samchain/econo-pairs-v1 huggingface dataset:
Our chosen theme is “What is a useful central bank?” But before we can answer that question, we need to answer the question, “What is a central bank?” This may sound like a naive question, especially coming from someone with twenty-five years’ work experience at Norges Bank. In recent years, however, I have begun to reflect on the question of what a central bank really is. There are two reasons for this reflection. First I naturally have an interest in the history of Norges Bank. If we look back in time, for example, to the establishment of Norges Bank in 1816, a central bank was something completely different from what it is today. History shows that over time, central banks’ core tasks have changed. Or have they really? Second, recent years’ events in financial markets have shined a spotlight on new central bank tasks. The handling of the financial crisis also demonstrates that the definition of a central bank varies across countries and regions. Or are these tasks really new? Stefano Ugolini, a central bank historian at the Graduate Institute in Geneva, has taught me that central banks’ balance sheets reveal a lot about what a central bank is. Who does the bank trade with? What instruments does it trade? With this as our starting point, I shall take you on a brief journey back in time. What is a central bank? After the Napoleonic Wars, Norway gained its independence following a five-hundred-year union with Denmark. The country got its own Constitution on 17 May 1814.

By the same token, let me stress the relevance of the Investment Survey conducted annually by the European Investment Bank since 2016, whose most recent results for Spain have been presented at this conference. This survey contributes to improving our knowledge of the dynamics of firms’ investment and investment finance. In particular, this source of information has proved very useful in identifying the main obstacles to investment. The high coverage of European firms in different countries allows for comparison of investment and investment finance developments across countries. In the context of the pandemic, the results of this survey are even more relevant since they allow us to better understand the implications of the COVID-19 shock for firms’ investment across Europe. To conclude, let me thank the European Investment Bank for partnering us in the organisation of this conference and, more in general, for their very good collaboration with us. I would also like to thank speakers and participants at the conference for such fruitful discussions. I’m convinced these debates are very useful for enriching our understanding of economic problems and for guiding policy makers as to the best possible design of economic policies to tackle them. Thank you. 2/2  BIS central bankers' speeches
It is disappointing that lessons from the crisis on counterparty risk management were not properly learned. As we set out in our Dear CEO letter last year, Archegos is a prime example of this – a single client of many firms had built up risk concentrations that proved to be outsized. Some banks also got caught by this in the nickel market more recently. In other cases, we have seen groups of clients with similar risk exposures, whether that be large concentrated positions of their own or trades with banks that held such positions, which proved difficult to exit as market conditions and liquidity dynamics changed. Risk concentration should not only be assessed on a client by client basis, but across all clients combined. And most importantly, across the client’s market-wide portfolio, not just the portion held with a single firm itself. Whilst this information may not be readily available, the onus is on firms to demand of their clients the information they need to assess the risks they are exposed to. We also see some firms not adequately assessing the liquidity position of their counterparties. Look at the “Dash for Cash” in March 2020 or recent issues in the commodities markets. Whilst counterparties may be fully hedged against capital losses from sharp moves in asset prices, some have found difficulty in monetising their assets in order to meet margin calls.

We recognise the challenges firms are currently facing in acquiring good quality data for these purposes but as data becomes more readily available we expect firms to be able to further develop their risk management and scenario analysis capabilities. The longer-term nature of the threat of climate change is demonstrated by the decades-long time horizons of the scenarios covered by the Bank’s recent Climate Biennial Exploratory Scenario, the results of which were published in May. Although it did not include any international firms, I would like to highlight two of the key lessons from the exercise, which Sam Woods also discussed in his recent speech. [4] The first lesson is that, over time, climate risks will become a persistent drag on firms’ profitability, perhaps in the region of 10-15% annually, particularly if they don’t manage them effectively. The second lesson is that how and when we transition makes a big difference to the costs the financial sector will incur. These costs will be substantially lower if firms take early, orderly action. Taken together, all of this should provide a strong incentive for firms to be ambitious in how they embed the management of climate-related financial risks[5] and meet the PRA’s broader expectations set out in Supervisory Statement 3/19. [6] So in that context, investment banks should take recent disruptions in commodities or supply chains as a sign of things to come, and get used to managing those because in the new world they might well become more frequent. End So let me conclude.
Denis Beau: Denis Beau: Monetary and financial challenges for the Euro area - what are our options? Speech by Mr Denis Beau, First Deputy Governor of the Bank of France, at the Faculty of Economics and Management, Strasbourg, 28 February 2019. * * * Ten years after the crisis, the ability of the global financial system, and especially the European financial sector, to withstand shocks appears to have been significantly reinforced. This reinforcement is the result of numerous changes which vary in nature: Banks now have more capital and its quality has been improved. Their transformation activities are better regulated and they have larger liquidity buffers. In Europe, the banking sector has also been made more resilient through major institutional reforms, especially the creation of the Single Supervisory Mechanism under the aegis of the ECB and the Single Resolution Mechanism. Outside the banking industry, the reforms steered by the G20 have enhanced the functioning of financial markets (particularly derivatives markets), improved the oversight and regulation of developments in non-bank financial intermediation (shadow banking), and put in place a framework for monitoring and safeguarding the stability of the financial system as a whole through the implementation of macroprudential policy. The crisis has also prompted changes in the way financial institutions operate. One of the most visible ones is that risk and compliance functions have now become an essential part of their organisations.

