samchain/econo-pairs-v1 huggingface dataset:
First, for the first time, taxpayer funded bailouts were extended to the uninsured creditors of nondeposit-taking entities (the names of Bears Stearns and AIG naturally come to mind) for fears that their failures would have severe negative externalities. Second, the list of globally systemically important banks is now set up and published by an official international body, the Financial Stability Board, on the basis of a mandate given by the G20. In itself, this simple fact could be interpreted by markets as a signal that public authorities will never allow the thirty firms belonging to the list of G-SIBs to fail. On the other hand, expectations of public support for too-systemic-to-fail institution are likely to have been reinforced by the market turmoil that followed the failure of Lehman Brothers. Let me now flag some of the questions/challenges that could be addressed today. The first question that naturally comes to mind is the measure of the phenomenon, i.e. : “How big is the implicit subsidy?” A quick look at the literature shows that measuring the subsidy is difficult, since it is implicit and tied to market perceptions. In addition, differences in funding prices between large or systemic banks and small or non-systemic banks can be due to factors unrelated to potential government support, such as differences in economies of scale and scope, or differences in the size and liquidity of bonds issuance. Overlooking these alternative factors could lead to overestimate the size of the implicit public subsidy.

An issue touched on earlier in the day was reporting and accounting, and one of the things the industry has done is to come up with something called the Enhanced Disclosure 2  BIS central bankers’ speeches  Task Force. The Taskforce proposed a set of recommendations for banks to develop highquality, transparent disclosures that clearly communicate banks’ business models and the key risks that arise from them, so that people who supply capital to the banks can follow how they make money, how they think about managing risk, and make judgments on the basis of that. The important point was that this was industry-led, and co-chaired by a London-based bank. There was some input from the authorities, but the industry led the initiative, and it’s a model we may use in other areas of finance. I mentioned Total Loss Absorbing Capacity earlier – I won’t use the acronym! I’m aware the full name doesn’t necessarily make it any more intelligible, but this is basically another layer of capital, and the ability to absorb losses in the event that a firm fails. It is more cost effective – so the cost is not passed on to borrowers. And the technology behind this was developed by the private sector, with the authorities contributing to ensure it could work effectively and on a global basis. But it was the industry, once again, that came up with the solution.
We are very pleased to note collaboration by all parties in particular the financial industry has brought positive result with the declined number of ATM robberies being reported last year compared to 2013. I am also very pleased to note the industry continues to collaborate to enhance ATMs’ security. Today, marks another significant milestone in our payment system progression with the launching of an ink staining technology for our ATMS. ATMs fitted with this technology are protected by a security device containing a special ink that will smear the currency note. When there is an attempt to temper the protected ATM, the security device will be triggered to release the ink, staining the currency notes on all corners. This ink is indelible and can be traceable to a particular financial institution that dispensed the currency notes; thus it can assist the police more effectively in their course of investigation. More importantly stained currency notes will lose their legal tender. Stained currency notes are valueless to the criminals but the owner of the currency notes (the financial institutions) can exchange the currency notes with the Central Bank. These stained currency notes cannot be brought back to circulation as they are not a legal tender anymore. To make the initiative effective and our ATMs safe, members of the public also have a civic duty to play. They must be vigilant when receiving stained currency notes, which most likely are stolen currency notes.

This is all about reducing the cost of resolution and thereby the risk to the stability of the system. Just like recovery plans, resolution plans need to be there to be used, and I can assure you that the Bank of England, in its role as a resolution authority, will be placing great emphasis on the existence of credible and useable resolution plans. They will be a tool for the authorities rigorously to ask  2  BIS Review 156/2009  the question, “With this structure and business model, could I achieve a resolution at an acceptable cost”. This will be true for domestic banks and for those operating across borders, and in the case of the latter there is a large amount of work to be done to ensure both complete coverage of resolution regimes and that they can work together. I have emphasised that I see RRPs as a device to enable tough questioning of structures and business models. I want finally to illustrate the sorts of questions that should arise by referring briefly to a couple of well known cases of the last two years or so. Let me start with Northern Rock, the first casualty in the UK and use this case to illustrate the role of a recovery plan.
In both these respects Sweden does well in a comparison with euro countries. Also, for several BIS Review 92/1999  2  years now inflation has been at least as low as in the euro area. It is no less important that a number of urgent institutional changes have been made, with major consequences for the implementation of stabilisation policy. The budget process has been tightened and a new legal framework has been set up for a more independent Riksbank. Recently, moreover, unemployment has decreased appreciably, though the extent and duration of the reduction are still uncertain. This will ultimately depend on future wage settlements. So all in all, the economic situation in Sweden is more stable than I had at least dared to hope for a couple of years ago. This in turn is reflected in, for example, a level of interest rates that is only marginally different from that in the euro area. From this it might be concluded that Sweden can now stand on its own two feet – we can evidently cope without EMU. However, one reason for being a little cautious about this conclusion is that, to some extent, the lower interest rate probably has to do with many people’s expectations that by and by Sweden will in fact join the monetary union. Personally, moreover, I have never considered that Sweden ought to adopt the single currency primarily in order to tackle problems of stabilisation policy or reap the benefits of a lower interest rate.

