samchain/econo-pairs-v1 huggingface dataset:
A recovery plan for maintaining a going concern. And a resolution plan for firms that, however regrettably, need to be laid to rest. The objective in each case is to maintain the financial system’s provision of essential services to the economy. Firms themselves need to play a leading role in drawing up “recovery plans”. At least two components are needed, roughly corresponding to liquidity and capital. First, a contingency funding plan (CFP). Too few banks of any size seem to have had one in any serious way. There was, for example, too little focus on the effects of ratings downgrades on collateral calls and on the availability of lines of credit. And too little attention was paid to core liquidity holdings: a treasury portfolio comprising the FRNs issued by other banks does not leave a distressed bank with many options in the face of system-wide stress. Banks need to know exactly what assets they hold in which securities-depository systems; how long it would take to deploy them; and which are eligible in which central banks’ routine facilities. Too few banks had that information readily to hand. Maybe they do now. They should. The FSA has very kindly agreed to share with the Bank of England the CFPs of banks (and building societies) where relevant to our functions. As well as helping us to discharge our financial stability responsibilities more broadly, this will be useful in making sense of requests to draw from our Discount Window Facility.

The alternative, as I have discussed before, 11 is to raise a levy from surviving firms after the event. This would have to be linked to a systemic-crisis threshold being passed for the deployment of public funds. And the basis for deciding how much was recovered from individual firms would need to be both clear and principled. In particular, it would be important to try to incorporate features that enabled costs of failures somehow to fall to uninsured, wholesale creditors. Those who finance the system in the good times need to have incentives to price for risk. Summary This has been a fairly high-level survey of the instruments on the crisis management menu. They are, of course, interlinked. They also bear on the wider debates about the structure and regulation of the financial system. Perhaps most obviously, the feasibility of producing recovery and resolution plans will feed into international and domestic decisions on minimum capital requirements for banks in general and on the mooted add-ons for so-called systemically significant firms. The weaker a recovery plan and the greater the obstacles in the way of its effective resolution, the more capital (and liquidity) a bank is going to have to hold. This is why emerging interest in Contingent Capital instruments is so important. If CoCos could form a material part of recovery plans, the landscape might just be transformed. And that in turn goes to the big issue.
The rate of inflation has been posting very moderate figures since autumn last year as a result of the removal from the index of the base effects linked to fiscal consolidation; certain temporary factors, such as those relating to energy price developments; and other more durable factors, relating to the economy’s excess capacity, the reduction in unit labour costs and the relative sluggishness of spending. For the remainder of the year the inflation rate is expected to hold at low levels, below the euro area average, thereby permitting further headway in gains in competitiveness with which to entrench a stronger recovery. Low inflation is conducive to gains in income purchasing power, although the counterpoint to this is the greater difficulty this adds to further progress in household and corporate deleveraging. In the more immediate future, the advances made by the Spanish economy augur a firming of the gradual path of recovery, underpinned by greater confidence, a progressive easing in financial tensions and a gradual improvement in the labour market. A crucial role will have to be played here by the re-balancing processes under way in the Spanish economy, especially the redressing of the private sector’s financial position and fiscal consolidation. The successful culmination of these processes is pivotal for rooting the recovery in domestic and external confidence and for ensuring the external funding flows that are vital for making sustained medium-term growth possible.

The ECB and the National Central Banks of the Eurosystem are finalising a new projection exercise, whose results will be published in early June. That will be the time to assess the effects that this first-quarter figure and all the new information compiled since the last exercise may have exerted on the baseline scenario for GDP growth in the coming quarters. As you know, in any event, the procedural rules for the ECB Governing Council set a brief period immediately before each of the monetary policy meetings in which the members, myself among them, must not make any statement that may be interpreted as pre-judging in any way the outcome of the meeting. You will therefore understand if I abstain from making any further assessment in relation to this scenario. In terms of employment, last year also saw a turnaround and the job destruction phase in the euro area touched bottom in the second quarter. But the still-moderate recovery has not yet provided for significant improvements in employment levels, meaning that hours worked in the labour market remain far below the historical average and unemployment rates are at a high. On the prices front, sluggish demand and labour market slack are strongly influencing areawide inflation developments. The growth rate of the Harmonised Index of Consumer Prices has stood at a level below 1% since October 2013, with figures that have generally tended to surprise on the downside.
For example, the treatment of traditional retail and commercial banking was probably too harsh, and this has been adjusted. Equally the treatment of derivative-related risks was probably too weak, and so that has been adjusted too. Much has been made of the inclusion of RMBS in the definition of high quality liquid assets, but the eligibility criteria are tight and the initial perception that the Committee had granted carte blanche to the securitisation sector is well wide of the mark. As the Chairman of the Basel Committee’s governing body, Governor King of the Bank of England, said when announcing the full set of changes, they are designed to make the LCR “more realistic”. I think this sums it up very well. Of course, the overall impact of the changes is to improve the reported LCR of the banking system. Based on our most recent data (end June 2012), we estimate that the weighted average LCR for a sample of roughly 200 of the world’s largest banks is around 125%, compared with a little over 100% for the previous calibration. This does not mean, however, that all banks are ready and able to meet the standard today. Even though the industry average is well above the minimum, our estimates suggest that roughly one-quarter of our sample could still have an LCR below 100% even with the latest policy changes. So there remains a significant liquidity shortfall that will need to be addressed by a number of banks.

