samchain/econo-pairs-v1 huggingface dataset:
SOFR is sometimes criticized for the lack of a term rate, but my message is don’t wait for a term rate to get your house in order. Don’t use that as an excuse to halt the vital work of understanding where your exposure to LIBOR lies and how to prepare your business. The OSSG has produced a document explaining how market participants can use overnight risk-free rates, as opposed to waiting for term rates.15 In addition, the New York Fed is preparing average SOFR rates and a SOFR index, with the goal of publishing them daily by the middle of next year. Contracts that reference U.S. dollar LIBOR continue to be written, which only serves to increase the level of systemic risk. In rare cases where for some reason LIBOR must be referenced, robust fallback language that accounts for a future without LIBOR needs to be included. I also strongly encourage market participants to address legacy LIBOR-linked contracts. There’s no one-size-fits-all approach for closing out or converting existing LIBOR positions so market participants need to get ahead of this issue. We know this is difficult and complex work. At the New York Fed, we’re working to identify where we have potential exposure to LIBOR and other non-IOSCO-compliant reference rates. We have teams examining monetary policy operations, foreign reserve management activities, and trading agreements with counterparties. We want to hear your voice so we can incorporate your feedback and facilitate the development of the tools you need to ensure an orderly transition.

This past Friday we announced a plan of continued daily overnight repo operations through October 10, accompanied by three twoweek term repo operations that span the month end.1 The goal of these actions is the same as for recent open market operations: foster conditions in money markets to keep the federal funds rate within the target range. This episode reminds us all of the importance of having well- functioning markets and the vital role that the Federal Reserve plays in supplying liquidity to the system when markets are under stress. We were prepared for such an event, acted quickly and appropriately, and our actions were successful. Friday’s announcement on open market operations to address potential quarter-end funding pressures on interest rates followed this same approach: quickly diagnose the problem, develop the right action plan, and execute that plan. At the same time, it is equally important that we examine these recent market dynamics and their implications for the liquidity needs in relation to the overall amount of reserves held at the Federal Reserve. We will continue to monitor and analyze developments closely. As Federal Reserve Chair Powell stated in his most recent press conference, the FOMC will assess the implications for the appropriate level of reserves and time to resume organic growth of the Federal Reserve’s balance sheet consistent with the successful execution of the FOMC’s ample reserves framework.2 That’s enough on recent events for now. I’ll turn to another very important issue, reference rate reform.
We can consider how the further development of market infrastructures can be an important part of this process. 2. The role of market infrastructures  In the second part of my remarks today, I would like to consider the role of market infrastructures. Market infrastructures have proven very resilient to the crisis. 11 Resilient market infrastructures also play an important role in helping to address some of the issues that have been identified in the money markets. In this regard we can usefully build on the CPSS’ analysis of areas for further development and for enhancing market infrastructures in repo markets. The CPSS has identified seven issues directly or indirectly related to repo market infrastructure that may affect the resilience of repo markets. I would like to pick up on two of these seven issues now in the context of euro area money markets. The first issue concerns “effective protection against counterparty credit risk”, which I believe can be addressed to some extent by the use of CCPs, while the second issue relates to “the inefficient use of (high-quality) collateral due to constraints within repo clearing and settlement arrangements”, which is being addressed via collateral optimisation initiatives. a)  Role of central counterparties (CCPs)  CCPs play a major role in reducing counterparty risk, thereby mitigating the potential risks associated with the drying-up of funding sources.

