samchain/econo-pairs-v1 huggingface dataset:
Central banks are meant to provide liquidity support only to solvent firms so that the central banks avoid taking on credit risk. An overreliance by firms on access to central bank liquidity can expose the central bank to the risk of loss. Finally, in some cases, central bank liquidity provision can become stigmatized. In this case, financial firms are prone to underutilize this source of liquidity – a decision that can have adverse consequences for markets and the availability of credit. Liquidity buffers reduce the likelihood that this stigma constraint will become binding. The on-going Basel discussions have focused on a short-term liquidity requirement – the Liquidity Coverage Ratio (LCR); and a longer-term liquidity requirement, the Net Stable Funding Ratio (NSFR). The intention of the LCR is for banks to hold sufficient high-quality, liquid assets that can be easily and quickly converted to cash to cover expected liquidity outflows in a stress scenario over a 30-day period. Unlike illiquid assets, the conversion of these high quality liquid assets into cash should not create any fire sale dynamics. However, it is important that banks actually use this liquidity buffer when there are liquidity outflows, rather than attempting to maintain their LCR at 100 percent by selling other assets. The OTC derivatives markets remain another important source of potential instability.

Seamless integration with these new trading processes is essential for CCPs to contribute to financial stability. The financial crisis also highlighted the significant gaps that existed between the data collected and the data necessary to adequately monitor developments in the global financial system. In addition, the crisis underscored an important limitation of the current data structure: the inability to combine data effectively across jurisdictions in order to develop a comprehensive view. As a consequence, policymakers often did not have timely access to  3  See Basel Committee on Banking Supervision and the Board of International Organization of Securities Commissions (2013) Margin Requirements for Non-Centrally Cleared Derivatives. 4  See Committee on Payment and Settlement Systems and the International Organization of Securities Commissions (2012) Principles for Financial Market Infrastructure. 6  BIS central bankers’ speeches  key information that would have informed both the diagnosis of emerging problems as well as the likely efficacy of proposed interventions. As we all know, it is difficult to safely steer a fast-moving car if outward vision is impaired by a windshield that is largely obscured. In response, the G20 in April 2009 instructed the Financial Stability Board (FSB) and the International Monetary Fund (IMF) to detail these information gaps and to develop proposals for resolving them. The Data Gaps Initiative (DGI) was the response to carry out this important work.
But I would like to point out that the reforms in the fiscal policy area have also been very important. The relatively good central government finances over the past ten years have undoubtedly been a source of strength for the Swedish economy. If we had instead had large budget deficits, a large national debt and unclear regulations in the fiscal policy field it would probably have been difficult to win credibility for monetary policy. In this context it may be worth mentioning that the Riksbank actually had some experience earlier of conducting monetary policy with an inflation target. We were the first central bank in the world to introduce a price stability target for monetary policy after abandoning the gold standard at the beginning of the 1930s. The Riksdag supported the Riksbank’s monetary policy programme and evaluated the policy conducted in a modern manner on several occasions during the 1930s. The price stability target contributed to anchoring inflation expectations, which probably helped Sweden manage the 1930s crisis better than, for instance, the United States. But after this we had many decades with a fixed exchange rate and the episodes I have just described. The Riksbank’s inflation target and legal position In January 1993 the Riksbank made its target of low and stable inflation more concrete. The annual rate of change in the consumer price index, CPI, should be 2 per cent, with a tolerance for deviations of ± 1 percentage point. The target would formally apply with effect from 1995.

It is my hope, therefore, that you will include on your agenda issues to do with ICT solutions to address financial inclusion for sustainable development. Let me now turn my attention to another key issue that I expect delegates to discuss at this Conference. This relates to the crucial role that the SADC IT Forum plays in the Regional Indicative Strategic Development Plan (RISDP), which is the SADC long-term (15-Year) Strategy. It is envisaged that the Committee of Central Bank Governors (CCBG) in SADC will continue to work on the process of monetary and financial integration in the region. In order to meet this aspiration, there is a need to harmonise central banking practices and procedures across the SADC region and benchmark these against international best practices. I therefore trust that this Conference will seek to prepare a RISDP Action Plan which will steer ICTs within the SADC region to higher levels. Equally important, I also expect that this initiative will assist central banks to harmonise ICT functions and come up with shared regional communication infrastructures that promote economic development. Distinguished Delegates, at this juncture let me also thank representatives of the hardware and software suppliers for coming to this Conference. These are our partners and the technologies that have been implemented in our central banks would not have been possible without their technical advice, expertise and innovation.
It was introduced during a period of crisis to back up external debt repayments. Am I right in thinking that the Central Bank will abrogate this instrument in 2018 or will you keep it in some other form with different conditions? And another question, if I may. Does the Central Bank intend to introduce special instruments to provide liquidity to banks which experience difficulties after information attacks? There have already been cases when regional banks faced challenges, due not to financial difficulties but to information attacks. ELVIRA NABIULLINA: As for the FX refinancing instrument, I think it would be appropriate to evaluate it when it expires. We believe that it has proven to be an effective instrument which has allowed our enterprises and banks to adjust more easily to the surge in external debt repayments. We set the limit at $ billion, with a maximum allocation of $ billion. For now debt only slightly exceeds $ billion. As we initially planned and stated, we will curtail its use by the end of 2017. We will progressively reduce the limits and we do not foresee any problems arising for the banking sector in repaying these funds by the end of the year. We are not going to completely abrogate it and remove it from our toolkit. It will be a suspended 12 / 14  BIS central bankers' speeches  instrument. We do not see any need to apply it again in the near future, but we will keep it in our toolkit.

