samchain/econo-pairs-v1 huggingface dataset:
By addressing these issues, the stress tests implemented by the Federal Reserve in the United States, and by the European Banking Authority in Europe, could play a key role in re-establishing confidence in the banking system. Reputational risks in tail events The second category of contracts we want to examine can be put into more of a game theoretic framework, where the perceived pay-off in the tail event is offset by “unforeseen” costs. In this section, we are focusing on behaviour that, at first glance, may seem irrational, but is best understood as being driven by classic time inconsistency. In particular a market participant may voluntarily choose not to enforce a contract that is “in the money”, if the reputational repercussions are perceived to cause more damage than whatever could be gained financially by enforcement. During the crisis, banks moved a significant amount of their mortgage-based assets offbalance sheet into Structured Investment Vehicles (“SIVs”). Most of the funding for these SIVs came from publicly sold asset-backed commercial paper (“ABCP”) and other mediumterm notes (“MTN”). There was a small amount of equity in the form of a junior “capital note,” which split the excess return with the asset manager. From their invention by Citigroup in 1988 and until the crisis, there was sufficient spread between the assets and the funding to generate a reasonable return to attract investors to buy the capital notes. In addition, there was typically a partial liquidity back-stop facility provided by the originating bank.

This calls for continuously upgrading our regulatory regime. Accordingly, we in Kuwait, like our colleagues in the region, have not only refined our existing regulations to reflect the best global practices, but have also introduced a host of new measures. This journey brought its own set of challenges, and I would like to point out one in particular, to benefit from the presence of our esteemed colleagues from the BIS. Similar to other jurisdictions with dual banking system, we have a sizeable presence of Islamic banks in Kuwait. Yet we found limited relevant guidance for the application of Basel III on Islamic financial institutions, if at all. For the most challenging aspects of Basel III reforms, it has been left to the discretion of individual regulators to figure out how best to apply the proposed rules to Islamic banks. However, the use of discretion, though well intended, is bound to create differences across countries, and more so in the case of Islamic finance where the lack of consistency in Sharī`ah interpretations makes the task even harder. Consequently, we may witness diverging approaches to regulation of Islamic banks across jurisdictions, with the risk of regulatory arbitrage. Going forward, we also need to recognize that ensuring stability, of a constantly adapting banking system, cannot be left to regulation alone. Therefore, we need to strengthen our supervisory capacity, to suitably complement our revamped regulatory regimes. Only through effective supervision can we ensure that banks are truly compliant with our regulations.
As for risks for inflation: it has been high for a prolonged time, which could hurt its convergence velocity, both through its effects via indexation and its possible impact on the formation of expectations. In the short term, its dynamics will be closely linked to the exchange rate. Thus, considering the scenarios just described, there are risks in either direction. After assessing these risks, the Board estimates that the risk balance is unbiased for both inflation and output. Please allow me to share some final thoughts. Final thoughts If our projections come true, the Chilean economy will complete four full years growing around 2 percent. Inflation, meanwhile, will have converged to the 3 percent target, but only after standing for more than two years on or above the upper bound of the tolerance band. Of course these numbers describe a complex economic scenario, which makes us wonder what caused it and how we have dealt with it. Let me use the last minutes of my intervention  4  BIS central bankers’ speeches  to visit these topics briefly, and go in more detail into how monetary policy has behaved in this adverse economic environment. Many factors lie behind our low growth, some of which have been more intense than previously thought. Lately, this has led not only us but also market analysts and international organizations to make significant downward corrections to the growth outlook for Chile.

