samchain/econo-pairs-v1 huggingface dataset:
BIS central bankers’ speeches  5  forward, banks will destroy value. This is not the sign of a vibrant banking system ably supporting the real economy. The last time price to book ratios were this low was in the euro-area crisis in 2011/12 and before that in the global financial crisis in 2008. In those cases, particularly the latter, the fall in banks’ price to book ratios reflected concerns about their resilience and indeed their solvency – that is, whether they had sufficient capital to back the riskiness of their assets. Low price to book ratios were accompanied by very high debt spreads on bank debt for the same reason. This time round, banks’ low price to book ratios are accompanied by relatively low debt spreads. 12 In the main, they probably do not reflect concerns about banks’ resilience, which has improved significantly since the crisis. The FPC and PRA Board, in 2014 and 2015, subjected the UK banking system to severe but plausible hypothetical stress tests. The 2014 test was centered on a sharp contraction in UK economic activity – in the test house prices fell by 35% and CRE prices fell by 30%. The 2015 test featured a global slowdown emanating from weak growth in emerging-market economies. The results of both tests showed that, on the whole, UK banks would be able to withstand these scenarios and continue lending to the real economy. Therefore, the current low price to book ratios probably reflect concerns about banks’ future prospects.

The current conjuncture The FPC’s current assessment of the financial cycle is that following a subdued and lowrisk period of post-crisis repair to bank, household and corporate balance sheets, we have now entered a more standard period of risk and credit growth. The stock of private non-financial credit, economy wide, is around 140% of GDP. As I said earlier, the bulk of this is property-related debt. It is growing at broadly the same rate as nominal GDP. In contrast, in the 10 years before the crisis it grew annually at around twice the rate of GDP reaching 177% of GDP in 2009. The stock of household debt relative to income is 135%, down from 155% pre-crisis. In 1992, when Bricks and Mortals was published, it was only 100%. Debt servicing ratios, however, are not stretched at the moment because interest rates are very low – the household debt service ratio is now at 2001 levels of around 8%. But  2  2  For example, Jorda et al (2015) show that a housing bubble combined with a build-up of credit before a recession has more than twice as large an impact on GDP per-capita compared with an equity bubble. BIS central bankers’ speeches  the composition is very different: in 2001 the stock of debt was half the current level and the interest rate twice the current level. There are good reasons why the sustainable level of household debt may have risen over the past 30 years.
It is, however, clearly not the case that all banking is unprofitable or un-investable. The health of UK retail banking is almost certainly being masked by conduct costs, current and expected, and by outdated and costly business models that need restructuring, especially in relation to investment banking. But the returns expected by investors in banks may well be sticky and have further to fall to come into line with risk. The authorities may be able to assist this by giving greater clarity on the end point of the regulatory structure. 14  This figure excludes RBS which is majority-owned by the UK government. 15  See Baker and Wurgler (2013). 16  See Bank of England (2015). 17  See BIS (2016). 8  BIS central bankers’ speeches  On this last point, the stickiness in investors’ required returns may be part of a more general adjustment to a lower interest rate environment. We are unable to measure them directly, but there is some evidence that despite the very low market rates we are now seeing across the yield curve, hurdle rates for corporate investment – namely, the rate of return required by corporates on new investment – have not reflected lower risk-free rates but rather have been sticky and remained near pre-crisis levels. The Bank is doing more work on this. A recent Bank of England Discussion Paper looking at measures of finance for productive investment cites data on hurdle rates as a material data gap in assessing the availability of finance for productive investment.

