samchain/econo-pairs-v1 huggingface dataset:
The empirical evidence that has been produced by the Committee indicates that, in fact, banks with less capital headroom, and here the key word is “headroom”, tended to lend less during the pandemic. There was also a relatively larger decline in average risk weights at banks with less capital headroom, perhaps because of an attempt to defend capital ratios, and importantly also, the buffer threshold appears to have been the constraint, forcing banks to adjust their behaviour as lower capital ratios alone did not drive the results. Finally, another interesting finding is that the issue was not only one of quantity but also about prices. Banks’ proximity to buffers appears to have affected the cost of lending. The reasons behind this problem are unclear. It may have occurred because the level of uncertainty was very high for banks, and they were foreseeing that there might be losses in the future, and thus wanted to keep these buffers so they could be used to cover those losses. That is one possibility. The lack of formal guidance by supervisors on the rebuilding of these buffers might be another issue. Low profitability may also be a reason for this result or market stigma. We are now in the process of trying to understand precisely the origin of this problem. Closely related to this and a very important issue is the question of releasable buffers.

Notwithstanding this significant progress, the process of innovation in Islamic finance has generally been structured mainly along the adaptation approach. Although there are Islamic financial instruments that are distinct from the conventional financial instruments, the numbers are still few. In most instances, the Islamic financial products are repackaged along the features of the conventional financial products, while eliminating the elements that are not in compliance with the Shariah. The Islamic financial services industry is now at the threshold of a new level of development. As we advance forward, the Islamic financial services industry can expect to have a different set of regulatory and supervisory standards which is conducive to its unique financial operations. There is also an increased awareness and understanding amongst the international financial community on the distinct nature of Islamic banking and financial operations. In addition, a higher degree of Shariah dynamism is evident in the evolution of sophisticated Islamic financial products that are being structured based on multiple Shariah concepts. Against these developments, it is timely to move away from “plain vanilla” innovation and to embrace a new wave of innovation that will evolve Islamic financial instruments into distinct products that will maximize the potential and wisdom of the Shariah and that meets the greater sophistication of consumers and the more complex requirements of today’s businesses. This paradigm of innovation in Islamic finance, which by itself shall accord Islamic financial institutions with the competitive advantage to forge ahead, entails substantial and continuous investments in research and development (R&D).
BIS central bankers’ speeches  3  Firms, markets and infrastructure The resilience of the system depends on that of its component parts and on how they are connected. In the real world, that means firms, markets and infrastructure. It means looking for and addressing vulnerabilities or faultlines in all three. And it entails choices, trade offs, about how far to make individual firms robust and how far to strengthen the system by reducing spillovers from a distressed firm to other firms and markets. Amongst firms, plainly banks are a priority. As monetary institutions, they are special. Their deposit-liabilities are money. And that enables them to provide committed, on-demand lines of credit, ie liquidity, to households and firms in the real economy and to traders in financial markets. Firms of all kinds are able to economise on the stock of liquid assets they would otherwise need to hold.3 But banks can provide those liquidity-insurance services only if depositors are confident that they can convert their deposits into cash (central bank money). That does not mean that every bank must be completely safe, but it does mean that the resolution regime must be equipped to preserve their core monetary services whether by resurrection or the transfer of transactions-deposits to a healthy competitor. In talking about banks, I must stress that it is the economic substance that matters, not the legal form.