The inflation target is symmetrical – it is just as important to avoid an inflation rate that is too low as an inflation rate that is too high. The inflation target provides economic agents with an anchor for inflation expectations. Decisions concerning saving and investment can be based on the assumption that inflation in Norway will be around 2½ per cent over time. Norges Bank’s instrument to meet the inflation target is the key policy rate, which is the interest rate on banks’ deposits in Norges Bank. This interest rate forms the basis for banks’ lending and deposit rates. 2  BIS central bankers’ speeches  The Bank’ monetary policy assessments and decisions must be based on knowledge it can obtain on interactions within the Norwegian economy and how the interest rate interacts. But we need a methodical apparatus to structure this knowledge. Like other central banks, Norges Bank uses economic models as an aid in monetary policy analysis. Economic models can help us to interpret historical developments, make forecasts for the future and analyse the effect of the interest rate. For an economic model to be relevant, it must be fit for its intended purpose. A model that is to be used as an aid in making interest rate decisions requires different attributes and is based on different principles than models that for example seek to provide optimal near-term inflation and output forecasts. In this chart, the time axis has been divided into three: short term, medium term and long term.
The basis for this was the Bank’s task of promoting a safe and efficient payment system – what we in practice define as financial stability.10 In 1997 the Riksbank began publishing its assessment of the stability of the financial system, in the form of the Financial Stability Report, published twice a year. It was one of the first central banks in the world to do this. The special Macroprudential Policy Division at the Riksbank’s Financial Stability Department has as one of its tasks to assess the need for specific macroprudential policy measures. The Riksbank’s Monetary Policy Department has long conducted macroeconomic analysis to provide a good guidance for interest-rate decisions, which are based on macroeconomic analyses and forecasts. The analysis of financial stability, combined with the monetary policy analysis, provides good grounds for understanding the repercussions between the financial and real economy, which is essential for successful macroprudential policy. In recent years the cooperation between the Financial Stability and Monetary Policy Departments at the Riksbank has intensified. There are also clear links between monetary policy and macroprudential policy. Both policy areas ultimately aim for a stable macroeconomic development – macroprudential policy by limiting systemic risk and monetary policy by keeping inflation low and stable and stabilising the real economy. But they also affect the conditions for one another (see Figure 10). 9  Sveriges Riksbank (2012), Financial Stability Report 2012:2.

These and many more questions need to be addressed in the months to come. Let me only mention the most obvious: •  A European banking supervisor only for the euro area or for the EU 27? A well-functioning financial market union is primarily in the interest of the monetary union. Nevertheless, non-euro area member states should be welcomed to put their institutions under the control of the European banking supervisor. •  A European banking supervisor for all banks or for the systemically important banks only? From my personal perspective, the European banking supervisor should only be entrusted with the supervision of the systemically important institutions on European or domestic level, at least at the beginning. Anything more is neither feasible nor desirable at the beginning of 2013. •  What shall be the division of labour between the ECB and the European Banking Authority (EBA)? From my perspective, EBA could be tasked with any future work on the Single Rulebook in the single market, ie for the EU 27. •  And finally, what shall be the division of labour between the ECB and the national supervisory authorities? It will be key to strike the right balance between relying on local know-how and expertise while safeguarding a single standard of supervision and a level playing field. The implementation of a European banking supervision is closely linked to the possibility of direct banking recapitalisation via the ESM in the future and should not least therefore be advanced without undue delay.
In its December 1999 Inflation Report, Norges Bank presented calculations based on our macroeconomic model which illustrated that an interest rate rise of 1 percentage point might reduce price inflation by 0.3 percentage point after two years. This reduction is largely due to the effect on the exchange rate. These calculations were based on the assumption of uncovered interest rate parity. An interest rate rise will then result in an immediate appreciation of the krone, which is sufficient for the interest rate differential between Norway and other countries to correspond to expectations of future changes in the exchange rate. After three years the effect is somewhat less strong as a result of the depreciation of the krone, but at this stage domestic factors will gain in importance. A number of comparative analyses have been published which study the effect of rises in interest rates on inflation in different industrial countries.1 There is substantial variation in the calculations across countries and between different analyses. In a report published by the Monetary Policy Committee of the Bank of England,2 the effect of an interest rate rise which is sustained for one year is illustrated using simulations in the bank’s macroeconomic model. After two years, inflation has fallen somewhere in the region of 0.2 to 0.4 percentage point, dependent on the other assumptions. The report emphasises that the effects are dependent on factors such as the general state of the economy and the credibility of the monetary policy regime.