Ladies and Gentlemen, in August 2011, the Swiss franc was massively overvalued, according to any yardstick. In addition, in practically the same period, the international economic environment had become noticeably gloomier. This situation presented an acute risk to our economy, as well as carrying the threat of a deflationary trend. Consequently, the  BIS central bankers’ speeches  1  SNB reacted fast and announced an unscheduled interest rate reduction on 3 August. In addition, from this moment onwards, it increased the supply of Swiss franc liquidity by a hitherto unprecedented amount, in several steps, with the aim of weakening the Swiss currency. Overall, the liquidity measures achieved the expected results. They brought about significantly lower interest rates in the Swiss franc money market – interest rates that were, at times, even negative. This tended to weaken the attractiveness of Swiss franc investments. Thus the upward trend of the Swiss franc against the euro was checked for the time being. However, the exchange rate remained very volatile, due to the persistence of negative reports from abroad, and at the end of August the Swiss franc appreciated again. In this market environment, which was extremely uncertain and nervous because of the European debt crisis, the liquidity measures were ultimately insufficient to halt the appreciation of the Swiss franc. In recognition of this fact, the SNB decided to introduce a measure which was exceptional in every respect. On 6 September, the SNB set a minimum exchange rate of CHF 1.20 per euro.
At the current stage of development, however, we need to shift from purely qualitative judgements to quantitative analyses of what has caused the real exchange rate appreciation trends in many accession countries. For example, the majority of empirical studies of the well-known Balassa-Samuelson effect have concluded that this hypotheses explains only 1-2 percentage points (or even less) a year of the observed real appreciation in Central European countries. This necessitates searching for other influential factors and forecasting their development for the future. The implications of the real appreciation process are probably different for those countries with hard pegs against the euro compared with countries that have floating exchange rates. In the case of currency boards, the only channel of real appreciation is an inflation differential. As the Maastricht inflation criterion is relatively strict, even a relatively modest pace of real appreciation might lead to complications. It will be certainly interesting to hear today if these countries really perceive this challenge as serious and what alternative policies - such as fiscal policies and/or income policies they can use to overcome the problem successfully. For countries with more flexible exchange rates, the Maastricht exchange rate criterion is less binding, and a modest nominal appreciation trend can be accommodated within its fluctuation bands. It will be interesting to hear whether we all share this view. Another question is whether we see any implications of the real appreciation process for designing the details of our ERM2 membership, such as its duration or the chosen central parity.

