samchain/econo-pairs-v1 huggingface dataset:
Its aims were shaped by an extreme tail event (the Great Depression) and were explicitly minimax (to avoid a repetition). It sought to achieve this by acting directly on the structure of the financial system, quarantining commercial bank and brokering activities through red-line regulation. In other words, Glass-Steagall satisfied all three robustness criteria. And so it proved, lasting well over half a century without a significant systemic event in the US. The contrast with Basel II is striking. This was anything but simple, comprising many thousands of pages and taking 15 years to deliver. It was calibrated largely to data drawn from the Great Moderation, a period characterised by an absence of tail events – more minimin than minimax. Basel II was underpinned by a complex menu of capital risk weights. This was fine-line, not red-line, regulation. In short, Basel II satisfied few of the robustness criteria. And so it proved, overwhelmed by the recent crisis scarcely after it had been introduced. (c)  Incentives  Tail risk within some systems is determined by God – in economist-speak, it is exogenous. Natural disasters, like earthquakes and floods, are examples of such tail risk. Although exogenous, even these events have been shown to occur more frequently than a normal distribution would imply. 24 God’s distribution has fat tails. Tail risk within financial systems is not determined by God but by man; it is not exogenous but endogenous. This has important implications for regulatory control. Finance theory tells us that risk brings return.

But if this effort is unsuccessful, past evidence and present experience pose a big question about existing banking structures. Against that backdrop, it is understandable that restrictions on scale and activity are part of today’s debate about solutions to the systemic pollution problem. $ billion may not just be the question; it may also be part of the answer. Conclusion We are at the start of a great debate on the future structure of finance, not the end. Some fear that momentum for radical financial reform will be lost. But financial crises leave a scar. This time’s sovereign scar should act as a lasting reminder of the criticality of reform. Today’s crisis has stretched some state’s sinews to the limit. Both literally and metaphorically, global finance cannot afford another. The history of banking is that risk expands to exhaust available resources. Tail risk is bigger in banking because it is created, not endowed. For that reason, it is possible that no amount of capital or liquidity may ever be quite enough. Profit incentives may place risk one step beyond regulation. That means banking reform may need to look beyond regulation to the underlying structure of finance if we are not to risk another sparrow toppling the dominos. Today’s financial structure is dense and complex, like a tropical rainforest. Like the rainforests, when it works well it is a source of richness. Yet it is, as events have shown, at the same time fragile.
Are debt and credit – I will be using these terms to describe a single phenomenon in the following – something positive or negative? Over the next hour, I would like to pursue this question from an economist’s perspective. Let me save you the suspense and reveal the result of my reflections with an analogy. Sustainable lending is like maintaining a healthy, well-balanced diet. Food is one of the pillars of our life. In equal measure, lending is a pillar of a thriving economy. However, eating unhealthy food or eating too much produces only a short-lived sense of gratification and is likely to lead to health problems in the long run. These will then have to be battled with tedious diets or even medical treatment. In the same way, unhealthy or excessive lending can trigger crises. Far-reaching intervention by governments and central banks is then needed to bring the ensuing turmoil under control. Page 2/16  Ladies and gentlemen, this is what awaits you in today’s speech (cf. slide 3): First, I want to explain why a thriving economy depends on loans just as much as we human beings depend on food. Next, I would like to discuss why time and again, throughout history, there have been cases of gluttony at the ‘credit buffet’, and why these can have far-reaching consequences. Finally, based on current developments on the Swiss credit market, I will show up ways in which such downsides can be kept in check without curtailing the advantages offered by the credit system.