For the SSM, this vigilance requirement has led to the establishment of three supervisory priorities for 2019: first priority is, given the continuing high level of outstanding non-performing loans, to monitor the euro area banking industry’s credit risk by providing further strong incentives to lower exposures – efforts which have already resulted in a substantial reduction; second priority is to ensure that institutions manage their risks appropriately, including behavioural aspects such as customer protection and the prevention of money laundering, the significance of which has become abundantly clear in recent years; third priority is to manage multidimensional risks, the most pressing of which being Brexit. The SSM’s priority in this respect is clearly to ensure that euro area banks operating in the United Kingdom and vice versa have drawn up contingency plans to cope with the loss of European passporting rights after Brexit. c. What role can macroprudential policy play? Macroprudential policy can play a complementary role alongside microprudential supervision by following a more preventive approach that addresses the financial system as a whole. Macroprudential policy can play a preventive role with regard to debt trends and to the financial cycle: the current phase of the cycle is conducive to greater risk-taking, and the French macroprudential authority, the Haut Conseil de stabilité financière, has taken steps to limit this and/or prevent negative consequences in the event of a financial shock. The HCSF therefore keeps a close eye on markets or activities where exuberance is more likely to emerge.
So without further ado, let me quickly turn to the main theme of my remarks this morning: “What does it take to build a successful global hub for offshore RMB businesses?” The key to success, if I may summarise it, lies in the acronym: “PIPs”. 5. “PIPs” stands for “Policy Headroom, Infrastructure and People/Products”. Let me cover these three elements in the reverse order. For People and Products, I have said many times that for any financial centre to thrive and out-compete other centres, the crucial building block would be its people and products. It goes without saying that a world class financial centre must have the right people designing and distributing the right products that serve the needs of the financial consumers. This is an important and core component of the soft power that I have been talking about in the last few years. It is a key attribute that differentiates a global hub from the other financial centres. People and Products fall into the area in which the financial industry, including the individual firms, practitioners and industry bodies like the TMA, can and should play a dominant role. I am sure that you will agree with me  BIS central bankers’ speeches  1  that policy makers and regulators, while having the responsibility to safeguard financial stability and to accord appropriate protection to financial consumers, are not really well suited to get too involved in gauging market demand and designing financial products that would best meet the requirements of the consumers. 6.