The implications of this process for monetary policy - and economic policies in general - have been debated extensively on many occasions. These academic discussions have covered the pros and cons of EU and EMU accession, its optimal timing, the associated risks and so on. Not surprisingly, they have often been inconclusive and could continue for many years to come. However, time presses us, as monetary policy-makers, to cope with these fundamental uncertainties and to make decisions, designing clear steps to be taken to meet the EU accession challenges. Therefore, I am glad that we have gathered here to discuss our future policies. The topics are the same for all of us, and we thus have many ideas to share. But even before we get to the discussion, I would like to stress that in many areas we are unlikely to find universal solutions for all countries. Policies need to take into account the particular circumstances of each accession country, such as its current economic situation, monetary policy regime and fiscal stance. For example, the way towards the eurozone in an accession country with a currency board will be completely different from that of an inflation targeting country with a floating exchange rate. But there may be important differences within these two broad groups, too. So it should come as no surprise that a number of countries have indicated a clear preference for the “fast-track” approach, whilst others have adopted a more cautious approach.
Limit the build-up of debt despite the need to stimulate the economy I would also like to say something about the interplay between current monetary policy and measures to mitigate the risk factors I have mentioned. Is it really justified to introduce measures that may dampen household consumption or activity on the housing market when the Riksbank is at the same time trying to stimulate the economy in order to increase  3  Several studies based on household data from the financial crisis of recent years show that highly-indebted households reduced their consumption more than households with low debts (see for example Dynan 2012, Mian et al. 2013, and Andersen et al. 2014). Studies that compare developments in different countries also indicate that high or growing indebtedness in the household sector entails higher risks to the real economy, even if the households also have substantial assets (see for example IMF 2012, Jorda et al. 2013, and Flodén 2014). 4  See Riksbank (2014b). 2  BIS central bankers’ speeches  inflation? This question is particularly relevant given that the repo rate is at zero and cannot be cut much more. I think that the question, at least in principle, should nevertheless be answered in the affirmative. It must be possible to meet financial risks with targeted measures even if this makes it more difficult for monetary policy to attain the inflation target.

Martin Flodén: Measures to mitigate the risks from high and increasing household debt Speech by Mr Martin Flodén, Deputy Governor of the Sveriges Riksbank, at BNP Paribas, Stockholm, 20 November 2014. *  *  *  The high level of household debt has been the subject of much discussion in connection with the monetary policy decisions in recent years. The discussions have partly related to the extent that these debts entail risks and partly to the measures that would be most effective in counteracting these risks. Today, I would like to briefly present my view of these issues, and I will link my thoughts to the discussion at last week’s meeting of the Financial Stability Council. In order to understand the risks, it is necessary to broaden the perspective somewhat and to examine the entire housing and mortgage markets in Sweden. Such an examination reveals that the Swedish markets are special in several respects, both in comparison with the previous situation in Sweden and with the situation in other countries. The household debt ratio, that is debts in relation to disposable incomes, has almost doubled over the last 20 years. The tax system encourages indebtedness by offering tax deductions for interest payments, and the households amortise at a slow rate. At the same time, housing prices, especially for tenant-owned apartments, have increased rapidly. The fact that housing construction has been low despite the rising prices indicates that the supply side of the housing market is not working well.
The Bank of Russia sought to pursue a balanced policy in developing the banking sector. On the one hand, we helped banks adjust to the new conditions and eased banking regulation, on the other hand, we stuck to the policy of resolution of the banking system and countering fictitious transactions. Our key objective is to have a sustainable, capitalised financial system capable of funding the economic growth. In 2015, the banking system accumulated capital, household deposits recovered, and lending to the real sector grew slightly. In the first half of the year, the banking system suffered losses, but returned to profits by the year end. Profit stood at 192 billion rubles in 2015, and 234 billion rubles in the first five months of 2016. In 2016, we expect profit to be about 500 billion rubles. To develop the banking regulation, the Bank of Russia continued to introduce international standards, including Basel regulations, implemented compensatory measures to ease the adjustment of the banking system to the new environment, and introduced its own regulatory measures which take account of the specific risks of the Russian banking system. We continued to pursue a sequential policy of banking sector resolution. Unfortunately, the pace of licence revocation was high. Here we seek to occupy a more proactive position in  2  BIS central bankers’ speeches  supervision, and take early warning and preventive measures. For this purpose we improve our internal procedures. Thus, we decided to establish a risk assessment service.