10  BIS Review 9/2010  •  Key proposals (e.g., the De Larosière and Turner reports) 11 do not go far enough and do not measure up to the Icelandic experience (wrongly seen as primarily a supervisory failure, which it was only in part). •  Do we need a system of FX swap lines or an FX liquidity pool to provide insurance against a run on cross-border banking (as we have domestically through central bank liquidity provisions and LOLR)? •  The crisis showed that, when all is said and done, “banks are international in life, but national in death!” 12 Will reforms change this, or will we regress? The question remains open. Concluding remarks I told you in the beginning that this is a complex saga with many twists. I have only covered a small part of it. However, be sure that there is more to come. I am currently reading a newly published biography of Snorri Sturluson. 13 He and other Icelanders wrote about events that occurred here in Norway and Iceland, in some cases more than two centuries earlier. We might thus be writing about the Icelandic financial crisis for centuries as well! If history is any judge, then we are probably better at it than we were this time at managing, regulating and supervising a cross-border banking system. For the sake of all of us, let us at least hope so. Thank you very much. 11  De Larosiére, Jacques (chair), (2009).
In the United States, the largest productivity gains were not realized in the high-tech sector or from the IT investments itself but from the widespread use of information and communication technologies in traditional sectors like wholesale trade, financial intermediation and construction. The new technologies led to a complete reorganization of the value chain thereby enhancing total factor productivity, albeit with a lag. One cannot entirely exclude that this leverage effect will simply occur with a lag in Europe. After all, productivity growth is one of the least well understood phenomena in economics. While I do not want to exclude a productivity lag effect in favour of Europe, I suspect the story is a more complicated and a more challenging one. Structural conditions must be in place in Europe to allow maximum flexibility so that the full potential of the new technologies can be unleashed throughout the real economy. Conclusions The question of why the EU recovery is so slow implies a cyclical answer. The European track record of the last ten years, however, strongly suggests that there is a crucial structural dimension to the problem of weak European growth. The real challenge for the EU is to boost productivity growth and augment its potential growth rate. In the words of Mervyn King: “Raising productivity growth is the key to improving the prosperity of future generations.”4 It is therefore not particularly meaningful to analyze the growth weakness in Europe in purely cyclical terms.

In the 10 years between 1997 and 2007, the annualised growth rate of real credit was 7%, relative to real GDP growth of 3%. That meant credit grew at more than double the rate of the economy over the period. Had this trend continued the stock of credit would have been 200% of GDP by 2012 and 300% of GDP by 2023. The great recession that followed the financial crisis saw a sharp correction. Credit went into reverse, shrinking annually by around 2.5% a year in real terms from 2010–2014. By 2014 the stock of credit had dropped from its peak of 177% of GDP to 140% – and remains around that level. To put it in context, we are now back to where we were in 2002. Credit to GDP would have to fall another 25 percentage points to get back to 1997. Credit, of course, is another way of saying debt. As most of the lending during the long period of pre-crisis credit growth was to UK households, the stock of UK households’ debt relative to their income not surprisingly follows a similar path to the stock of credit to GDP. In 1964, it was 54% and remained around this level until 1980; but by 1990 it had exceeded 100%. It surged again from the late 1990s – by 2007 it had grown to 155%. It fell to 135%, its 2004 level, in 2012 and remains around there.
This is essential if we are to avoid distortions in the convergence of competitiveness and therefore prevent a reemergence of the problem of growth moving towards certain parts of the eurozone to the detriment of others. In structural terms a decisive move in this direction was the agreement on banking union which will break the negative feedback loop between banks and sovereigns and will ensure the efficiency of the single monetary policy. Last but not least there was the new concept developed by the ECB saying it was determined to do whatever it took to ensure the stability of the euro. The concept of the OMT has the merit of making it difficult for the market to fight the central bank once it has expressed a determination to do whatever it takes to achieve a certain goal. On the other hand, the OMT is also credible because of the conditionality. It’s not a case of simply endlessly signing cheque after cheque. It is framed within the context policies which are geared towards sustainability. Finally, of course there is the permanent backstop of the ESM. So I think that when we look at all these decisions they amount to a very comprehensive package which addresses all the doubts and questions which have been raised since the start of the sovereign debt crisis. Therefore it is quite natural that 2012 is considered by market participants to have been a landmark in the creation of a new era for the eurozone.