Global losses on these securitised assets are now believed to lie anywhere up to £ trillion.6 As losses accumulated, trust in these securities was undermined and with it trust in the banks issuing them. As credit was cut, trust in the viability of some non-financial companies was questioned. Corporate distress began to rise internationally during the course of 2008. And as corporate distress rose, in particular after the failure of Lehman Brothers, distrust between companies mounted. The stream of trade credit extended between firms dried to a trickle at the end 2008 and in the first part of 2009. At that time, a survey by the Bank’s regional agents  6  For example, Bank of England Financial Stability Report, June 2009. BIS Review 108/2009  3  reported that around a quarter of contacts had had to turn down potentially profitable orders as a result of tighter trade credit. This progressive hardening of the credit arteries also had dramatic effects between countries. Cross-border flows of credit have reversed dramatically in the past year. “Home bias” by investors – a lack of trust in foreign investments – has returned with a vengeance. Cross-border lending by international banks grew by 20% per year between 2003 and 2007. In 2008, it fell 5% (Chart 5). This has had adverse effects on UK companies, around a third of whose borrowing comes from foreign lenders.
The sub-standard credit crisis in the US revealed that individuals in most cases did not manage to pass this test. Consequently, the debt load on individuals grew even heavier, while access to crediting became tighter, resulting in a big risk for their financial future. A similar analogy may be drawn for lending in foreign currency in some Eastern European countries. Secondly, financial education should be seen as a public good that brings about positive externalities to the society. It not only increases individuals’ financial welfare, but also affects directly economic policy efficiency undertaken by relevant authorities. The more-educated the public, the higher economic policy efficiency is. Maintaining inflation and economic activity under control is almost impossible in a society ailing from financial illiteracy. Macro-economic balances are achieved and maintained through monetary and fiscal policies instruments. The society needs to be aware of these instruments, understand them, evaluate stimuli and incentives, and properly respond to them. The important role of consumer behaviour for the policies success is clearly evidenced in the “rational expectations” theory. A simple intuition behind this theory is that rational individuals shape their expectations using the available information optimally. They respond to new information by adopting their behaviour to maximise welfare. In this case, individuals “equipped” with financial literacy read and understand developments in economic policies and respond to them rationally. This mutual understanding would drive the economy towards the desired direction.

In 1911, the renowned Austrian economist Joseph Schumpeter said: “...that the structure of modern industry could not be erected without finance, that it makes the individual to a certain extent independent of inherited possessions, that talent in economic life ‘rides to success on its debts’ even the most conservative orthodoxy of the theorists cannot well deny.” If you asked me why is financial education important, I would say it in these words: because it contributes to Albanians’ financial welfare. The more literate we are financially, the more capable we are to make decisions that contribute to our improved welfare. This is true for everyone, regardless of who we are or where we come from. As Friedman, the Nobel prize winner, says: “Economic freedom is an essential condition for political freedom”. Our exercising rights that result from economic freedom would be unavailing in absence of financial literacy and equality in the marketplace. This implies not only the same information at the same time, but also the capacity to use this information. Finances create an added value not only for the rich, but also for the entire society. It is necessary to create equal access for all citizens. Equal access to finances and equality before the law are the foundations of modern market economy. Finance and financial education walk side by side. While literacy may turn a poor man into a rich man, illiteracy, on the other hand, may conduct a rich man into misery. Finances are dangerous when you are not financially literate enough.
Under CRD IV, national authorities shall take account of other variables in addition to the credit-to-GDP ratio.2 The four key indicators are also in line with the new Norwegian regulation, which states that the basis for the buffer decision from Norges Bank “shall contain an overview of the credit-to-GDP ratio and the extent to which it deviates from the long-term  1  The trend is estimated using a one-sided Hodrick-Prescott filter (lambda = 400000) extended by a forecast. The mean is for the entire period in the chart. 2  Articles 135(1)(c) and 136(3)(c) of Directive 2013/36/EU (CRD IV). BIS central bankers’ speeches  3  trend, as well as other indicators, and Norges Bank’s assessment of systemic risk that is building up or has built up over time”. Under the regulation, Norges Bank shall take account of guidance from the European Systemic Risk Board (ESRB). The ESRB is currently working to formulate guidelines for setting the buffer rate. Norges Bank and Finanstilsynet are actively participating in this effort. Once the guidelines are in place, recommendations from the ESRB on methodologies and benchmarks for setting the buffer rate will be included in the basis for the buffer decision. In line with the recommendations from the Basel Committee on Banking Supervision and the regulatory framework, there should not be a mechanical relationship between developments in the indicators and Norges Bank’s advice on the buffer as relationships in the economy are too complex. The advice will always be based on qualified judgement.

