there are free resources in the economy. When growth is balanced, it is said that GDP increases in accordance with its potential growth path. According to this simple model, the central bank is able to affect inflation through its ability to affect the output gap.

4  BIS Review 40/2001  The correlation between interest rate changes, GDP and inflation is, however, not so unambiguous and clear. There may be considerable uncertainty on the time lag and the strength of the effect of monetary policy on inflation. It is probably the case that the strength of the effects and the time lag will vary. As I previously discussed, it is also uncertain what role inflation expectations play in the transmission mechanism. Should monetary policy take asset prices into consideration? A discussion that has become pertinent due to the great increase in the price of IT and technology shares in particular that preceded the economic downturn in the United States as well as in Sweden – is the extent to which it is reasonable and possible to counteract the building-up of financial imbalances by monetary policy. If monetary policy is exclusively focused on an inflation target, asset prices are taken into account to the extent that they affect inflation by wealth effects and stimulation of investments and consumption. Appreciation of the currency, temporary productivity gains and loan financing of financial assets can, however, lead to the accumulation of major financial imbalances without this being fully visible as inflationary pressure. This was the case in Japan in the 1980s, Thailand in the 1990s and in the United States today. Unmotivated increases in asset prices will sooner or later lead to corrections, however. The strong boom in growth will then be replaced by a deep and prolonged downturn.
Concluding remarks Let me conclude, starting with a quote from the monetary economist and economic historian Charles Goodhart who back in 2008 used a metaphor that describes well the conundrum we face with liquidity buffers that are not used:[35] “The weary traveller who arrives at the railway station late at night, and, to his delight, sees a taxi there who could take him to his distant destination. He hails the taxi, but the taxi driver replies that he cannot take him, since local bylaws require that there must always be one taxi standing ready at the station.” In the context of impediments to liquid asset usability, the issues go beyond local bylaws: low internal risk appetites to let regulatory ratios fall hardwired in banks’ behaviours, market stigma amplified by stringent spot disclosures of volatile ratios, uncertainty about the eventual size of the shock. At the same time the benefits of liquidity regulation are also clear. Banks entered the Covid-19 crisis with strong liquidity – providers of funding to banks did not express any doubt on this front. To understand better the issues and to encourage debate for potential solutions the Bank and the PRA published a Discussion Paper on 31 March this year. [36] I look forward to your engagement. Many thanks to Marzio Bassanin and Artur Kotlicki for help in preparing this speech.

Chiarotti, Mathur, and Rajan (forthcoming), ‘Assessing Basel III: Impact of automatic distribution restrictions on regulatory capital and bank lending’, Bank of England Staff Working Paper. The authors apply a difference-in-difference approach to aggregate bank balance sheet data and granular loan-level data on syndicated lending to corporates. The latter allows the authors to control for important unobservable features in the aggregate data such as changes in credit demand and in borrowers’ risk. 12. To ensure that banks which have different concerns about MDAs nevertheless have similar probabilities of triggering the restrictions, the analysis considers also the banks’ capital surpluses to regulatory buffers. 13. During the Covid-19 pandemic, several jurisdictions including ECB/SSM Fed and BoE recommended banks to restrict or suspend dividends and share buybacks, but not AT1 coupons (see Svoronos and Vrbaski (2020) (2021)  and BCBC  ). 14. During the pandemic AT1 coupons were excluded from the scope of the blanket distributions restrictions that many jurisdictions imposed, so unlike for dividends banks’ ability to pay AT1 coupons was still linked to automatic distribution restrictions thresholds. 15. A somewhat extreme version of broad-based capital conservation – reflecting the unusual and extreme level of economic and market uncertainty at the time - was implemented during Covid-19 when PRA recommended the major UK deposit takers to cancel dividend payments, share buybacks and cash bonuses. 16.
Their potential utility is often cited with regard to institutions which are considered “too big to fail” or “too interconnected to be liquidated” and whose failure would impact the entire system. “Countercyclical tools” aim to address the cyclical dimension of risk by reducing feedback loops. As Slide 8 shows, these are designed to counter problems associated with the actions of individual financial institutions, which can lead them all to act in the same way after an initial shock, thus amplifying the initial movements of the markets and leading to a new wave of similar reactions.19 This is because individual financial institutions tend to react to a shock by shedding risks, either because it is rational to do so or because regulation oblige them to do so. If the system is not designed with the explicit aim of stopping such movements, a negative cycle can set in with dangerous consequences for individual institutions and the system as a whole. Countercyclical measures are intended to modulate, reduce and potentially prevent such instability. The aim of “capital buffers” is to ensure that, in good times, banks acquire capital base that is well above the minimum. The buffers can then be released in more difficult times, allowing financial institutions to absorb substantial asset price falls before legal constraints become binding. They should thus help avoid the mentioned pro-cyclical behaviour that typically leads to so-called “fire sales”. What is appealing in theory is not necessarily easy to implement in practice.