Christian Noyer: “Noyer heralds new era for eurozone and for France” – Interview in Euroweek Interview with Mr Christian Noyer, Governor of the Bank of France and Chairman of the Board of Directors of the Bank for International Settlements, in Euroweek “France in the Capital Markets”, 25 February 2013. *  *  *  EUROWEEK: You were frequently quoted in 2012 as saying that the eurozone was moving in the right direction. Do you feel vindicated by the recent strength of the euro and the performance of the eurozone’s financial markets? Noyer: Things have clearly improved, but this should not come as a surprise. It’s clear that markets lagged a bit before taking stock of what has happened, but looking back, enormous progress has already been made on all levels. This is true in terms of policies aimed at the restoration of sound public finances in many, if not all, eurozone countries as well as in the field of structural reforms. For example, we have seen very extensive progress in areas like pension reforms in France and Italy, banking reform in Spain and labour market reforms across much of southern Europe and France. We have also seen great progress in terms of surveillance – not just surveillance of fiscal policies, which is a must in the context of the European monetary union, but also surveillance of competitiveness which is the basis for structural reforms.
This is important because, even though we might think that our rules and regulations are now in much better shape, history tells us that the commercial incentives of firms will create pressures to find ways to minimise the impact of those rules. I am especially mindful that financial institutions will always be able to innovate faster than we are able to modify the prudential rulebook. In order to remain fit for purpose, the prudential regulatory framework must be responsive to changes in the behaviour and structure of the financial system and identify any gaps, faults or incoherence that can lead to perverse behaviour. This is why we need well-informed rule-makers and alert supervisors, who together can smell when something is off and decide what to do about it. And this is one reason, in my view, why supervision will be particularly important in the coming phase. The financial services industry that we regulate is highly developed, highly innovative and highly sophisticated. But, stripped bare of this complexity, it remains a business in which individuals need to exercise judgement, skill and care. The role of the supervisor is to observe this behaviour and form judgements about the extent to which the firm – and the individuals running it – meet the intention, as well as the letter of, the regulation. Some innovation by financial institutions in response to regulation will be intended by regulators, or, if not intended, at least benign.

The kick-off meetings, which have been taking place since early summer between the current supervisors, the ECB and the banks, are simply a first step. In this connection, allow me to stress the inherent dangers in supervision not only of being too far removed, but also of being too close. Other viewpoints and new supervisory approaches and methods may sharpen our perception and mitigate the danger of accepting a bank’s unjustified customs merely because they have long been familiar to us. The comparisons and analyses I referred to earlier will also help to counter this danger. But that is not all. We will also address this issue in terms of our staffing policies. The head of a Joint Supervisory Team (JST) must come from a different country to the country in which the institution it is supervising is established. In concrete terms: the head supervisor for Deutsche Bank will be a French lady; BNP Paribas will be supervised by an Italian man. In addition, there will a rotation of staff members among the JSTs. All in all, this will not only enable us to reach more objective judgements about a bank, but will also foster the development of a common supervisory culture. Banking supervision in a central bank Allow me to say a few words about banking supervision in a central bank. Housing the SSM within the ECB will enable us to benefit from synergy effects.
While lacking a term structure on its own, this reference rate is robust and based purely on transaction data. 17. In early May, TMA completed a consultation with the industry on several technical refinements to HONIA. This is part of its ongoing initiative to further enhance the robustness of its benchmarks. It is now reviewing the feedbacks received, and will consider how best to put in place the relevant enhancements. 18. When these enhancements are done, TMA will work with the industry to promote development and trading of HONIA-based financial products. Later on, it will also try to promote trading in the OIS market, and hopefully develop an OIS curve from HONIA. But this would have to depend on market conditions. 19. While HONIA serves as an alternative to HIBOR, there is currently no plan to discontinue HIBOR. HIBOR has been in place for many years and is still widely recognised by market participants as a credible and reliable benchmark. Similar to a few other jurisdictions in the region, Hong Kong will adopt a multiple-rate approach. In other words, HONIA and HIBOR will co-exist in the market and market participants are free to choose between them. Meanwhile, TMA will continue to strengthen HIBOR to ensure that it remains in compliance with international standards. 20. Of course, we are facing the irony that if HIBOR remains, market players may see little incentive to develop and trade HONIA-based products. However, I encourage all market participants to start exploring how to incorporate HONIA into their business.

It may be true that HIBOR will last for some more time. But the transition to SOFR in the USD space could gradually lead to changes in market practices and conventions that may eventually shift market preference for interest rate benchmarks. Therefore, if more HONIA-based products can be introduced in the market going forward, it would help reduce any market impact in 3/4  BIS central bankers' speeches  case HIBOR has to discontinue one day owing to changes in market circumstances. Closing 21. Ladies and gentlemen, as we have learned from speakers earlier this morning, interest rate benchmark reform is complex, but it is something too important for any market participant to ignore. When LIBOR ceases to exist, there will certainly be an impact on global financial markets. Some people may say end-2021 seems a long way off. But it’s not, given the tremendous amount of preparatory work required to ensure a smooth transition. No one in the market can afford to play a waiting game. Let’s all devote resources now, and work closely together on this important task. 22. Thank you. 4/4  BIS central bankers' speeches
The second point is that the forecast part of the chart shows that a return to growth is likely. But if you just had this chart to look at you might feel that the MPC was quite optimistic, and after a painful, deep recession it was expecting the economy to rebound. In some ways, that is true. But by itself that would be a misleading inference. The reality is that even if growth rebounds, the level of activity is still very likely to remain weak for a considerable period compared to the peak at the start of 2008. The economic environment is likely to continue to feel far from normal for some time. After all, it is ultimately the level of activity, rather than its growth rate, that matters for employment and the degree of inflationary pressure. It was precisely to draw out this point that recent editions of the Inflation Report have included an extra chart [Slide 14]. This shows the level of output corresponding to the growth chart. In practice, we have found that, even though these charts show the same information, the levels chart can be more effective at getting that big picture message across. Despite these efforts, there are still nuances that we have found challenging to communicate. The fan chart conveys a rich view of the uncertainties in the current forecast. But it does so at the cost of it being hard to see how the distribution has changed compared with the preceding forecast.