Norman T L Chan: What does it take to develop a Global Offshore RMB Hub? Speech by Mr Norman T L Chan, Chief Executive of the Hong Kong Monetary Authority, at the Treasury Markets Summit 2014, Hong Kong, 15 September 2014. *  *  *  1. A very warm welcome to all of you to this year’s Treasury Markets Summit. 2. The theme of today’s Summit is: “Development of Hong Kong as the Offshore Renminbi Hub”. This is indeed a very timely topic as we have just marked the 5th anniversary of the launch of the pilot scheme for the use of renminbi (RMB) in cross-border trade transactions in the summer of 2009. We of course started the RMB banking business back in 2004, but until 2009 our business was restricted to the development of personal accounts for Hong Kong residents and use of credit cards. The major milestone was clearly the start of offshore RMB trade settlement and other businesses for corporates five years ago. 3. So what have we accomplished in the last five years? It is probably fair to say that very few of us could have envisaged the rapid progress that we have achieved in turning Hong Kong into the global offshore RMB business hub in such a short time. In terms of deposits, including Certificate of Deposit (CDs), we have grown from around RMB90 billion in end-June 2010 by nearly twelve times to RMB1.1 trillion now, which makes us the largest offshore RMB liquidity pool in the world.
The asset management industry is indeed a sector where there is robust activity that should not be destabilised. Moreover, the reintermediation of the deposits of institutional clients and companies cannot be justified on the basis of regulatory ratios (in view of the strict treatment of these deposits in the draft  BIS central bankers’ speeches  3  regulations/reforms). Furthermore, the broadening of the deposit base of banks should not happen at any price: we are monitoring developments in the remuneration of deposits very closely. •  Lastly, securing maturity transformation activities can be achieved by encouraging the use of stable sources of financing. I have just talked about deposit-taking, but I should also mention the role played by the issuance of covered bonds. Backed by a dedicated portfolio of underlying assets, these securities proved to be resilient during the crisis and have since played an important role in the funding of European banks. 2. On the assets side  The rebalancing of banks’ liabilities structure is not sufficient on its own. In a general way, banks would also benefit from systematically making sure that their maturity transformation activities are profitable, by ensuring that the return provided by assets is proportional to the risks incurred. I would like to stress here that the greatest vigilance is required when the loans extended do not generate sufficient margins.

The greatest attention will be therefore required when assessing the impact of this standard on the financing of the economy. To back up this somewhat critical observation, I would like to stress three points: •  First, I wish to recall that central banks and supervisors are aware of the demands made on banks to implement the new regulations and we are regularly assessing with them the technical details of these standards. •  Second, a distinction must be made between the different measures set out in Basel III: –  those that are absolutely necessary, such as the increase of capital charges for market activities, securitisation and counterparty credit risk exposures, and,  –  those, such as liquidity ratios, whose impact on the real economy must be assessed ex ante. As regards the latter, a real observation period has been scheduled to allow for any necessary changes. The current arrangements should not be regarded as set in stone. •  Third, while the proposed rules may appear harsh, we will ensure that a level playing field is achieved for their implementation. However, French institutions are well-equipped to comply with them. The major French banks have no difficulties raising funds in capital markets: to date, thanks to their size, ratings and reputation they have maintained their funding capacity. II. What are the avenues for improving the management of maturity transformation risk?
Third, at an ad hoc meeting held in June, we decided to activate the flexibility in reinvestment of redemptions coming due in the PEPP portfolio, as the first line of defence to counter the pandemic-related risks to the transmission mechanism being seen. Fourth, at the latest meeting of the Governing Council held last Thursday, we decided to raise all three ECB policy rates by 50 bp, taking the deposit facility rate to 0%, thus moving out of negative territory for the first time since 2014. At the same time, we approved the new Transmission Protection Instrument (TPI), designed to safeguard the transmission of monetary policy. That is, we felt that a larger increase than signalled at the previous meeting was required, for two reasons. First, the updated assessment of the risks to inflation, including the materialisation of certain upside risks in the short term. Second, we took into account the reinforced support for the effective transmission of monetary policy provided by the new TPI. This 50 bp hike means an accelerated exit from negative interest rates, but does not imply a higher terminal rate in the hiking cycle. The pace at which we approach that level will be determined by the incoming data that we observe at our future meetings and how they affect our medium-term inflation target of 2%. In other words, our interest rate decisions will be made on a meeting-by-meeting basis.