Estimates of return on equity on SME and corporate lending are around 8% to 9%, which is roughly around the cost of equity for these activities, though it’s hard to say with absolute precision. Investment banking, however, is a different story; return on equity in the investment banking parts of UK banks is around 5%. It was 20% in 2010. Returns at European and US investment banks have followed a similar trend although the decline has not been as steep as for UK banks. Overcapacity, excess costs, removal of the implicit Too-Big-To-Fail government subsidy, tighter capital regulations and restructuring costs are all contributing to reduced returns on equity in investment banking. Large parts of investment banking are not meeting required returns which are estimated to be in the region of 11% overall for a sample of UK and international banks. Parts of investment banking are therefore not economically profitable. Banks have made good progress on restructuring their overall balance sheet – they have cut funded assets by nearly £ trillion since the end of 2010 – but they will probably need to shrink parts of their investment banking businesses or boost returns, for example, by increasing prices or cutting costs. Variable remuneration has fallen in absolute terms in investment banking and other parts of banks but that has been offset by an increase in fixed remuneration. Staff cost to income ratios for banks as a whole are similar to precrisis levels or if anything a little higher.
Monetary policy will still have a channel into the wider economy, and even though banks may look different in the future than they do today, they will not become obsolete. 6/7  BIS central bankers' speeches  But we cannot sit still. Going forward, it will be even more important for banks to develop their services in pace with technological advances and the public’s wishes. And I can promise, on behalf of Norges Bank, that we will do our part to ensure that paying in Norwegian kroner will continue to be an attractive and safe alternative in the future. This is a task we do not take lightly. Thank you for your attention. 1 Several sources attribute the quote to Christian Magnus Falsen. 2 Røkke, K. I. (2020): Shareholder letter, Seetee. 3 Andersen, H (2020): “The cost efficiency improvement of Norwegian banks can be explained by automation and  digitalisation”. Staff Memo 9/2020. Norges Bank. 4 EBA (2021): “Risk Dashboard – Data as of Q4 2020”. 5  The legal basis for banks’ money creation is set out in the Financial Institutions Act, which stipulates that only banks may take deposits from an unrestricted range of depositors. But the formulation take deposits may be somewhat misleading as it also implies that banks may also create deposits. A deposit is an obligation to pay money. Since banks have the right to hold deposits, they can record such obligations on their own balance sheet without having to procure money in advance.

With the right to create money comes obligations. Competition from new participants Chart: Competition from new participants Many of the services banks offer can be provided by others. In recent years, the competition to provide financial services has taken a new turn. The competition comes from both specialised FinTech companies and from global tech giants (BigTech) such as Amazon, Apple and Facebook.7,8 Technological advances are paving the way for new ways of paying. In addition, payment services have become more of a competitive arena. It will now be up to customers, and not banks, to decide which payment solutions will be linked to their bank account. Payment services have become of greater strategic importance for banks as well as other participants. There is increased competition not only for the way we pay, but for the means of payment.9 An example is the e-money offered by PayPal. This is a means of payment that can only be used within closed systems, and that can be converted into bank money at a fixed rate. E-money is often well integrated with other widely used applications and offers efficient payment solutions, for example across borders. Increased use of new means of payment may make banks’ deposit funding less stable. If keeping large sums in new kinds of money becomes more attractive, the money deposited into our accounts will be quickly converted and remain in our current account for a shorter amount of time.
We do appreciate that the System is still in a developmental phase and has yet to reach its ideal configuration. The arrival of ten new members, moreover, will not make things any easier for a time. I would nevertheless like to suggest that a collective effort be undertaken to rationalise the work of the ESCB, not least by containing the number of meetings in Frankfurt and elsewhere. The challenges posed by EMU are clearly diverse and vary from country to country as well as across time, depending on a host of factors ranging from the extent of catching-up that needs to be done and the tools available to policymakers, to the degree of cross-sectoral linkages and of consensus on the respective national strategies. In practice, however, the underlying economic causes are probably quite similar across countries, often being manifestations of macroeconomic imbalances and structural inefficiencies. As such they must be addressed sooner rather than later. Only in this way will it be possible for our countries to derive full benefit from EU membership. That probably hardly needs emphasizing in this forum because central bankers understand the importance of coherent policies designed to achieve a more efficient allocation and use of resources. At the same time, however, we are also conscious of the difficulties involved in reconciling what is conceptually desirable with what is feasible in practice.