As deposits are readily available to depositors and many deposits are covered by a deposit guarantee, depositors accept a relatively low interest rate. The insurance premium banks pay for the deposit guarantee bears little relation to the risk the bank takes. In addition, since investors can expect that the authorities will come to the aid of banks in distress, they  BIS central bankers’ speeches  1  may be satisfied with a lower return. The result is an underpricing of risk, potentially leading to excessive risk-taking. Low equity ratios reduce loss-absorbing capacity and, at the same time, strengthen the incentive to take risks. While owners cannot lose more than their equity stake, there is a potential for high returns on the equity they have invested. To avoid a situation where banks hold inadequate equity capital, banks are subject to capital requirements. Each bank should hold capital in proportion to its risk exposure. This is the basis of microprudential bank regulation. But even if banks appear to be solid individually, the banking system as a whole may be vulnerable. Banks are exposed to one another and can inflict losses on one another directly. Banks can also suffer substantial losses indirectly if they have shared exposures outside of the banking system. This was clearly evident during the financial crisis. When a bank is forced to sell off assets, they fall in value. This weakens the balance sheets of other banks holding the same type of assets.
Therefore, in the long run, real economic variables are determined mainly by underlying factors such as natural resource utilisation, labour force quality, productivity, and the propensity to save. It follows from what I have just said that it is of little use to set long-term goals for monetary policy other than price stability or exchange rate stability. Although this is so, monetary policy can also attempt to mitigate volatility in real variables such as GDP and employment and counteract deviations in the exchange rate from equilibrium, particularly when such volatility and deviations originate on the demand-side of the economy. It also follows from what I have said that monetary policy must be forward-looking, as it takes effect with a time lag. Based on the findings from a number of studies, the rule of thumb is that the full effect of interest rate changes on inflation emerges in 2-3 years, while the bulk of the effect emerges within about a year. The short-term impact on real variables tapers off within the same time frame. And it follows from this that in order to pursue forward-looking monetary policy with any degree of success, it is necessary to make forecasts. These call for economic analysis and modelling. In order to understand the problems associated with monetary policy implementation, one must bear in mind that statistics relating to the recent past often contain significant measurement errors, that we do not know what the “right” economic model is, and that the future is always in some sense unknowable.