It remains as strong as ever. Despite the difficult conditions and the unusual challenges that have characterized the last two years, all important monetary policy decisions have been reached by consensus, a consensus which emerged from in-depth and intensive analyses and discussions. The current course of Swiss monetary policy, particularly the decision to introduce a minimum exchange rate, is the result of a deep-rooted consensus of this kind. The SNB will thus continue to enforce the minimum rate with the utmost determination and remains prepared to buy foreign currency in unlimited quantities. The Swiss franc is still highly valued, but it should depreciate further in the future. Let me now return to my topic. I will start by presenting general pre-crisis assessments of the state of monetary policy and will then examine how central banks’ policies may have contributed to the financial crisis. After considering these issues, I will be in position to assess the alternative courses of action available to central banks in general, and the SNB in particular, to derive principles for a future in which financial and price stability are better reconciled with one another. I. The Great Moderation: a success of monetary policy? Let me start by considering the state of many developed economies, to include Switzerland, before the onset of the crisis. In contrast with the episodes of high inflation which prevailed in the 1970’s, rates of inflation were subsequently stable and low for some twenty years.
2  BIS Review 74/2008  But the U.S. economy and economies worldwide are still in the process of adjusting to the aftermath of rapid asset price growth and unsustainably low risk premiums. This process will take time. As we continue to work with other central banks to ease the adjustment now under way in the U.S. economy and globally, we are working to make the financial system more resilient and to improve its capacity to deal with future crises. We are working closely with the Securities and Exchange Commission (SEC), with banking supervisors in the United States and the other major economies, and with the U.S. Treasury to strengthen the financial foundation of the major investment and commercial banks. We have encouraged a significant increase in the quality of public disclosure. We have supported efforts that have brought a very substantial amount of new equity capital into many financial institutions. These efforts will help mitigate the risk of a deeper credit crunch. And even as the Federal Reserve has worked to mitigate the liquidity pressures in markets by implementing a new set of lending facilities, we have worked with the SEC and others to ensure that the major institutions are strengthening their liquidity positions and funding strategies. We are also initiating important steps to strengthen the financial infrastructure.

Will the next 25 years see as large a metamorphosis, from sleepy caterpillar to winged butterfly, as the last? It is impossible to know for sure. But it is interesting to attempt a bit of futurology and sketch some hypothetical evolutionary central  BIS central bankers’ speeches  3  bank paths. For the sake of illustration, let me consider two – one descending the stairs from whence central banks came, another ascending them to a whole new level. One possible future path is that central banks simply retrace their steps, going back to basics. Extra-ordinary times – from great moderation to great recession – necessitated extraordinary measures. But extra-ordinary should not become the new ordinary. What might the new ordinary look like? For monetary policy, it would probably mean a return to plain-vanilla inflation-targeting using conventional short-term interest rate tools – the one instrument, one target world. Direct use of central banks’ balance sheets, to affect quantitative or credit easing, would return to being an emergency room measure, for use only when the zero lower-bound on interest rates bit tightly. Active monetary policy would mean small, infrequent touches on the tiller, perhaps accompanied by small, infrequent explanations. Former BoE governor Mervyn King aspired to make monetary policy “boring”. In this scenario, his wish would be granted. Regulation would follow a similar path. While not returning to their pre-crisis norms, regulatory rules would move to a more settled pattern. The very definition of a resilient financial system is one that does not require active intervention.
This call is more than merely a short-lived fashion. There are two especially valid reasons for the formerly rather reserved central banks to communicate openly and in good time. For one thing, transparency - in particular, ex post transparency - is an indispensable precondition for accountability and thus also a necessary correlative to independence. Beyond this, transparency is an effective means of gaining the confidence of the public and the markets. Central banks depend much more on this confidence in fulfilling their mandate than other institutions. For another, the increased significance attached to transparency derives from the central role played by expectations, also in macroeconomic processes. If the efficiency of forming expectations in the financial markets and in the real sector can be improved with greater transparency, this serves to enhance the productivity of an economy. Transparency, however, should be optimised rather than maximised. Individual demands can occasionally be quite unrealistic. In my view, this even applies to ex post transparency, which is basically less problematic. Accordingly, I do not see any merit in the popular practice which has gained ground in various countries to publish the minutes of board meetings. Board members, too, are only human. Like anyone else, they respond to incentives. My fear is that publication will lead to a certain amount of window talk and probably also to critical discussions being held outside the recorded meetings.