Kevin Stiroh: Introductory remarks at the Community Bankers Conference Remarks by Mr Kevin Stiroh, Executive Vice President of the Financial Institution Supervision Group of the Federal Reserve Bank of New York, at the Community Bankers Conference, Federal Reserve Bank of New York, New York City, 18 April 2018. * * * On behalf of the Federal Reserve Bank of New York, it’s my pleasure to welcome you to the 2018 Community Bankers Conference. This is the third Community Bankers Conference that I’ve attended since becoming the head of Supervision at the New York Fed and it is great to see the turnout continue to grow. This year we are fortunate to have nearly one hundred fifty representatives from community banks throughout the Federal Reserve’s Second District and more than forty regulatory colleagues from multiple federal and state agencies. Each year I look forward to this conference as it offers us, as regulators and supervisors, an unparalleled opportunity to exchange views and perspectives, to identify challenges and opportunities, and to promote a robust dialogue with senior managers and directors of smaller financial institutions in the Second District. This type of constructive engagement is critical for us as we work to promote a safe and sound financial system that supports a strong economy. The theme of this year’s conference—“Navigating Future Risks for Community Banks”—is centered on change, which is appropriate when one considers the broad set of forces transforming the U.S. financial system.
•  A second related explanation is focused on structural and technological changes which are permanent in nature, but were not directly caused or controlled by macroeconomic policies. For example, a special type of technological progress frequently mentioned in the discussion of output volatility refers to the improved management of inventories. If a significant part of the business cycle dynamics occurs through inventory fluctuations, “just in time” technologies and better management of inventories in general would reduce volatility along the business cycle (McConnell and Perez-Quiroz, 2000; Cecchetti et al., 2005). Another important structural change is related to worldwide economic integration and globalization, as reviewed in the Geneva Report prepared for this conference (Gerlach et al., 2008). Cavallo (2007), for example, emphasizes that trade openness has reduced output volatility, and hence, more open economies are also more stable. This evidence refutes the old view that more open economies are more exposed to volatility. On the contrary, Cavallo (2007) argues that more open economies have more opportunities to adjust to international shocks. Following this argument, the notable increase in openness all around the world would make all countries more stable. 1  •  A third and final factor which I would like to emphasize is related to improved monetary policy. These reforms have resulted in the reduction of not only inflation levels, but also its volatility. Figure 1 shows average growth and inflation over an ample set of developing countries, 2 while figure 2 shows the volatility of output and inflation.

9-56, Federal Reserve Bank of Kansas City. Summers, P. (2005), “What Caused The Great Moderation? Some Cross-Copuntry Evidence,” Economic Review, Federal Reserve Bank of Kansas City, Third Quarter, pp. 5-32. Truman, E. (2003), “Inflation Targeting in the World Economy,” Institute for International Economics. Vega, M. and D. Winkelried (2005), “Inflation Targeting and Inflation Behavior: A Successful Story?” International Journal of Central Banking 1(3) pp. 153-75. BIS Review 74/2008  7  Figure 1: Growth and inflation in developing economies 25  6  Inflation  4 15 3 10 2 5  Output Growth  5  20  1  0  0 1974  1982  1990 Inflation  1998  2006  Growth  Note: Inflation was calculated using YoY \% change in consumer prices, given by IFS line 64. Growth was calculated as the YoY \% change in GDP volume as given by IFS line 99b. Averages are taken over all countries that have data available from 1975. Industrial and developing status of countries has been taken directly from IFS. Source: IFS. Figure 2: Inflation and output growth volatility in developing economies  10  8  8  6  6  4  4  2 1974  1982  1990  1998  2 2006  Growth Volatility (s.d.) Inflation Volatility (s.d.)
When these liabilities exceeded the long-term equilibrium level, the household sector could no longer pay off the accumulated debt. What were the consequences? An extreme and constrained adjustment of consumer behaviour and approach. Households could no longer pay their debts to banks and maintain the same level of consumption. These individual imbalances altogether appeared in a macro level, mainly in the form of abrupt fall of demand, slower economic activity and depreciation of the exchange rate (US dollar depreciation). Naturally, the financial system could not escape from being affected by this challenging contagion. BIS Review 115/2008  3  What I have stated above points out the necessity of making thorough analysis at a micro level in addition to the macro ones. That is, the recipes for attaining a stable macroeconomic situation should begin and be sustained by prudent analyses at a micro level. It is for this reason that I would like to dwell on and explore one of the indicators that affects the structure and modelling of household budget. I refer here to workers’ remittances which have played a key role in smoothing consumption and at a lower level, meeting investment needs, mainly for real estates and small household businesses. Remittances have somehow offset the low productivity and the negative effects triggered by unemployment. In addition, they have helped to preserve financial stability, by establishing more balanced ratios between income and expenditure. Given the importance of workers’ remittances, one would rightly raise the following question: What is their perspective?