Central government finances can be weakened so much that the country enters a debt crisis. From this point of view, it may be considered justifiable to make every effort to increase the resilience of the financial system. At the same time, it is important to always compare the cost of various types of measure with their benefit, so that we can design the most efficient system possible. I have presented a long list of possible instruments that could be used to conduct macroprudential supervision. By necessity, this list will include most tools, as different tools are needed to counteract different systemic risks. But we are discussing something that is relatively new. At present, we only have limited experience of conducting macroprudential supervision in practice. This means that the process of introducing macroprudential supervision will entail a certain degree of trial and error. Quite simply, we will have to test our way forward, while constantly doing our best to assess the efficiency of the instruments being employed. 13 The financial system is complex and dynamic, and the risk outlook is changing all the time. This means that it can never be determined with certainty where a financial crisis may arise. Bearing this in mind, it is important that we, in Sweden, construct a framework for macroprudential supervision that is flexible and that we do not limit our possibilities in terms of the instruments that can be used. It is also important to establish a process to evaluate and later develop and modify the toolbox.
If all the conditions for resolution are met, the Board will adopt a resolution scheme for the institution or group in question, which is thereafter transmitted to the Commission. This may be fairly straight-forward if the scheme is based on agreed and adequate ex-ante resolution planning for the institution or group in question, and preparations for resolution had been taken prior to the triggering point. The Commission can approve the resolution scheme from the Board in two ways: approving it upfront or raising no objections within 24 hours. After this, the resolution scheme is adopted and can be implemented by the national resolution authorities as instructed by the Board. It is an important feature of the final text that the European Council only becomes involved in the decision-making at the explicit request of the Commission.11  9  The plenary session will take decisions by simple majority when it discusses issues of a general nature, such as the annual work programme, the budget, or the rules of procedure. Each member will have one vote, and in case of a tie the Chair will have the casting vote. The executive session will prepare all decisions concerning resolution procedure and adopt those decisions. When deliberating on the resolution of a bank or group, the executive session will also involve the members of the directly concerned Member States in the decisionmaking process. Each member, including the Chair, will have one vote. In neither session will the observers have a vote.

When completed at the end of next year, we expect that these changes will substantially improve the stability of the market. Indeed, the work completed to date has already reduced the amount of activity being financed on an intraday basis from 100 percent to about 70 percent, and we project that intraday credit usage will decline to no more than 10 percent by the end of next year. By removing the clearing bank from the role of substantial intraday lender, and making tri-party repurchase exposures truly bilateral, we expect that market participants will have better incentives to manage their liquidity and credit risks more prudently. While these changes represent positive developments that will enhance the stability of the triparty repo market, an important challenge remains. Current reforms do not address the risk that a dealer’s loss of access to tri-party repo funding could precipitate destabilizing asset fire sales, whether by the dealer itself, or by the dealer’s creditors following a default. Industry participants have yet to fully embrace the role they must play in finding a solution to this problem. As a result, I would urge industry participants to begin work on this issue without further delay. In fact, this is one of the motivations for convening today’s workshop – to start the dialogue. As several of the speakers will discuss in greater detail today, when fire sales occur they can undermine the stability of other markets beyond the tri-party repo market.
Alex Brazier: Nurturing resilience to the financial cycle Speech by Mr Alex Brazier, Executive Director for Financial Stability Strategy and Risk of the Bank of England, at the Property Investor’s Banquet, London, 19 October 2015. *  *  *  I am grateful to Martin Arrowsmith, Oliver Burrows, Neil Crosby, Kishore Kamath, Magda Rutkowska and Robert Sturrock for their assistance in preparing these remarks. My Lord Mayor, Lady Mayoress, Ladies and Gentlemen. It is a great honour to join you this evening. It’s clear why you are celebrating. A crane-filled skyline to the City. New office space completion in Central London: a ten-year high; More than thirty schemes underway: a twenty-year high; And transactions that are near a record high. Half of them financed by capital attracted from overseas. Commercial property is punching well above its weight in attracting capital to Britain. Those capital inflows are helping to sustain steady growth while our major trading partners lag behind. So your industry is contributing to the livelihoods of people up and down the country. But while that’s true in the good times, it’s true in the bad times too: when commercial real estate catches a cold, the whole economy starts to shiver. It’s not just that the construction industry suffers and jobs are lost, or that banks are injured, impairing their lending to the rest of the economy. It’s that small businesses see their own property fall in value – assets that are vital to secure their borrowing.