It will also give us the most important public platform to explain and defend our decisions, which sooner or later will prove unpopular. Unlikely as it may now seem, there will come a day when much of the public, businesses and banks find themselves on the same side, united in their opposition to the FPC taking away the Punchbowl before the party gets totally out of control. But the FPC will not be like the MPC in all respects. In contrast to monetary policy decisions, at least as practiced in the UK where we decide via individual votes, we will aim to reach decisions by consensus (although there will be provision for voting). That is essentially because of the wide range of issues the FPC will consider and the range of instruments potentially under our control. Another contrast with monetary policy is that, in some respects, we are entering unchartered territory for a developed economy. We will all – policymakers, bankers, investors, commentators, politicians – be learning about how, for example, varying capital, liquidity or collateral requirements is transmitted into the credit markets and the economy more widely. I therefore expect us to publish papers on how we approach our task and on the underlying economics. And, through the Remit process I described earlier, the government will be able to adapt the regime at the edges as we all learn. And we will need to learn, sometimes from mistakes or missed opportunities.
13  All speeches are available online at www.bankofengland.co.uk/news/speeches  13  The weakness in investment has weighed on growth in the potential supply capacity of the UK economy, through lower growth in the capital stock and reduced process innovation. Brexit-related uncertainties may have dissuaded companies from expanding supply capacity or entering new markets. And companies have spent considerable time and resources planning and preparing for various contingencies, limiting their ability to produce output and take strategic decisions that would boost innovation and productivity. 15 The MPC has repeatedly emphasised that monetary policy cannot prevent either the necessary real adjustment as the UK moves to its new trading arrangements or the weaker real income growth likely to accompany that adjustment. Monetary policy does, however, have a role to play in supporting the economy during the adjustment process. The balance of Brexit’s effects on demand, supply and the exchange rate meant the MPC faced a trade-off between the degree of support it provided to jobs and activity on the one hand and how fast it would return inflation sustainably to the target on the other. Once again it was in a unique position relative to other major central banks, which were in positions of “divine coincidence” in which both output gap and inflation rate pointed the policy stance in the same direction (Charts 9a and 9b).

In fact, capital markets and other non-bank sources of external finance have been growing relative to banks.5 This growth should improve firms’ access to funding, and ensure that any losses are dispersed more widely. Low bank profitability The overbanking in Europe, highlighted in the ASC’s report, is also a factor in the currently low 1/4  BIS Central Banker's Speeches  level of bank profitability. A number of reasons have been mooted as the causes of this low profitability, including low interest rates. Long-term real interest rates have been falling in the major advanced economies for two decades. Technological change, demographics, income inequality and safe asset scarcity are just a few of the factors exerting downward pressure on long-term real rates.6 Accommodative monetary policy by the European Central Bank and other major central banks, acting in accordance with their price stability mandates, has also contributed to low interest rates. Low interest rates tend to squeeze net interest margins owing to downward rigidity in banks’ deposit rates.7 But overbanking is also a factor in the current low level of bank profitability. Overcapacity in some national banking sectors, and the ensuing intensity of competition, exacerbates this squeeze on margins. Such over-capacity also means the sector does not operate at the efficient frontier, which is one reason why cost-to-income ratios remain high in some countries. At the same time, banks benefit from revaluations in their fixed income portfolios.
In view of the discussion that this matter occasions from time to time, there may be reason to say something about the view of the Riksbank. 1. A new currency is created A new currency will see the light of day in January 1999. Eleven countries in Europe are forming a monetary union and will accordingly be having a currency, a monetary and exchange rate policy, and a central bank in common. The euro will be the domestic currency of a major economic area. Today, the euro area’s share of world output is around 30 per cent, as against around 35 per cent for the United States. As regards world trade, the share for EMU’s external trade amounts to around 17 per cent and the United States around 15 per cent. EMU is a central component in the process of European integration. This process was initiated in the 1950s with agreements on the joint control of certain means of production, the European Coal and Steel Community. The idea was to forge economic bonds between nations as a way of promoting peace in Europe. The establishment of the Common Market in the 1980s was a further step, aiming at freedom of movement within the Community for goods, services, capital and individuals. With the introduction of a single currency, the countries of Europe will come still closer to each other in economic and political terms. At the same time, yet another obstacle to the creation of a large internal market in Europe will be removed.