Replacing missing prices in this way is usually referred to as imputation. The total weight in the CPI for the products where prices are imputed in this way is not particularly large; it amounts to just under 3 per cent of the total weight of the CPI, see Figure 2. The percentage of imputed prices is at present much higher in other parts of Europe. Figure 2 shows the aggregate weight for the product groups where imputation has been necessary in total for the euro area and the larger euro-area countries. The statistics refer to the harmonised index for consumer prices, the HICP.3  2  See the press release and the material presented at an extraordinary meeting in the Consumer Price Index Board on 1 April. 3 The HICP was developed by Eurostat, which is the EU’s statistical body. The measure was designed to facilitate international comparisons of inflation. 3 [6]  Figure 2. Percentage of imputations in the HICP 4 Per cent  Source: Eurostat  What do the many imputations abroad entail for the quality of the statistics? The conclusion in a current working report written by two world-leading researchers in this field is that the principles recommended by international organisations lead to underestimation of the rate of inflation and overestimation of the real increase in consumption.5 However, this is probably no major problem for Sweden, as the percentage of prices imputed is relatively low. The problems could be much greater for other countries, and therefore for international comparisons.
EMBARGO: not for release before 19:30 on Wednesday 4 October 2017 Geofinance Speech given by Sam Woods, Deputy Governor, Prudential Regulation and Chief Executive Officer, Prudential Regulation Authority  Mansion House City Banquet, London 4 October 2017  I am grateful to Alex Holmes for his assistance in preparing this speech and to other colleagues for comments and contributions. 1  All speeches are available online at www.bankofengland.co.uk/speeches  EMBARGO: not for release before 19:30 on Wednesday 4 October 2017  Lord Mayor, Ladies and Gentlemen  The Prudential Regulation Authority had a bracing return from the summer break. There was no time for supervisors to compare sun-tans, which was just as well given the deathly pallor I acquired from a summer spent in London and Ireland. The only person with an even worse sun-tan than mine was a colleague who, in what I’m assured was not a political statement, took his summer holiday in Brussels. In fact, I was so desperate to boost my Vitamin D levels in September that (like a few others in this room) I headed south to Frankfurt, where I regret to inform you all that it was very sunny indeed. Yes, even the weather – a traditional safe harbour topic for financial regulators – seems to have acquired a Brexit-y tinge this autumn. It was therefore a relief to get stuck into some domestic topics when we returned from the summer.

After rising initially with the substantial costs associated with bank recapitalization programs, in recent years public debt ratios have generally been declining as a share of GDP. Monetary policy regimes have become more mature, with some progress toward greater de facto independence for central banks, with clearer mandates for price stability. Exchange rate regimes in the crisis countries have become somewhat more flexible, providing greater scope for monetary policy to sustain the domestic conditions for price stability. Financial systems are substantially stronger. Bank capital ratios now provide a significantly larger cushion against potential losses – though capital ratios in Asian banking sectors are still generally lower than those in other emerging economies. The quality of bank assets has improved. Nonperforming loans, estimated to have peaked at between one-quarter and three-quarters of total loans in the crisis countries, are now under 10 percent of total loans. Financial institutions that required government intervention have largely been restored to private ownership. Domestic capital markets  2  BIS Review 65/2007  are an increasingly important channel of intermediation in financial systems that had historically been dominated by banks. These are impressive achievements by any measure. And the changes that have taken place provide a strong foundation for future growth and they make it much less likely that these economies will be vulnerable to the type of crises of a decade ago. This progress is reflected in a broad range of financial market indicators of risk. Risk premia in domestic interest rates markets are low.