And risk that gets measured can get managed, by you and by us. These measures aren’t a panacea. They can’t guarantee occupancy rates or rents for you. But had they been used to guide your decisions and our policy, they would have made a real difference in the run-up to the crisis. In fact, the last commercial real estate cycle could have been severely curbed and loss rates for some banks dramatically reduced. So your industry really does deserve great credit for taking the lead in developing the answers. Now – when you most feel like celebrating – is the time to start applying them. Resilience in the future If we continue to work together there is a real prospect of nurturing a market that keeps up with the cycles of human nature. But nature will fight back. The drivers of cycles will evolve. History may rhyme, but it rarely repeats. Just look in this cycle at the rapid inflows of finance to commercial property from retail investors in open-ended funds. More than 6% of the stock of commercial real estate finance is now held in these funds, and is growing rapidly. Now, a shift in finance, from bank debt to fund equity can be good for stability. It’s one part of the broader inflow of equity in this cycle, which is helping to keep gearing down as prices rise. But it’s not risk free. Fund investors offered redemption at short notice can create problems if prompted to herd to the exit.
But the high exposure of banks to their domestic sovereign – in fact, Japanese banks hold about 20% of their assets in domestic sovereign bonds – is not without risks,  4  Fiscal deficits in the euro area reached 6.4% of GDP in 2009 and 6.2% in 2010 (according to Eurostat). The European Commission forecasts –2.9% in its Spring 2013 European Economic Forecast. 5  See Eggertsson, G. and Krugman, P., “Debt, Deleveraging, and the Liquidity Trap: A Fisher-Minsky-Koo Approach”, Quarterly Journal of Economics, 127 (3), 2012, pp. 1469–1513, and Guerrieri, V. and Lorenzoni, G., “Credit Crises, Precautionary Savings, and the Liquidity Trap”, NBER Working Papers, No 17583, 2011. 6  See also the series on deleveraging by Martin Wolf in the Financial Times, initiated with the comment “We still have that sinking feeling”, Financial Times, 10 July 2012, and the comment “Ways to accelerate private-sector deleveraging”, 30 July 2012. BIS central bankers’ speeches  3  especially in the event of sudden reversals in market confidence. Maintaining financial and economic stability therefore requires a clear and long-term fiscal strategy to avoid disruptions. This is true for Japan and Europe alike. Debt consolidation is not limited to the public sector, however; it also applies to areas of the private sector with excess leverage. Let me focus on the euro area financial sector.

Gent Sejko: The economy and banks, present and future challenges Speech by Mr Gent Sejko, Governor of the Bank of Albania, at the round table on “The economy and banks, present and future challenges”, organised by the Bank of Albania and Government of Albania with the banking system, Tirana, 16 September 2015. *  *  *  Your Excellency Prime Minister, Honoured representatives of international institutions, Dear bank executives and representatives, This meeting seeks to once again draw the attention on non-performing loans, an issue that has been discussed extensively over the recent years. It aims at fostering the shared and concrete commitment to reduce the stock of non-performing loans, increase the financial intermediation by the banking sector and underpin Albania’s economic growth. Following, I would like to list some facts. The high level of non-performing loans has not affected the banking sector’s stability. Liquidity and capitalisation indicators remain adequate and the financial performance has been positive and improving. But, the still-high percentage of non-performing loans has contributed to a higher perception of risk by banks; in turn, they have adopted a more conservative approach to lending. Our survey data point to tightened lending standards; meanwhile, the lending volume, albeit positive, is still considered as low. The credit quality has improved during this year. The non-performing loans ratio, after peaking 25%, fell to around 21% in July 2015.
It is the cry of the “losers from globalisation”. It’s certainly possible that people perceive that trade has reduced developed-country real incomes. More generally, it’s clear that it’s not intuitively obvious to people that international trade is of mutual benefit. Paul Samuelson, when asked by a mathematician at MIT for a result in economics that was both true and counter-intuitive, cited the principle of comparative advantage:  12  All speeches are available online at www.bankofengland.co.uk/speeches  12  “That this idea is logically true need not be argued before a mathematician; that it is not trivial is attested by the thousands of important and intelligent men who have never been able to grasp the doctrine for themselves or to believe it after it was explained to them  15  ”. It’s also likely that some sectors have indeed lost from globalisation – growth in trade has probably contributed to the decline in industrial employment in the developed world. But that hasn’t meant lower employment in aggregate and the drop in tradable prices has, in the meantime, brought significant benefits for consumers. These are particularly marked for the less well-off. What, then of Brexit? Well, obviously the EU economies are highly developed, so our trade with Europe – which is extensive – is less skewed towards labour intensive goods and services than that with developing economies. Nevertheless, it has allowed for a great deal of specialisation.

