samchain/econo-pairs-v1 huggingface dataset:
The same may undoubtedly be said about the Central Bank. After all, useful and supportive as these institutions may be, they neither can nor should play a leading role. That role can only be performed by the financial companies themselves. Because they rely so heavily on open access to credit markets, it is crucial for them to enjoy the confidence of their creditors. In this respect like many others, credibility is a fragile thing and a very high price can be paid for losing it. Turbulence in global markets is sure to continue. Naturally people try to read the signs and foresee the most important parameters, in order to adapt to them in good time or respond sensibly. Important as it is to keep a close watch on developments and changes in global markets, what matters most of all is to be strong and well-positioned enough to withstand the most unexpected shocks. Global liquidity has been exceptionally abundant in recent years, and has been widely tapped on good terms. The benefits of resourcefulness and bold, quick action can be realised to the full in such circumstances. It is impossible to rule out that such a climate will persist for a long while, but this is by no means certain. And when a change does take place, it may be caused by unexpected circumstances and strike quickly. It is then that caution and prudence prove most effective.

While this process is not easy, Rochester possesses a unique set of assets that will help it succeed, and in many ways is on the cutting edge of adapting to these changes. Rochester is, in fact, becoming a leader in workforce development. Reinvention like reform can be difficult, and requires a degree of boldness. This sentiment was expressed by Rochester’s social reformer, Susan B. Anthony, who said that “Cautious, careful people, always casting about to preserve their reputation and social standing, can never bring about a reform.” Rochester is doing Susan B. Anthony proud, showing spirit and determination. Thank you for your attention, I would be happy to take a few questions. BIS central bankers’ speeches  5
So the central bank needs to take account of the infamous long and variable lags in the transmission of monetary policy decisions to the things it cares about 5 . In other words, in today’s vernacular the central banker has to be forward looking, in particular about the outlook for inflation. That, essentially, is why some economists refer to central banks as undertaking inflation-forecast targeting 6 . Under this regime, the central bank needs to form judgments on some big things. On the current and prospective pressure of demand on the supply (or productive) capacity of the economy; on the implications for the outlook of any cost shocks (eg oil price rises); and on whether medium-to-longterm expectations of inflation are well anchored to its (explicit or implicit) target. Having done that and so formed a view on the outlook for inflation, the central bank may have to decide how quickly to bring inflation back to target, in the light of how much weight it gives to containing volatility in output 7 . It then needs to decide whether it should set policy so as to restrain or stimulate aggregate demand, or to be neutral. And it therefore needs to judge whether the current level of interest rates is, in fact, likely to deliver its desired degree of stimulus or restraint. Underlying those ‘big picture’ judgments are, at least implicitly, views on some fundamental economic variables.

While this implies that a one-size-fits-all level of transparency is unlikely to exist, a number of economic forces are omnipresent and therefore allow us to draw some conclusions from the academic literature on post-trade transparency. In those market segments that the MiFID II review aims to address, liquidity providers play a central role as they intermediate between end investors and thereby help to secure a wellfunctioning marketplace. Yet an efficient and resilient market requires a sufficient level of competition. Several studies6 show that a lack of transparency can be a serious threat to a level playing field because intermediaries may use their private knowledge of customer order flow as an informational advantage that allows them to exert market power. Therefore,  3  See opinion of the ECB of 25 January 2012 on a proposal for a Directive on the access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms and a proposal for a Regulation on prudential requirements for credit institutions and investment firms (CON/2012/5). 4  In particular the Money Market Contact Group, the newly established Bond Market Contact Group, the Foreign Exchange Contact Group and the Operations Managers Contact Group (see the ECB website for more information on these groups).
Cross-border capital movements were also subject to little or no regulation in the decades prior to 3 1914. Capital markets were integrated in countries that had adopted the gold standard. There was solid confidence in the gold standard, and exchange rate risk was regarded as very low. Movement of capital between countries was often long-term, and tended to be associated with specific projects. As a small, open economy, Norway was totally dependent on an open, smoothly functioning capital market. From 1885 to 1913, the fixed investment rate in Norway was on average higher than the saving ratio. Although short-term gross capital movements were far from their current levels, they were nevertheless significant. Monetary policy was restricted by the gold standard. Capital was highly mobile, and the interest rate had to be set to ensure that the exchange rate remained between the gold points. As a result, monetary policy could not normally be used to stabilise economic 4 developments. Countries that suspended the gold standard were penalised with higher interest rates. A look at earlier crises A weak stabilisation policy, relatively ineffective banking legislation combined with a poorly developed financial industry provided fertile ground for many financial crises. The Oppland crisis occurred in 1864. It was a backlash of the boom in the latter half of the 1850s, when a sharp upswing in the timber industry led to widespread speculation. Growth was also very strong in the early 1870s.