The rise and fall of the EURIBOR-OIS spread, of the use of the ECB’s deposit facility and the proportion of cross-border transactions all indicate that banks are more risk-averse than they were before the financial crisis. Money markets, especially unsecured ones, suffer from counterparty risk, that is, the fear of not being repaid. Accordingly, driven by the desire to protect and ensure repayment, transactions in money markets have become both more short-term and secured. There is no official data on the overall size of the repo market in the euro area, although surveys are regularly conducted by ICMA and the ECB. According to the latest ICMA survey, the total value of repo contracts outstanding on the books of the 62 participating institutions was € trillion in June 2012, down from € trillion in December 2011. 6 The ECB’s Money Market Study of  3  See, for example, F. Heider, M. Hoerova and C. Holthausen, “Liquidity hoarding and interbank market spreads: The role of counterparty risk”, ECB Working Paper No 1126, 2009. See also B. Cœuré, “The importance of money markets”, speech delivered at the Morgan Stanley 16th Annual Global Investment seminar, Tourrettes, Provence, 16 June 2012. 4  Injecting liquidity in the financial system increases the assets of the Eurosystem, which leads to an equivalent increase in liabilities, in this case in the form of more deposits from banks. 5  A similar cessation of interbank lending after the Lehman bankruptcy has been documented in the United States.
There were signs of strain in particular segments of these markets, such as dislocations in forward exchange rates and a notable decline in the liquidity of currency swaps. However, market participants were generally able to execute trades and manage currency exposures in these markets on an uninterrupted basis. The resilience of foreign exchange markets owed in part to the availability of CLS Bank for  2  BIS Review 40/2010  eliminating time gaps in the settlement of different currencies, to the efficient collateral exchange achieved through credit support annexes and to the standardization of trade documentation. Credit intermediation and market disruption While those capital markets demonstrated meaningful resilience to financial stress, that was not the case for other parts of the financial system – namely, those involved in more complicated forms of credit intermediation. Many of the most acute problems were driven by a build-up in leverage in which large amounts of opaque, illiquid, long-term assets were financed by short-term liabilities. These activities took place both in traditional financial intermediaries and in what is often referred to as the shadow banking system. The shadow banking system performs a function similar to that carried out by banks and other financial institutions. In particular, it takes the short-term, highly liquid investments that households and other investors want to hold, and it uses them to fund the longer-term, relatively illiquid loans that businesses and households demand to finance their economic activity.

The clause in the law dealing with the transfer to the Treasury makes some for provision for whether the Bank’s capital has reached a specified minimum relative to the size of the domestic credit system. The Central Bank Act states that an amount equal to two-thirds of the Central Bank’s profit shall be paid annually to the Treasury. However, the Bank pays only one-third of its profit to the Treasury if its capital is equivalent to less than of 2.25% of the amount of lending and domestic securities in the credit system. At present the Bank’s capital is still a long way short of this legal reference level, and its annual profit will not suffice to strengthen it markedly anyway. Growth has not only soared in the Icelandic credit system, but on an increasing scale each year has also been associated with foreign markets, where credit institutions’ activities have expanded enormously. These changes also give grounds for considering other terms of reference for foreign reserves than import levels alone. As the Prime Minister stated in his speech earlier, the government responded positively to the points raised by Central Bank and authorised it to borrow abroad in the name of the Treasury in order to strengthen its foreign reserve substantially, while the government was also mandated by parliament to strengthen the Bank’s capital position. The Board of Governors would like to thank the government for such a good, firm response.
So far, the second round impact of food prices has been limited and confined to selected sub-components of the overall index such as restaurants and catering services. The potential second round impact of elevated food and energy prices, however, on overall economy should not be overlooked. Therefore, the CBRT will keep a close eye on the price setting behavior along with various core inflation measures. In the upcoming period, the Central Bank will tolerate the first-round impacts on inflation resulting from food, energy and one-off adjustments in administered prices, yet remain responsive to the second round effects such as possible deterioration in general pricing behavior. The Central Bank closely monitors the developments in global markets. The potential impact of ongoing difficulties in the US credit markets, on the financial markets and the real economy, continue to create uncertainty about the course of the global economy. Our baseline scenario assumes a soft landing in developed economies, with no major portfolio shock on the Turkish financial markets. However, the probability of a sharper than expected slowdown should not be ruled out. While the possibility of a sharper-than envisaged slowdown in global economic activity, through its potential impact on the exchange rates, may constitute an upside risk for the short term inflation outlook, it also poses downside risks for inflation in the medium term through a possible weakening in external demand and domestic credit.