This is at least what the Riksbank believes (see Figure 13). For the service sector, however, the situation is different in the case of a floating exchange rate. If the service sector sets the norm for wage increases and the increases are higher than the level compatible with the inflation target, the Riksbank will, under normal circumstances, raise the interest rate. This normally results in a strengthening of the krona and a dampening of economic activity and inflation. For the manufacturing industry this leads to a doubleedged pressure on competitiveness in that wages increase more than in other countries at the same time as the krona is strengthened. However, the restraining effect of too high wage increases in the service sector is less direct and less tangible than the effect of too high wage increases in the manufacturing industry. The effect of too high wage increases in the service sector must be explained in several stages (higher wages, higher inflation, interest rate increases, lower real growth and so on) while the effect of too high wage increases in the manufacturing industry has a direct impact on the competitiveness of industrial companies. The normative role of the manufacturing industry is also dependent on more than the fact that it is a part of the Swedish economy that is exposed to international competition.
But I must stress that in no way does any of this dilute the protection assured to insured deposits. It does transfer losses to the surviving parts of the local banking system. But so do other resolution techniques, and liquidation would entail much bigger losses for the Deposit Insurer and thus for other banks. There is much work to be done on planning how to operationalise that kind of resolution strategy, but it is worth doing. The FSB work programme This brings me, briefly, to the FSB work programme for 2012 and into 2013. There will be a preliminary peer review of the extent to which jurisdictions’ resolution regimes comply with the FSB Standard. That will be followed by more exacting examinations, led by the IMF and World Bank, once an Assessment Methodology for the Resolution Key Attributes is complete. Meanwhile, authorities are enjoined to produce assessments of resolvability of Global SIFIs and the obstacles in their way; firm-specific agreements for co-operation amongst home and host resolution agencies and supervisors; and resolution plans by the end of this year. Each of those requires a conception of a high-level resolution strategy for individual firms agreed amongst top officials of home and key host authorities. And the development of those strategies will inform the information that the authorities need from firms. I have sketched in very general terms two broad kinds of resolution strategy, potentially appropriate for different types of global SIFI.

That is achievable for relatively simple commercial banks operating in a single jurisdiction, and all of whose contracts are under the law of that jurisdiction. It is harder for so-called Systemically Important Financial Institutions (SIFIs), spanning many markets, jurisdictions, and currencies, with complex counterparty relationships. As one international colleague put it, the standard toolkit would face an “exponentially greater challenge”. Top-down capital restructuring: bail-in That is why resolution authorities in a number of countries are exploring how to execute “top-down” resolutions of complex groups, employing bail-in of debt issued by the holding company or top-level operating company. The US and UK have been working together very constructively in planning how to operationalise that strategy; and if we continue to make progress I hope that we will be able to say more about it over the next few months. Imagine that a large, complex, global firm – just one legal entity for the moment – has 20 lines of business, each the same size, which is to say using the same amount of balance sheet and capital. Imagine it is 50 times levered. Now imagine that one of those lines of business is completely toxic, worthless. The firm is insolvent, bankrupt. Unless it can be resolved, it must cease trading and go into insolvent liquidation. But, in this stylized example, only a single line of business is toxic; the other 19 are fine. In other words, the franchise has value. In the non-financial corporate sector, there are established tools for this.
At the same time, we know that competition may come at the expense of efficiency if it leads to a large number of services which are not coordinated. Maintaining a coordinated payment system while also ensuring a level of competition which can sustain and develop dynamics and innovation can be a difficult balancing act. As mentioned, it can be said that our experiences in Norway have been fairly good. In our view, coordination that promotes positive network effects should be encouraged. Competition considerations should primarily be safeguarded through objective and publicly known criteria for access to the network which makes it possible for new competitors to become established within the common infrastructure. How shall we assess new participants wishing to establish proprietary systems alongside the common infrastructure? This matter was discussed by the Banking Law Commission - which provided for the possibility of institutions other than banks and other financial undertakings to establish systems for payment services if licensed. The present bill does not address this question. It will be reverted to at a later time when the formulation of the regulation of institutions is addressed. Norges Bank has provided its view on these matters in earlier submissions to the Banking Law Commission’s fourth report. At that time, we supported the Commission’s proposal for opening for new participants in this area, by pointing out that such new systems for payment services will not be based on account agreements.