Despite such progress, we are faced with daunting challenges. These include harmful effects of environmental degradation and climate change that threaten global prosperity, stability and sustainable living. Socioeconomic challenges such as rising inequality and lack of affordable housing are affecting the well-being of many communities. At around 225% of global GDP, global debt is at a record high level and may leave a heavy burden for future generations to bear. It is increasingly clear that economic prosperity in the long run cannot exist without social equity and environmental responsibility. While the governments of 150 countries are committed to realising the United Nation’s 17 Sustainable Development Goals (SDGs) by 2030, this must be a shared responsibility. The private sector has a key role to play – a role, with finance at its centre, that has yet to live up to its full potential. With much at stake, the call to action for sustainable finance is one that the financial sector, perhaps more particularly Islamic finance, cannot afford to ignore. Encouragingly, more, though not nearly enough, Islamic financial institutions are moving beyond Shariah compliance to performance and risk management practices that reflect social and environmental impacts. A key question for us present today, and for those beyond this forum, is how the value propositions of Islamic finance can be further developed, to bring us closer to the reality of “finance beyond profit”.
16  We also used crisis dating from Lopez-Salido and Nelson (2010) for the US. BIS Review 168/2010  15  Table 3 asks what proportion of crisis years occurred within 5 years of the peak in the credit cycle in those countries. On average, more than half of all financial crisis years across the 12 countries appear to have been preceded by a credit boom. Among Anglo-Saxon countries, such as the US, UK and Australia, closer to 75% of crisis years occurred following a credit boom. This is relatively concrete evidence of the credit cycle having real and damaging effects on output. 17, 18 4.  Credit cycle spillovers  This empirical evidence to date, operating at a macro-economic level, is consistent with the model in Section 2: a credit cycle is clearly discernible; its frequency is different and its amplitude larger than the business cycle; and its fluctuations may exacerbate the business cycle. But the model also has implications at a micro-economic level, arising from strategic complementarities, or spillover effects, across firms. In this section we consider empirical evidence on such credit spillover effects. The model implies that the cross-sectional distribution of returns to banking should be compressed during a credit boom, as banks seek to keep up with competitors by collectively boosting returns. This is a time-series phenomenon. A second implication is that the dispersion in returns may be smaller for financial than for non-financial companies to the extent that former are more susceptible to risk illusion. This is a cross-sectional phenomenon.

Condition 2: State Monotonicity:  is non-decreasing in  . Condition 3: Uniform Limit Dominance: There exist and such that (1) for all and and (2) there exists such that for all . Condition 4: Strict Laplacian State Monotonicity: There exists a unique . solving Condition 5: Finite Expectations of Signals: Condition 6: Continuity: and density . is well defined. is continuous with respect to signal  Morris and Shin use these to show be defined by Condition 4. Then for any Lemma 1: (Morris and Shin 2003) Let there exists such that for all , if strategy s survives iterated deletion of strictly dominated strategies, then = {Tight} for all and = {Risky} for all . Proof: See Morris and Shin (2003), Proposition 2.2. 26  BIS Review 168/2010  i.e. that agents play cut-off strategies, adopting strategy = {Tight} when in receipt of a , and adopting strategy = {Risky} when in receipt of a “high’ “low” signal . Condition 4 gives the threshold. signal  BIS Review 168/2010  27  Annex 2 International medium-term frequency cycles in real GDP and credit  28  BIS Review 168/2010  BIS Review 168/2010  29  30  BIS Review 168/2010  BIS Review 168/2010  31  32  BIS Review 168/2010  References Acharya, V.V. (2009), “A Theory of Systemic Risk and Design of Prudential Bank Regulation”,Journal of Financial Stability, Vol 5, 3, 224–255.
I think we need both in a well organised financial system because as banks have a predominance of deposit liabilities with the characteristics I described earlier they are not on their own natural equity providers. This brings me to the last part of the story, namely the growth of non-bank asset management in its broadest sense as the size of bank balance sheets has tended to reduce post-crisis. It is striking that if you were familiar only with a chart of the evolution of global assets under management over the last twenty years, you should be excused for failing to spot that a global financial crisis had occurred. It follows from what I have said that this shift from banks to non-banks makes sense as we seek to achieve a clearer demarcation of the types of liability or funding contracts and the assets best suited to go with them. But it only makes sense if a few conditions are met, two in particular. First, that there is no lack of clarity about the nature of the assets held under management. Thus the label on the can is an accurate description. Take as an example the recent failure in the US of the Third Avenue Focused Credit Fund (focused on what a comedian might say). The purpose of the Fund was to invest in high yield debt. The label seems to have made that clear, and it wasn’t therefore in the form of a AAA label which obscured the reality.