Iceland’s external position has proven to be sustainable. The trade surplus has been around 8% of GDP since 2009. This is the longest continuous period with a surplus over 5 % of GDP in the history of the data, which extend back to 1875. The current account balance as a whole has averaged 5.5% of GDP per year; that is, excluding the effects of the failed banks and other factors that do not reflect Iceland’s financial burden. The current account balance has reduced Iceland’s debt, cutting underlying net external debt almost in half since year-end 2008, to about 45% of GDP by the end of 2014. But all of this does not change the fact that Iceland still faces a balance of payments problem, which is reflected in the fact that a too large share of its debt is too short-term, and a part of the debt takes the form of possibly volatile ISK assets held by non-residents. This situation could put substantial pressure on the  BIS central bankers’ speeches  1  exchange rate or the Central Bank’s foreign exchange reserves if these ISK assets were free to exit the country. The three new commercial banks have also performed well in a number of areas, as can be seen in various indicators, including their capital ratios, which have risen from a 2009 average of 16% to last year’s average of nearly 29%.
Second, leverage can evolve greatly over a short period of time. Third, and perhaps most importantly, there are different forms of leverage, some of which are unlikely to be captured reliably by any aggregate industry data. The most basic form of leverage pertains to financial intermediaries such as global investment banks extending credit facilities to hedge funds to allow them to invest funds in excess of their own capital base. Such credit facilities are usually at the root of industry-wide or strategy-specific estimates of leverage in the hedge fund industry. Following the collapse of LTCM, much of the regulatory discussion focused on this type of leverage by attempting to strengthen the relationship between financial intermediaries and hedge funds to improve counterparty risk management. A second, more recent form of leverage in the hedge fund industry is related to the rapidly growing fund of funds industry. A number of fund of funds managers have begun to leverage their products by either using their own balance sheet or, alternatively, borrow credit facilities from other financial firms with large balance sheets. 2:1 leverage ratios are typical. In some cases, leverage ratios can be as  BIS Review 8/2005  3  high as 4:1. This form of leverage, though probably still limited, is unlikely to be captured by any industry leverage figures. Finally, the most complex form of leverage that hedge funds employ is what I would refer to as instrument leverage. This type of leverage is embedded in the use of most kinds of derivative instruments.

Thank you Chair  INTERNATIONAL MONETARY AND FINANCIAL COMMITTEE  the IMFC Deputies meeting Tuesday, September 20, 2022, Statement by Mr. Mouatassem BOUDIAF Deputy Governor Bank of Algeria On behalf of Islamic Republic of Afghanistan, Algeria, Ghana, Islamic Republic of Iran, Libya, Morocco, Pakistan, and Tunisia Session 2 MD’s Global policy Agenda Thank you, Chair. I will be brief. We welcome the Managing Director’s GPA, which we believe is balanced and well focused. We particularly welcome and strongly support the GPA’s emphasis on “acting together and acting now” to alleviate the immediate hardship due to successive years of global crises, and to build resilience for addressing future shocks. Food insecurity and debt distress are two key challenges facing the developing countries where a global collaborative approach is most urgently needed. It is also important to recognize that the current geopolitical fragmentation will likely have major longer term implications for the global economy and lasting impact on global trade, including energy, and supply chains, for which we have to prepare. We welcome the Fund’s readiness to enhance and adapt its lending toolkit to address not only the immediate financing needs related to the two overlapping crises, but equally importantly, the future crises that could not be easily anticipated. In this connection, we welcome the establishment of the RST and urge members with strong external positions to meet its funding requirements, including through additional pledges to channel SDRs and bilateral contributions.
Before I start, however, there are three important points to bear in mind. The first is that credit or debt is not “bad”. It is an essential part of what makes modern economies grow. It facilitates consumption smoothing, house purchases, investment and risk management. The last eight years have demonstrated what happens to the economy when the credit mechanism is badly damaged.2 Nor does the stock of credit to GDP have to be constant; there are good reasons, as I will try to set out, why advanced economies may have been able to sustain and indeed benefit from an increase in the level of credit to GDP. Our economy and society would be very different, and I suspect much less congenial if the credit to GDP ratio were at its 1880 level of 16%. The issue rather is what are the financial stability and broader economic risks for the UK if credit consistently grows faster than GDP and as a result debt to income resumes its upward path? That cannot continue indefinitely. Trees cannot grow to the sky. The second important point to make at the outset is that the great financial crisis of 2007 was not triggered by UK households’ build up of debt. But the debt made our economy much more vulnerable when the shock hit us. And high stocks of household debt – especially when secured on housing assets – have been at the root of many other financial crises in the past. I will say more about this later on.