And only three years ago the Bank’s Court held its annual out-of-London meeting in Liverpool’s imposing Town Hall. I am particularly pleased to launch this, the third edition of the Merseyside Economic Review. The Partnership had its origins in a Daily Post campaign over a decade ago (‘who speaks for Merseyside?’). It broke new ground then and it has been breaking new ground ever since. The Economic Review was the first of its kind for any UK City Region. And the Partnership’s report on ‘the Gender Agenda: Women in the Merseyside economy’ is another first. The value of the Partnership’s approach is clear. Economic regeneration is a highly complex long term business which has to bring together many different bodies and initiatives – at local, regional, national, European and even international levels. It’s only too easy to lose sight of the big picture. But successful partnership rests on shared goals and clear expectations. This Review charts the way: it sets out in clear and simple terms what the Partnership is seeking to achieve and it assesses progress against measurable objectives. It has the credibility that comes from being grounded in serious analysis of the issues confronting Merseyside. And it has benefited from the advice of an independent panel of distinguished experts. There is no doubt that the performance of monetary policy has benefited greatly from setting clear objectives and measuring progress in a transparent and open way.
Mr King gives a speech on reforming the international financial system: the middle way  Speech delivered by Mr Mervyn King, Deputy Governor of the Bank of England, to a session of the Money Marketeers at the Federal Reserve Bank of New York on 9 September 1999. *  1. *  *  Introduction  One of the roles which international financial officials are sometimes required to play is to describe disasters as triumphs and to make the dramatic seem bland. So, on 16 September 1992, following massive speculation against sterling and its withdrawal from the Exchange Rate Mechanism, the then Chancellor of the Exchequer, Norman Lamont, opened his statement with the words: “Today has been an extremely difficult and turbulent day”. In the seven years since, several finance ministers have had cause to echo those words. Officials have spoken of the risks associated with capital flows. Well they might. Sharp reversals of capital flows to emerging markets have caused crises with a frequency and on a scale that threaten support for an open, market-led international economy. These crises have created millions of victims, whose circumstances and aspirations were totally unrelated to financial markets. In Korea unemployment tripled, in Indonesia several years of economic growth were wiped out leading to political instability and similar results have been visible in other parts of Asia as well as Latin America. Over the past century, governments in the industrialised world have, in the wake of domestic financial crises, taken steps to regulate and strengthen the financial system.

The four are: (i)  the provision of official finance should be linked to the involvement of other creditors, including the private sector, in the resolution of crises. This can be achieved by the IMF setting a floor for the minimum level of foreign exchange reserves a country is required to maintain;  (ii)  the aim of resolution is to find a cooperative solution negotiated between a debtor and its creditors. No particular class of creditor should be in a privileged position, unless the instrument in question explicitly gives it preferred creditor status;  (iii)  the use of temporary standstills – possibly sanctioned by the international community – would allow time for a country to negotiate with its creditors. In the absence of a formal mechanism to achieve this, the IMF can indicate its endorsement of a standstill by being prepared to provide new money to a country which has temporarily suspended payments to its creditors (often referred to as IMF lending into arrears). By making standstills part of the furniture – or one of the bricks – they would be seen not as an ad hoc response, which might lead to contagion in other emerging markets, but part of an approved process;  (iv)  measures, including perhaps strictly temporary capital controls, to prevent capital flight by domestic residents in exceptional circumstances. It would be odd to sanction a standstill of payments to foreign creditors while allowing domestic residents to move assets overseas without restriction.
Projections indicate that in the short term the Chilean economy will continue to expand somewhat below trend for still some quarters. However, labor market conditions and a faster recovery in inventories, among other factors, could result in a faster recovery of the economy that would bring it closer to its trend. In the Financial Stability Report we are presenting today, the same risk scenarios coming from abroad that I have just identified are examined, this time from the perspective of their impact on our domestic economy’s financial stability. We conclude that of the three risk scenarios described, the episode of volatility originating in the monetary stimulus withdrawal is the most likely to occur. However, a deepening of the Eurozone crisis or a sharp deceleration of a systemic emerging economy would have stronger effects on the Chilean financial system. Especially because, as I have noted, the withdrawal of the monetary stimulus in the United States will come about when the U.S. economy’s improved growth is already confirmed. The banking industry’s capital levels are adequate to remain solvent before a significant deterioration of economic growth and financial conditions. Stress tests show that the banks’ current capital levels allow them to absorb potential losses generated by a macroeconomic  4  BIS central bankers’ speeches  risk scenario that combines a GDP contraction – like that of the subprime crisis – higher financial costs for the short and long term, and a sharp depreciation of the exchange rate.

Third, in relation to funding structures, the Central Bank is reviewing the liquidity rules governing the banks in order to strengthen management policies in this field, include binding regulatory limits on a consolidated basis, standardize the assumptions of our own models, expand information disclosure to the market about the liquidity position of each bank and move towards the new Basel liquidity standards. Finally, the bill of law sent to the National Congress to institutionalize the Financial Stability Board (FSB) is an important step, because it grants capabilities that provide more space to the authorities to monitor the risks facing the financial system and coordinate responses to them. To sum up, the Chilean economy is well positioned to address the changing internal and external conditions that we are already seeing. The adjustments observed in relative prices, the real exchange rate and interest rates have gone in the right direction to facilitate the adjustment of the economy. The Board follows closely the evolution of the external and domestic macroeconomic scenarios and their implications on inflation, and reiterates its commitment to conduct monetary policy in such a way that projected inflation stands at 3% in the policy horizon. At the same time, it will continue to improve financial legislation in order to maintain and enhance this resilience, in those issues that are legally mandated. Let me end with some final thoughts.