The failure of this Fund has not made major ripples all on its own. Why? I would argue because there was no obvious lack of clarity around the assets, and this is a reminder against the re-appearance of opaque instruments and complex tranching. The second condition to meet is that there is no illusion about the liquidity of the assets. It is critical that investor expectations are well adjusted to the prevailing liquidity conditions. A lot of work is under way to assess the market liquidity implications of the expansion of assets under management, and this is important for our remit in financial stability. An important part of this work is to do all we can to ensure that investors understand the characteristics of the assets they hold, and that the liquidity promised by funds to their investors mirrors the market liquidity of the underlying investments. Conclusion In conclusion, the objective of the financial reform programme is clearly not to return to the unstable pre-crisis years, however attractive some of the statistics of that period look in isolation. The response has been to strengthen the loss absorbency of the banking system but also to enable greater clarity between the different forms of bank liabilities consistent with the economic terms of the contracts. This may seem like dry balance sheet stuff but the benefits are major.
Surely, a growthfriendly strategy is one that minimizes the risks of major financial disruptions in the future, that does not impede the smooth functioning of financial intermediation and that does not block the transmission of monetary policy. In several countries of the euro area, sovereign spreads are still at penalizing levels. In so-called “core” countries, including France, the situation is different with historically low interest rates. While, in some cases, this reflects the consolidation achieved in fiscal accounts, there are also other temporary factors at work. Low interest rates are the product of low growth expectations in the short run; and they also result from exceptionally accommodative global monetary and liquidity conditions. This environment offers a unique window of opportunity to consolidate and bring public debt to a more appropriate level. Ultimately, growth in the euro area will depend on the ability to undertake the necessary structural reforms and enhance competitiveness. The euro area, like all advanced economies is facing a double challenge. First, it must absorb the consequences of the crisis, resorb financial imbalances, eliminate excessive indebtedness and restore the normal functioning of capital markets. And second, it must adjust to the deep changes taking place in the world economy. Looking past current difficulties, it is clear that the euro area is well equipped to confront the challenges of the 21st century. With 370 million consumers and high purchasing power, it remains the biggest market in the world. It is also the most economically integrated area, with highly qualified manpower and very good infrastructures.

Christian Noyer: The euro area is getting stronger Speech by Mr Christian Noyer, Governor of the Bank of France and Chairman of the Board of Directors of the Bank for International Settlements, at the Paris Europlace International Financial Forum, “Post-crisis growth and investment opportunities in Europe”, New York, 22 April 2013. *  *  *  Mr Chairman, Ladies and Gentlemen, I am very pleased to have this opportunity to speak to you here in New York. I’d like to offer you some views about the euro area from both a short- and long-term perspective. I’ll start with Cyprus. This was certainly a traumatic episode. Obviously, the decision process was not optimal. And the adjustment effort requested from the country, while absolutely necessary, was totally unexpected by the population. As a result, many observers have interpreted the Cyprus crisis as a sign of fragility and uncertainty about the euro. In fact, it’s quite the opposite. Imagine if the situation in Cyprus had occurred nine months ago. Most likely it would have resulted in a new wave of turbulence in euro sovereign markets, with interest rate increases and strong capital flows out of the periphery. This was not the case. There was no contagion, and no spill-over effects from Cyprus to other euro area countries. During the first quarter of 2013, when the Cyprus crisis developed, long-term interest rates in Greece, Portugal and Ireland actually declined by around 270, 120 and 130 bps, respectively.
That is, whether they can make adequate returns to satisfy shareholders’ expectations. The most obvious reason for the difference between banks’ returns on the one hand and shareholders’ expectations on the other is the disappointing returns that UK banks have made in recent years. Average return on equity for UK banks fell from around 17% in 2006 to 2% in 2015. But there may be another reason, on the other side of the equation. Shareholders’ expectations may not yet have adjusted to the change in the risk and return profile that banks now represent. I want to look in a little detail at both the question of disappointing returns and the question of unrealistic expectations. Banks’ returns First, what is behind the disappointing returns? It is not lending on residential property. Our latest estimates of the return on equity of bank mortgage books seem to be around 20%, on average, beaten only by overdrafts and asset and motor finance. 13 Indeed, UK banks’ underlying return on equity on retail lending overall is currently around 20%. Margins on the flow of UK retail business for the large UK banks are currently lower than margins on the stock because new mortgages are being written at a lower average interest rate than average back-book mortgage rates. So return on equity on new lending is lower.