3  All speeches are available online at www.bankofengland.co.uk/speeches  3  One is that the current extent of world trade isn’t entirely novel and should in some ways be seen as a recovery. World trade had grown very strongly under the classical gold standard, during the second half of the 19th century. The same goes for the capital flows that financed these exchanges. The catastrophes of the world wars, and the intervening Great Depression, put all that into reverse. Partly as a natural consequence of economic contraction, partly thanks to outright protectionism, trade volumes fell sharply between 1914 and 1950, even relative to world GDP. Chart 2: Costs of trade fell sharply in 1970s  Second, although the conditions for a revival began 2  to be laid during the 1950s it wasn’t until the 1960s and early 1970s that trade costs started to fall, and trade intensity to rise, in earnest. In this first phase of (re-)globalisation, during the 1970s and 80s, much of the growth in trade occurred between developed economies. Third, there was a further and very marked rise in trade intensity during the 1990s and the early part of the last decade, as developing economies entered the world trading system. Source: Jacks , Meissner, and Novy (2011)  Finally, you can see clearly how world trade has stalled, relative to GDP, since the financial crisis a decade ago. This is to cut a long and complex story very short.
The benefits in terms of increased transparency and better risk management are very significant. Those same changes, however, may contribute to create new amplification mechanisms inside the financial system. This is referred to as a "procyclicality" issue, by which we usually mean the tendency of financial system to accentuate fluctuations in real and financial variables around their trend. But amplification can also create persistence if the system is path dependant. We may thus have to broaden our definition of procyclicality, looking not only at fluctuations around a trend but also at changes in the trend itself, which would move the equilibrium of markets and prices and potentially create extreme events. A very subtle question arises, which would deserve both theoretical and empirical investigation in this context: when do cyclical fluctuations degenerate into a more fundamental and permanent deviation and what could be done to prevent it? Rating By essence, the rating process is discontinuous. Changes in ratings therefore create non linear effects in the dynamics of financial markets. Those effects are stronger when there are a limited number of rating agencies with the same behaviour and methodologies. For that reason, we need to consider whether both our supervisory processes and market practices do not rely too much on rating. Such "hardwiring" of ratings in our financial infrastructure may amplify small and localised discontinuities, thus creating the possibility for more extreme events. 2  BIS Review 151/2008  Understanding the current crisis Arguably, one major problem underpinning the current crisis is the pricing of risk.

But, because it takes some time before changes in Bank Rate affect inflation, it is important that the Monetary Policy Committee look through this short-run volatility and try to understand where inflation might be heading in the medium term. That poses a real challenge. None of us can foresee the future. To assess the likelihood of different possible outcomes for inflation, we examine all the available information – official statistics, business surveys, and reports from around the country, including those from our team in Wales. Then we make a judgement about the outlook for inflation. That judgement cannot be made on the basis that just because certain developments seem to have forecast inflation in the past they will do so again. Such correlations are not stable over time. We have to try to discover the driving forces behind the mosaic comprising all the different pieces of information that we examine each month. To understand what is likely to happen in the economy, we have to behave like the child who cannot stop asking “why?” Why is output growing so steadily? Why did recorded employment fall last quarter? Why are money and credit rising so rapidly? Why have oil prices picked up? And each answer inevitably provokes another question “why?” So setting interest rates is not straightforward. Our job, in fact, is rather like taking part in a “spot the ball” competition.