We believe that the direct contact with various social groups in different geographic regions (that is to each and every family), in addition to the traditional means of communication, press conferences, monetary policy or financial stability reports, is a very efficient tool and frequently determinant. BIS Review 115/2008  1  I would like to dwell today on some matters of interest to the entire audience. First I would like to make a brief outline of the Bank of Albania’s latest analysis of the economic and financial situation in Albania: In brief, three are the main developments of greatest interest to the audience: With regard to the international developments, the economic and financial situation has been very complex in the last months. Inflation has turned into a point of concern in most foreign economies, mainly driven by the high prices of raw materials, oil and food. In addition, economic activity in developed economies has experienced sharp turns. Euro area economy is at present in front of many questions, while the US and some Asian economies have shown slow rates of economic growth. Credit crisis has caused many reputable international institutions to experience large financial losses and its contamination process is still present. Recently, the two US mortgage giants, Freddie Mac and Fannie Mae, which were on the verge of collapse, were subject to an unprecedented and costly rescue plan designed by the US Treasury Department.
Mark Carney: Three truths for finance Remarks by Mr Mark Carney, Governor of the Bank of England and Chairman of the Financial Stability Board, at the Harvard Club UK Southwark Cathedral dinner, London, 21 September 2015. *  *  *  I am grateful to Ben Nelson and Iain de Weymarn for their assistance in preparing these remarks. “All England is an American shrine, full of rich records of the makers of their nation.”1 None more so than glorious St Saviour’s – Southwark Cathedral – a few minutes south of the river from here. Its connection with Harvard makes it something of an American Mecca. For at St Saviour’s was baptised a Southwark butcher’s son who became benefactor to the university that would bear his name. John Harvard would doubtless be delighted with what has become of the 320 volumes and £ he bequeathed to posterity: a college founded for the avoidance of leaving “an illiterate ministry to the churches, when our present ministers shall lie in the dust”. From that bequest sprung one of the world’s leading universities. A community dedicated to its motto: Veritas – truth; the pursuit of truth in the sciences, humanities, even economics. Truth to create a better world. But recall Pilate’s question that has echoed down through the centuries from the pulpits of Southwark Cathedral to Memorial Church, “Truth? What is truth?” Indeed, upon arriving at Harvard, students and visitors are confronted with a curious truth, or rather, three untruths.

An online portal for registration will open tomorrow morning, with attendance determined shortly thereafter by a ballot. 11 Debate on social media is already underway, 12 and there will be live webcasts available on the day. The Open Forum is open to everyone, because the UK’s markets matter for everyone. Our goal is to discuss the prospects for market functioning, where regulations might overlap or conflict, and whether enough has been done to build the real markets the UK deserves. Markets that merit social licence and reinforce social capital. In the best traditions of Harvard, we should use the compass of Veritas, so that, when we too are dust, others can build on our legacy, as so many have on that of Southwark’s John Harvard. 11  See www.boeopenforum.co.uk. 12  See #BoEOpenForum. BIS central bankers’ speeches  7
While liquidity risk metrics remain complex and challenging, I believe that there is scope over time to achieve some degree of enhanced, consistent disclosure across institutions. The final lesson is the need for stronger oversight of banks’ liquidity risk management practices. The authorities’ role is to preserve financial stability by lowering the probability and impact of bank failures that could threaten the functioning of the financial system more broadly through contagion, spillover and damage to financial networks. There is no incentive  6  Senior Supervisors Group: “Observations on Risk Management Practices during the Recent Market Turbulence” March 2008. 6  BIS Review 50/2008  for private banks to bear this cost spontaneously, as their responsibility is to their shareholders rather than to users of the financial system more broadly. The objective of prudential supervision is to correct this misalignment between private incentives and public policy goals, by forcing banks to deliver higher standards of liquidity risk management and to build stronger defences than they would naturally provide of their own volition. That leaves open the formidably difficult question of the level of resilience to liquidity stress that the authorities should seek from individual banks. An answer to this question requires a balance to be struck between the risks to financial stability if resilience is set too low, and the risks of inefficiency of financial intermediation if buffers are set too high.

5 Yet more sources of potential funding pressure have emerged from greater activity in capital markets, such as the pipeline risk that arises from being unable to offload leveraged loans and warehouses of loans awaiting securitisation when unfavourable market conditions prevail. And banks are also subject to the risk of exposures previously passed on to third parties flowing back to them, for example when sub-prime residential mortgage-backed securities are “put back” to the originator should they be found to breach certain credit criteria. Finally, banks are also exposed to the risks of a decline in asset market liquidity and falls in market prices through the potential for higher collateral or margin requirements. These may substantially raise the level of funding a bank requires on a day-today basis. 5  Institute for International Finance: “Principles of Liquidity Risk Management” March 2007. BIS Review 50/2008  5  As emphasised in a recent report by the Senior Supervisors Group, 6 banks need to develop a comprehensive approach to the management of liquidity risk to ensure that it is in line with the bank’s overall risk appetite. One strong recommendation in the report is that financial organisations develop and apply a systematic policy of internal charging for liquidity risk. In particular, banks need to ensure that risk decisions made by front office traders price appropriately the liquidity risk generated by new products and business lines, rather than treating it as a “free good” or overhead to be managed centrally by the treasury function.