And in such a case, when confidence is lacking, additional public expenditure will not have a positive effect on growth. On the second question, following an episode in which the pricing of risks was, in general, too low, markets now have a tendency to overvalue risks. But it does not affect the euro as a currency. Rather, it is clear that the single currency has proved to be an anchor of confidence and stability during this crisis. If you think back to the European currency turbulence and its consequences in 1992 and 1993, you can imagine what consequences the crisis of recent months would have had for the euro area without the euro – both on the interest rate markets and on the exchange markets. China Finance: What challenges do the US quantitative easing policy pose for the Euro area? What's your assessment on the need for coordination on economic and monetary policies between the major economies in bringing about an early recovery of the global economy? Trichet: I believe that all central banks are doing what is necessary for the economic area they are responsible for and responding to the requirements of the specific conditions. I do not see the point in comparing one central bank’s actions with the other. As I said before, the ECB’s open market operations and collateral framework of today are already in a “nonstandard” mode and its measures can be interpreted as a way of additional “non standard risk taking”.
One of the most interesting can potentially arise when a particular market is characterised by traders who are structurally short options, have short holding periods, and are leveraged; and where the underlying markets are not highly liquid. That needs a bit of unpacking. Options can, of course, be hedged with an offsetting position in a similar option: a so-called ‘static hedge’. Where, for one reason or another, traders cannot do that, they can attempt to hedge by running a position in the underlying instrument, with the intent that gains or losses on the value of their option positions will be offset by losses or gains on the underlying asset position: a so-called ‘dynamic’ hedge. It’s dynamic hedging that can be interesting. The effects of dynamic hedging of long and short option positions can be quite different. Broadly, dynamically hedging a long option position entails selling the underlying as prices rise, and buying as prices fall. Conversely, those who have sold (or written) options need to buy to balance their hedge when the value of the underlying is rising, adding to the buying pressure. And, if the price of the underlying instrument is falling, they need to sell to balance their hedge, adding to the selling pressure. This is, of course, going on every day in a wide variety of deep and liquid markets without anything particularly odd happening to market dynamics. Things are potentially more interesting when markets are structurally imbalanced, with short-term traders, dynamically hedging, concentrated on one side.

So we couldn’t completely rule out that the federal funds rate and BIS central bankers’ speeches  3  other money market rates might not go up one for one with rises in administered rates. One might also worry that money market rates might not move together as rates rise, meaning that, for example, a disconnect might emerge between secured and unsecured rates, or between overnight and term instruments.24 Either situation could result in impaired transmission of monetary policy into broad financial conditions. Assessing the performance of the new framework To summarize my conclusion about the performance of the operating framework to date: I am extremely pleased with what we’ve seen so far. In discussing why I view the framework as effective, it’s helpful to start by explaining what it means for the tools to work well. I think about this issue through three lenses: interest rate control, avoiding unintended impact on the structure of the financial system, and avoiding financial instability. I’ll touch on what each of these mean, and then I’ll review the quantitative evidence since liftoff on how well things have gone. Interest rate control Clearly, interest rate control is the paramount objective. It is of great importance that the public is confident that the federal funds rate will be, on average over time, within the target range set forth by the FOMC, and that other money market rates will continue to move closely with changes in the federal funds rate.
But while central banks need to be mindful of the possible side-effects of their policies, I would caution against requiring them to make more granular distributional judgments. Low and stable inflation and smoothing output volatility are public goods that benefit all; technocratic central bankers should use the tools available to them to achieve that public good and avoid as far as possible taking views on distribution. Distributional considerations and decisions should remain the province of elected authorities that have many instruments to address these issues. 9  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  9  I have discussed some of the policy implications of a low natural rate for central banks generally. In the UK, of course, Bank policy is now focused on assessing and, where necessary addressing, the implications for the economy over our policy horizon – the next two to three years – of the UK’s forthcoming exit from the European Union. I don’t need to say too much about this today. The minutes of the MPC’s November meeting and the November Inflation Report give a detailed picture about the Committee’s current forecast and policy stance to which I fully subscribe. But there is one point that is relevant to the analysis I have just laid out on the natural rate. As I said earlier, the policy rate may need to depart from the natural rate if the policymaker is faced with a shock that creates a tradeoff – for example between bringing inflation to target and smoothing output volatility.

The second caveat is that central banks have been buying government bonds, which stimulate the economy by pushing down term premia and so longer-term real rates. But while QE has contributed to lower term premia and bond yields, much of the decline in the trend real rate pre-dates QE, and the crisis more generally, as both real expected policy rates and term premia fell. And it’s worth noting that the decline in long rates has also been seen in countries where there hasn’t been QE, such as Canada and Australia, although this in part probably reflects international financial market flows following falls in yields elsewhere. Finally, this analysis of the trend real rate does not consider the possibility that trend real rates can be moved around by long financial cycles and the impact of the associated leveraging and deleveraging on interest rates. These effects could well have acted to push up on trend real rates in the long buildup of leverage before the financial crisis and to have pushed down on rates during the protracted deleveraging that followed the bust. Some of these effects will be shorter lived and are best thought of as part of the natural rate cycle to which I will return in a moment. But to the extent that these effects are longer lived they may well have pushed down the trend real rate. And of course there is a broader caveat here.