Elvira Nabiullina: Review of Russia’s economic and financial developments in 2015 Statement by Ms Elvira Nabiullina, Governor of the Bank of Russia, at the plenary meeting of the State Duma of the Russian Federation, Moscow, 14 June 2016. *  *  *  Good afternoon, dear colleagues! Today we present the latest Annual Report of the Bank of Russia to the 6th State Duma. First of all, I would like to thank the deputies for the legislative efforts, which we took together to both develop the financial system and protect the rights of financial services consumers, and for the efficient cooperation with the Bank of Russia. As many as 130 laws affecting the financial sector have been adopted over these three years. Now, let’s look at the Bank of Russia’s performance in 2015. A sharp deterioration in external environment in late 2014 – early 2015 (oil price drop and sanctions) triggered turbulence in the external market and followed by a surge in inflation. These developments required measures to stabilise the situation and help the economy adjust to the worsened conditions. The first one is a transition to a floating exchange rate of the ruble. This is a pivotal systemic measure. Though this transition was not a smooth one, I would like to stress, should we have failed to take this step, according to our estimates, the economic downturn could have been deeper. Now the floating exchange rate works as an embedded economic stabiliser that mitigates the external shocks.
The authorities are to devise a strategy in advance for managing the bank if it is danger of failing. If the bank is large and important, there is to be a plan to ensure continued operation. If the bank is so large and complex that it probably cannot be resolved without the use of public funds, it can be restructured. The resolution authority can demand that complex parts of the institution be transferred to separate subsidiaries. As a last resort, the authorities can demand that large banks be broken up into several smaller ones. There should also be a plan for how continued operations can be funded. All systemically important banks in Europe shall hold a minimum amount of liabilities that can quickly be bailed-in. This entails a limit on the share of short-term and secured debt banks may issue. The authorities must also ensure that large banks and systemically important investors do not invest too much in other banks’ risky debt. This is a new perspective on banks’ funding structure. In the future, banks will have to ensure that portions of their liabilities can quickly be written down and converted to equity. Bail-in as an instrument will be implemented in the EU on 1 January 2016, a year after the rest of the Directive. The Directive must be followed up in Norway under the EEA Agreement. Norway’s own bank resolution legislation must be updated. As regards the Norwegian framework, the new elements are in particular the requirements for resolution plans and bailin.

It is always true that monetary policy is too restrictive for certain segments of the economy and too expansionary for others. Since there can only be one monetary policy for Switzerland, it must geared to the economy as a whole. Ensuring price stability in the medium and long term is the guiding principle. The SNB’s monetary policy strategy, however, is sufficiently flexible to react in an optimal way to uncertainties related to business cycle developments or the situation on the financial and currency markets. In implementing this policy, the SNB must be able to maintain its credibility at all times. Only then can it effectively – in the long term – fulfil its constitutional and statutory mandate of pursuing a monetary policy in the interests of the country as a whole. BIS Review 70/2010  1
And just for the sake of clarity, let me add that this view is in no way related to any such situation being present in Sweden. This is something that the Riksbank has advocated for a long time. In light of what happened in the United States we should also consider regulation of institutions that do not take deposits from the public. Such institutions are often the subject to weaker supervision and regulation, which has been justified because they are not as important for financial stability. But as the developments in the US investment banks clearly illustrate, even such institutions can substantially shake up the financial system. Given the global scope of the crisis it is important to coordinate both short-term and longterm measures among countries. If nations try to find separate solutions in this type of situation, the costs for handling the turmoil could become even greater than what they otherwise would have been, even for individual countries. Therefore, in all of the issues mentioned here, much can be won through international coordination and harmonisation. Yet another example of an issue that requires international coordination is how to organise supervision and crisis management within the EU. Today several banks engage in significant operations in several EU countries, while the responsibility for supervision and crisis management is still national. Under such circumstances there is a risk that coordination problems and conflicts of interest could arise between countries, which obviously does not benefit financial stability.

I don’t expect our lives to look like they did a year ago—our sense of “normal” may be forever altered—but with vaccinations well underway and a significant decline nationwide in confirmed new cases, I do expect that we can start to look toward a time that will be “more like normal." In my remarks today I’ll set the scene for the economic picture locally, and for the U.S. economy as a whole. I’ll also highlight some of the disparities we are seeing in the labor market. Finally, I’ll share more about the Federal Reserve’s response and how I view the path forward. Before I continue, I need to give the standard Fed disclaimer that the views I express today are mine alone and do not necessarily reflect those of the Federal Open Market Committee (FOMC) or others in the Federal Reserve System. Dual Mandate Prior to sharing the outlook, I think it’s important to take a step back and explain some of the key factors that my colleagues and I at the Federal Reserve consider in reaching our policy decisions. The Fed has what we call a “dual mandate,” which are two goals set by Congress: maximum employment and price stability. With these goals in mind, our focus is understanding developments that affect labor markets, inflation, and economic growth.