The importance of fisheries as a generator of foreign exchange revenue has diminished in relative terms - to less than a half of the total - while the importance of other sectors has risen, such as manufacturing industry, information technology and tourism. In these developments, Iceland is among other things drawing benefits from globalisation to strengthen the foundations of the economy. Foreign direct investment regulations are liberal with the exception that such investment is not permitted in the fishing sector. Foreign direct investment is most noticeable in power intensive industry, such as the production of aluminium, which is based on Iceland’s abundance of untapped renewable energy resources. Recent changes in corporate taxation in Iceland, lowering corporate taxes to among the lowest to be found, serve to attract foreign business to Iceland and encourage Icelandic companies with international operations to favour Iceland as the base of their operations. 2  BIS Review 51/2002  Direct investment by Icelandic companies abroad has risen rapidly in recent years and in a variety of areas, such as fisheries and fish processing, pharmaceuticals, retail commerce and financial services. These developments also benefit the Icelandic economy in the long run as they integrate Iceland further into the global economy, allow Iceland to draw more easily on the experience of others and bring in dividends.
Explaining this increasingly fragile trust in central banks is, in part, a story of the crisis. Pre-crisis, central banks were seen as stewards of the financial system. A failure of that system inevitably then caused some questioning of central banks’ stewardship role. The financial crisis was the catalyst for some loss of faith in the stewards in much the same way the expenses scandal was for British political stewards a few years ago. But there are also deeper-seated changes underway in the nature of the public’s trust, not specific to central banks, what Rachel Botsman calls the “Trust Shift”. 12  Once upon a time, public trust was endowed on public  institutions rather than needing to be earned. Trust was anonymous and centralised. The public did not ask 8  Stock and Watson (2003). King (2003). 10 “VILE” was coined by my MPC colleague Michael Saunders (see, for example, Giles and Atkins (2008)). 11 Haldane (2017a). 12 Botsman (2017). 9  5  All speeches are available online at www.bankofengland.co.uk/speeches  5  difficult questions and public institutions, by and large, did not feel the need to provide answers. For public institutions, this was the Age of Innocence. As centralised and largely anonymous institutions, central banks surfed on this wave of blind trust during their early years. During the Age of Innocence, there was no public expectation of openness or accountability or need to build bridges with the public or parliaments.

These go by the name econoME. As the name suggests, and like our recent public communications efforts, these materials describe the economy and finance in terms which are personal and relatable to young people’s lives. Why does the economy and finance matter to me? And how do my decisions in turn affect the economy? We set ourselves a target of reaching 400 state schools with econoME during the course of this year. So far since launch in April, over 1,000 schools have downloaded the materials, conceivably covering around 90,000 pupils. 52  This demonstrates the potential pent-up demand for school materials on economic and  financial issues. The Bank’s aim is to reach close to 1,500 schools by mid-2020. We are currently considering where next to take our education initiatives. A promising avenue would be a younger age range, say 7-11 year olds. This will require different materials and possibly a different approach. A more challenging market still would be adults, perhaps linked to existing initiatives to boost  50 51 52  Haldane (2018a) and Barnes et al (2017). ING-Economics Network Survey of the Public’s Understanding of Economics (2017). Assuming 30 students per class and 3 classes per school. 22  All speeches are available online at www.bankofengland.co.uk/speeches  22  economic and financial literacy in the public at large. The scale of the public understanding deficit means central bank efforts can only be part of the solution but, as public institutions, an important part.
In this context, let me briefly point out that enhancements will be required in a number of areas, with particular focus on (i) aspects of the prudential framework, relating to capital and liquidity risk as well as to banks’ liquidity risk management practices; (ii) transparency, including full disclosure of banks’ exposures on structured products and off-balance sheet vehicles; (iii) valuation standards, especially as regards marking-to-market illiquid assets; (iv) market functioning, including possible conflicts of interest of credit rating agencies and their role in rating structured finance instruments; and (v) authorities’ responsiveness to risks and arrangements for crisis management. At the present juncture, the key priority is to ensure the expeditious and effective implementation of the respective recommendations set out in the FSF report. There is a strong consensus among the international community to act with determination in this regard. In addition, it is fortunate that many of the recommendations were developed by the authorities that now have the mandate to apply them. Nevertheless, the competent national,  3  The report was published on 11 April 2008. It is available at http://www.fsforum.org/home/home.html. BIS Review 86/2008  5  regional and international authorities and bodies will need to make every possible effort to ensure adequate progress. This relates especially to those actions which were agreed to be implemented within 100 days or by the end of this year.