Regulatory changes, adjustments in the structure of banks, and innovations in the fields of investment opportunities and payments undoubtedly play a major role. Moreover, with receding inflation rates the relative disruptive effect of such instabilities has increased. Certainly, it cannot be excluded that at some point in the future we will again see a phase of greater stability in the demand for money, but in the current environment such a change is not evident. The policy concept implemented by the Swiss National Bank three months ago is made up of the following three elements: an explicit definition - in terms of a figure - of price stability; publication of a three-year inflation forecast; and an operational implementation target in the form of a target range consisting of 100 basis points for the three-month Swiss franc/Libor rate. I need not enter into this in detail before this audience. The decisive test must be in the time path of the ultimate target variable - the price level - which we will achieve on this basis. As regards the concept as such, I should merely like to make two remarks pertaining to misunderstandings. First, the interest rate target defined as a target range is not a substitute for the money supply target of the concept formerly implemented by us. It is neither more nor less than an operational implementation aid with a much shorter time reach relative to the formerly used money supply target.
William C Dudley: The national and regional economy Remarks by Mr William C Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York and Chairman of the Committee on the Global Financial System (CGFS), at the Business Council of Fairfield County, Stamford, Connecticut, 2 July 2013. *  *  *  Good afternoon. I am pleased to be here with the Business Council of Fairfield County. I am told that your meetings are very inclusive – that you routinely invite education professionals, executives of local not-for-profit agencies and community leaders as well as business leaders. In doing so, you assemble the type of broad Main Street audience that I most enjoy addressing. So, thank you for inviting me here today. Today I want to talk a bit about the outlook for the nation and the region. As many of you know, I was scheduled to speak at this forum on October 29 of last year but that meeting had to be postponed because of the arrival of Superstorm Sandy which hit on that very day. The region covered by the New York Fed was at the center of the storm, and Fairfield County, as well as parts of the Connecticut shoreline suffered extensive damage. Immediately following the storm, our Regional and Community Outreach function worked with all of the affected areas as part of a needs assessment.

While most of the news focused on New York City, Long Island and New Jersey, parts of Fairfield and New Haven counties – cities and towns like Bridgeport, Stamford, Milford, and Fairfield – were severely affected as well. Thankfully, Sandy’s disruptive effect on the region’s economy seems to have been short-lived. Fairfield County did see some job  BIS central bankers’ speeches  5  losses during the winter months, and Sandy likely contributed to that. But, in the spring this area saw a strong and broad-based rebound in employment. In fact, in May employment in Fairfield County surged to a more than four-year high. Even with this recent surge in employment, however, the county has recouped only about 60 percent of the 36,000 jobs lost during the last downturn, whereas the nation has recouped close to three-quarters of its job losses and New York City has more than fully rebounded. And, at more than 7 percent, the county’s unemployment rate remains high. Another dimension of the local economy where we have seen modest improvement is housing. Homebuilding, as measured by housing permits issued, languished from 2008 through 2011; but last year, multi-family construction picked up noticeably, and this year single-family construction has begun to move up as well. Home values have also begun to recover. After falling about 25 percent between 2006 and early 2012, home prices have risen by 5 percent in Fairfield County and 3 percent across Connecticut overall.