Central banks' response to the crisis History taught us that banking crises degenerate into deep and lasting depressions unless they are dealt with quickly and forcefully. Those lessons were not lost on both fiscal and monetary authorities and the policy response worldwide has, indeed, been exceptional by any historical standard. I would like to focus here on three characteristics of central banks interventions •  First, they have been fast and decisive. Indeed, the start of the crisis can be dated back to August 9 2007, when the Eurosystem provided up to 95 billion euros in exceptional liquidity support to the interbank market. As the crisis developed, those interventions multiplied and evolved, a point to which I will return shortly. The deterioration of the real economy and subsequent easing of inflationary pressures opened room for a substantial relaxation of the monetary policy stance. In the euro area, seven reductions in policy rates brought the interest rate on our main refinancing operations from 4.25% in October 2008 to 1% today. •  Second, those interventions have been flexible and highly innovative. Central banks saw as their mission to avoid the paralysis of financial intermediation and keep the monetary transmission mechanisms working efficiently. To achieve those objectives, they considerably expanded and diversified their tools and instruments. In countries where markets play an important role in the allocation of credit, they created numerous new facilities to provide financing and to lower spreads through the purchase of private and public debt securities.
If an issue is on the FPC agenda, given they are responsible for the financial  3  www.bankofengland.co.uk/-/media/boe/files/news/2018/november/boe-and-fca-appoint-new-chair-of-the-sterling-risk-free-referencerates-working-group.pdf 4 https://www.bankofengland.co.uk/events/2019/june/last-orders-calling-time-on-libor 3  All speeches are available online at www.bankofengland.co.uk/news/speeches  3  system as a whole, then we would generally assume it should also be on the agenda of the senior governance committees of the firms who make up that system. To make sure this was the case, the UK regulators – the PRA and FCA – took a decision to send a “Dear CEO” letter to our largest banks and insurers requesting sight of their Board-approved plans for managing the risks around Libor cessation. The Bank and FCA have already responded to the individual firms involved and, this morning, we published thematic findings from the exercise. I encourage all Libor users whatever their size and position in the system - to look at this: the emerging themes from the exercise apply to a wide range of firms, not just those who received our letters. I’ll make a few observations:  i. The letter has achieved one of its original objectives of helping to focus senior minds on this topic. Each firm written to now has a dedicated Senior Manager under the Senior Managers regime with responsibility for overseeing the transition – I can see many are here this morning. ii. The responses to the Dear CEO letter highlighted much of the good work that is already underway; how some firms have mobilised themselves to meet this challenge.

Data from the Bank’s sterling money market data collection showed that in the first quarter of this year there were on average only 9 deposits a day underpinning 6 month sterling Libor, with a total daily value of £ million. This lack of transactions means that panel banks have to use their expert judgement to make their submissions. And this means they have become increasingly uncomfortable about doing so. And if those panel banks stop submitting, there is no Libor benchmark. Given the pervasive use of Libor historically, this creates a fragility at the heart of markets – that financial markets are reliant upon an unsustainable piece of infrastructure1. This financial stability risk is something the Financial Policy Committee has therefore been closely monitoring.2  The FCA has secured a breathing space to enable the transition, but only until end-2021. The best way to make the most of the timetable set for Libor to end is for markets to focus on transitioning away from it, to new risk free rates. For sterling markets, to the new risk free rate is SONIA, an overnight benchmark provided by the Bank and underpinned by transactions worth about 40 billion pounds a day. The need to transition is a critical one for all involved. We impressed this upon firms in our Dear CEO exercise; a key objective of which was to ensure Board level responsibility for transition.
The world has in the past experienced lengthy periods of continuously positive annual growth: in the UK, for a remarkable 26 years after the Second World War and for 16 years during the Great Moderation starting in the late 1990s. As Chart 12 shows, however, these are extreme outliers in the distribution of expansions. The probability of an expansion lasting for longer than 10 years is, on past evidence, less than 10%. 5  Assuming these probabilities evolve according to a Bernoulli distribution – that is to say, the probability of a recession triggering shock occurring in one year is independent of the probability of a shock occurring in another year. This probability is calculated by looking at data on the frequency of negative annual growth rates. The cumulative probability is the probability that there will be at least one such shock over a given horizon. 6  Using conditional probabilities – for example, on starting in recession or expansion – does not dramatically alter these cumulative probabilities. BIS central bankers’ speeches  5  If a recession were to strike in the period ahead, a relevant question for monetary policy is how much room for manoeuvre might be necessary to cushion its effects. History can again offer some guide. Table 1 looks at loosening cycles in the UK, US, Germany and Japan in the period since 1970 and in the period since 1994. There has been considerable variation in the scale and duration of loosening cycles over time and across countries.

The probability of interest rates having 3 percentage points of headroom over this horizon is around 40%. Put differently, based on these estimates there is a considerably greater chance of interest rates needing to be cut to their floor to meet recessionary needs than of them gliding back to levels that could safely cushion a recession. Even after interest rates have lifted off from their floor, it is more likely than not they may return there over a ten-year horizon. For the foreseeable future, the effective lower bound will exert a strong magnetic pull. Another way of illustrating the same point is through the lens of real interest rates. In the 1990s, they were around 4%. With a 2% inflation target, that meant nominal interest rates would be expected to average around 6% over the cycle. That would give more than enough room to cut interest rates to cushion recession in a typical loosening cycle. Today, global real rates are around zero. With 2% for inflation, that gives a nominal interest rate of only around 2% over the cycle. That would give insufficient room above the effective lower bound to accommodate a typical loosening cycle. Provided real rates remain low, the lower bound constraint is likely to form part of the new normal. Of course, part of the reason the yield curve is low in the first place is because markets are weighing recession risk, perhaps using historical probabilities.