And indeed, recent work in the Bank of England suggests that much of that fall could well be due to persistent structural factors (Chart 5).7 These factors include a slowing in the underlying global economic growth rate, the rise in saving due to demographic forces, lower desired investment given a lower relative price of capital, changes in the income distribution, excess saving in emerging markets and declining public investment. 7  4  Rachel and Smith (2015) attempt to decompose the substantial fall in real rates over the past 30 years. Although acknowledging significant uncertainty, they account for around 400 basis points of that fall, the majority of which they attribute to structural factors. In another piece of Bank of England work, Waldron and Zampolli (2010) calibrate a model of the UK household sector to examine the behaviour of household debt between 1987 and 2006 – their model can explain most of the rise in debt and house prices if households expected lower real interest rates to persist. BIS central bankers’ speeches  However, not all of these factors will support a higher level of debt. In particular a fall in the potential growth rate of the economy will lower the long-term real interest rate. But it will also lower long-term income so the overall impact on house values and debt sustainability is likely to be neutral.
With mobile payments, the cost of travel to a financial service provider is reduced to pressing a button, the risks associated with carrying cash are managed by simply securing a pin number. Since the mobile telephone industry has seen tremendous growth in its coverage, mobile payments seems to be the inevitable retail payment method that reaches out to large segments of the population a way that the conventional ones do not. Chairperson, notwithstanding these advantages, mobile payment platforms are not without challenges. At the centre of these challenges is the need to protect the consumer or user of mobile payment platforms. Undoubtedly, the number of people with access to mobile payment services in Zambia has significantly increased since the early days of Celpay. However, for us at the Bank of Zambia, as regulators we have taken note of how growth has been accompanied by a change in the character of mobile payments. The line between a mobile payment product and a conventional banking product has now become a fine line. For this reason developing appropriate regulations that protect the consumer against fraud and such risks anti-competitive practices, is a critical and necessary response to the innovations brought about by the mobile telephone technology. But it is important to understand that by its nature technological innovation can achieve an overnight quantum leap by the sheer ingenuity of one person. Where this happens, there is a danger that the development of appropriate regulation can lag behind technological advancement.

Chairman, the 2009 Finscope Survey highlighted a number of barriers to financial inclusion, which were broadly categorized into   The physical access or proximity to financial institutions    Affordability of financial products  BIS central bankers’ speeches  1    Appropriateness of financial products    Regulation barriers such as know your customer requirements  Chairman, we know, for instance, that the apparent high cost of providing banking services to a population that is largely subsistence and therefore financially challenged excludes many from accessing financial services. Brick and mortar establishments are expensive to set up and even when they are set up, distance to the nearest branch for many, particularly for those in the rural areas becomes a problem. The findings relating to the cost of providing financial services contained again of the Finscope™ Zambia Survey (2005) goes some way in underscoring the nature of the problem. The survey found that about 32% of the banked reported that it costs them between K5,000–K10,000 to get to their bank while about 26% spend between K11,000–K25,000. At these cost levels it is not difficult to see why certain segments of our population do not actively seek financial services. The mobile payment system does therefore address some of these challenges and consequently can be an important platform for expanding the delivery of financial services. In some respects it complements conventional financial services or products. In other respects it makes up for the weakness of the conventional financial service providers.
Of course, the Committee hopes that, over time, more and more countries will adopt the framework. We do not want them to do so before they are ready. And, when they are ready, we want them to adopt the options and approaches that are most appropriate for their circumstances. For a country that wishes to adopt Basel II but may not yet be ready, I would suggest a three-stage approach to the transition to Basel II. These stages could be categorised as (1) strengthening the supervisory infrastructure; (2) introducing or reinforcing the three pillars; and then (3) making the transition from the 1988 Accord to Basel II. This three-stage process recognises that Basel II is not intended simply to ensure compliance with a new set of capital rules. Rather, Basel II is intended to enhance the quality of risk management. To achieve this goal, Basel II must be built on the foundation of a sound supervisory system. Such a foundation includes having successfully implemented the Basel Committee’s “Core Principles for Effective Banking Supervision,” including the provisions on operational autonomy of the supervisory authority, adequate supervisory resources, regulatory and remedial powers, and a sufficient legal framework. Likewise, sound accounting and provisioning standards are critical to ensuring that the capital ratios - however calculated - reflect meaningfully the bank’s ability to absorb losses. Establishing a solid foundation of sound supervisory, legal, and accounting systems constitute the essential first stage of the process of moving to the new supervisory framework.

Likewise, banks seek to quantify in a more reliable manner  2  BIS Review 33/2004  their exposures to operational risk, or the risk of losses stemming from failures in internal processes or systems or from damage caused by an external disruption. Evolution in markets has likewise provided banks with more tools for managing and transferring credit risk, such as through securitisation transactions and credit derivatives. As risk management becomes more sophisticated, the simple and static rules of the 1988 Accord are becoming less relevant. Leading banks increasingly view the old rules as a burden, constraining their abilities to administer their businesses relative to the best information and practices available today. Supervisors, for our part, have less confidence in the 1988 Accord’s measures of risk for banks that engage in the most sophisticated forms of risk taking and risk mitigation. By the late 1990s, it became clear to banks and supervisors that we needed a new capital framework. But one person in particular knew that we should do more than merely revise the minimum requirements. Bill McDonough, the previous chairman of the Committee, and the former president of the Federal Reserve Bank of New York, convinced leaders in the industry, in central banks, and in supervisory agencies that we should provide incentives to advance the state of the art in risk management across the industry.