While financial consumers now have a greater array of choice, the challenge is in choosing the most appropriate financial product commensurate to their needs. Lessons learned from other markets showed that high-profile cases of mis-selling of investment-linked and pension products extols the importance of ensuring consumers are properly adviced on the key features, terms, conditions and suitability of a financial product before they enter into any financial contract. Assisting consumers to make wise financial choices As FAs, you have the responsibility to educate consumers on the importance of financial planning, such as saving for the first home or a child’s future education, or buying insurance protection to safeguard against unexpected losses. FAs can assist consumers in better understanding their current and future financial needs and circumstances. FAs can provide independent and impartial advice which is tailored to the consumers risk appetite and financial needs. Apart from educating their clients on what they should be investing in, FAs also play an important role in educating their clients on what they should not be investing in. As you are the industry’s front-liners and are actively meeting with potential customers on a daily basis, FAs can be relied on as a key source of information to prevent consumers from falling prey to financial scams.
More recent monetary policy theory is frequently based on a loss function, or a preference function, which includes explicit targets for both inflation and output. Stabilising output is taken into account, thus recognising that monetary policy has an impact on the real economy in the short to medium term. It is the central bank’s task to choose an interest rate path that strikes the best possible balance between low and stable inflation and stable developments in the real economy over time. Ragnar Frisch was pursuing a similar line of thinking. Frisch wanted to construct a quantitative form of a preference function that could be applied in practical policy. Frisch delved into the matter. For example, he devoted considerable time to interviewing politicians to identify the “true” welfare function. His approach involved three phases. As to the first phase, Frisch stated:13 “...the econometrician uses his general knowledge of the political atmosphere in the country ... He will then be able to form a temporary perception of the quantitative form of the preference function”. In the next phase, the preferences are identified by means of a system for interviewing politicians: “This interview system must be designed so that the results, without the politicians necessarily having to understand this, can draw certain conclusions as to the numerical nature of the preference function.” In the third and last phase, the information derived from the interviews is combined with the data on the structure of the economy and the formulated preference function.

The model must be transparent and manageable  Norges Bank’s administration, management and Executive Board must be able to interpret and understand the model. It must not be perceived as a black box. It must have a theoretical structure so that we can easily examine the effects of alternative views of the economy’s functioning. 5. The model must reflect the Bank’s view  As a result of the modelling work, the Bank’s views on relationships in the economy will evolve. At the same time, we are developing a model with relationships that we have confidence in. Models will never provide us with a definitive answer. A model will always represent a simplification of reality. We must be pragmatic and exercise a good measure of judgement in addition. In my view, the most important role of models is to provide a framework and structure for the decision-making process, and to ensure that we do not change our views on the functioning of the economy without thorough reflection. BIS Review 36/2004  7  The use of models must also be seen in connection with the uncertainty associated with the actual state of the economy and the driving forces that dominate at a given point in time. It can be a demanding task in itself to find the balance between incorporating new information on the one hand and making abstraction of pure noise on the other. Allow me to illustrate.
Through the rapidly evolving process of financial innovation, new instruments - and often entirely new markets - are being created, taking us towards more complete markets and providing remedies for the shortcomings of more traditional instruments and markets. While this process clearly increases the efficiency of the financial system, some new risks may also be created along the way. A major recent example is the emergence of instruments to transfer credit risks between banks and other financial institutions. This is changing the activities and risk profiles of financial institutions, as previously credit risks were largely confined to banks. One could consider that a third friction is that we lack an international framework for crisis prevention and resolution. Owing to the fact that supranational governments and judicial systems do not exist, national autonomy causes problems when it comes to practical implementation, possibly hindering a resolution of crises on a global scale. As financial systems inevitably become more integrated, risks stemming from the potential lack of a common framework increase accordingly. Substantial coordination efforts are being made by the international community to overcome this friction. Here in Europe we have a unique situation, as we have gone further than any other region in terms of integration across national borders. Indeed, financial stability is increasingly a European, rather than national, concept. In particular, the single currency, the European System of Central Banks and single market for liquid reserves - the money market in euro - are creating a much more interconnected European financial system than is usually acknowledged.

Jean-Claude Trichet: Financial stability Speech by Mr Jean-Claude Trichet, President of the European Central Bank, at the Forum Financier Belge, Brussels, 26 November 2003. * A. *  *  Introductory remarks  It gives me great pleasure to be here in Brussels and to address you in this very well-known forum at the kind invitation of Governor Quaden. The topic I shall be talking about today, namely “financial stability”, is obviously very broad and challenging. My main topic of discussion will be the probable consequences the profound changes currently taking place in the financial sector will have on financial stability and on the policies of the Eurosystem in this regard. The main reason why I am talking about this topic - and why we at the ECB are following the issue - is that the stability of the banking sector and the financial system at large is of the utmost importance for the Eurosystem, as it is for any central bank. It is the precondition for a successful conduct of monetary policy and the maintenance of smoothly functioning payment systems, which are major responsibilities of a central bank. I would like to focus on three specific developments: the increasing importance of financial markets in general and market volatility more specifically, financial innovation, and the process in hand to increase the integration of financial systems across countries.