A good rule of thumb for financial stability is that when some form of credit is growing fast one needs to look very carefully at whether lenders’ underwriting standards are slipping and at what is happening to the distribution of borrowers’ indebtedness. The Prudential Regulation Authority (PRA) conducted a review of lending for buy-to-let mortgages and concluded that there was indeed some evidence of loosening underwriting standards and a possibility that this might increase. As a result, the PRA Board has issued a Supervisory Statement to clarify expectations for underwriting standards in the market. The statement includes guidelines for testing the affordability of interest payments and a minimum stressed interest rate for use in lenders’ affordability tests. There are also substantial tax changes affecting the buy to let market. The FPC’s expectation is that the Government’s changes in stamp duty and mortgage interest tax relief for buy-to-let, together with the PRA’s actions, will probably dampen the growth of buy-to-let lending. Mortgaged buy-to-let accounts for only around 10% of all housing transactions for house purchase so the impact on the housing market as a whole may not be great. But market dynamics are difficult to predict and given the uncertainty around the impact of the tax and supervisory changes, the FPC decided to wait and see how the market reacted before considering whether to take action on buy-to-let. The Committee continues to watch the buy-to-let market closely. 3  For further details, see Cunliffe (2016). 4  See Bank of England (2016a).
This effort can often be successful because the agent is a relatively small group of people who hold all the relevant information and share very similar motivation, while principals tend to be much more numerous and less informed and their objectives are often highly differentiated. And so, corporate managers are often able to push through their will even if it goes against the interests of many shareholders; international organisations often take steps that their founding members do not like to see; and by the same token the EU administration is able to shape the integration process in ways that differ from what many member states previously intended. To give you just one banal illustration of this process: the remuneration of employees of international organisations and of Eurocrats is invariably higher than the remuneration they would be able to earn in similar positions at home. Therefore, the principals watch – with little joy, of course – a brain-drain in favour of their agent. Thus, an agent gets dominance over its principals and principals even contribute to this dominance. The observation that agents try to become more powerful than their principals is usually considered to be beyond the boundaries of political correctness, so we rarely hear about it. The same holds for another hindrance to proper execution of the European integration idea, namely the asymmetry among different principals, that is, among different member states of the EU.

That evaporation appears to have played a key role in propagating stress during the Flash Crash.24  19  “Latency” refers to the time it takes from sending an order to it being executed. 20  Haldane (2011b), Mackenzie (2011). 21  Menkveld (2012). 22  Angel et al (2010). 23  Egginton et al (2012). 24  CFTC-SEC (2010). BIS central bankers’ speeches  5  So too did message traffic congestion. One side-effect was to slow-down price discovery across exchanges. Many traders firms found themselves observing stale prices. As a result, identical stocks traded at different prices across exchanges (Chart 5). In principle, this represented an arbitrage opportunity. In practice, arbitrage relies on costless trading and, at that time, trades could not have been executed at any price. The Flash Crash was short-lived. Some have argued the lessons have been learned. Yet it appears to have been anything but a flash in the pan. In the period since, researchers have identified a large number of “mini-Flash Crashes”, with temporary dislocations in prices in markets as varied as Japanese yen and cocoa futures.25 As with the Flash Crash, there appears to be no convincing explanation for these gyrations. The uncertainties and externalities associated with the race to zero are one candidate explanation. Liquidity mirages and message traffic congestion are nibbling away at the common good of market stability. The competitive quest for individual speed risks a fragile evolutionary equilibrium.