samchain/econo-pairs-v1 huggingface dataset:
The responses of central banks to the financial turmoil  Over the past four weeks – in particular following the collapse of Lehman Brothers – credit risk concerns have intensified and have led to additional disruptions in the functioning of money markets, not only in the United States, but also in the euro area and Europe in general. Central banks are taking all the necessary steps to stop the downward spiral, and recent actions have once again demonstrated their determination in this respect. In both “normal” and “turbulent” times, the primary objective of the Eurosystem’s open market operations is to keep the shorter rates, in particular, the overnight rate, as close as possible  BIS Review 123/2008  1  to the minimum bid rate. However, during the recent period of turbulence, open market operations have also aimed at ensuring the continued access of solvent banks to liquidity, notably by contributing to easing the impaired functioning of the money market. The Eurosystem intends to continue to follow this approach as long as necessary. From the first day of the financial market turbulence on 9 August 2007, in an environment of increased liquidity risk and in response to banks’ changed liquidity demand pattern, the ECB has achieved these objectives through making technical changes to the way in which it supplies liquidity in normal times, while also utilising the full latitude of its framework for monetary policy implementation.

Today, we are near the juncture of achieving a key milestone, where formal setting is no longer required to mobilise intra-region fund flows such as in the case of ABF1 and ABF2. Instead the intra-regional investments are becoming more self-reinforcing. As a proof of this, we now have more anecdotal evidence on the rising proportion of the regional central banks’ reserves invested in Asian local currency debt. iii)  Credit risk assessment approach  As we tread into uncharted territories of new asset classes, there is a growing need to enhance analytical capabilities, resources and risk controls. For example, many central banks and institutional investors have gradually moved away from over-reliance on credit rating agencies to an internally-based credit rating assessment practice in portfolio management. In the wake of the US financial crisis and recent European sovereign issue, one would question the credibility of credit rating agencies in flagging the risks built up in banks and sovereigns, ahead of the crisis. Most credit rating agencies also tend to apply ordinal ranking of credit, rather than specific risk metrics that can be mapped to default probabilities or expected losses. In my view, one of the major weaknesses of credit rating agencies is their objective to establish rating stability by applying smoothing methodology that can potentially delay minor downgrades, but trigger cliff-like and abrupt downgrades in the event of sharp credit deterioration. The abrupt regrading of credits tend to spook markets and is certainly not good for investors with a heart condition.
Page 2 sur 5 The Euro-system staff projections of economic growth of 2.1% in 2018, 1.9% in 2019 and 1.7% in 2020 remains consistent with an ongoing solid and broad-based recovery; the French economy, which is sometimes considered to be a good proxy for the Euro-area average, is likely to follow a similar growth path with 1.8%, 1.7% and 1.6% in 2020 according to the Banque de France. On the inflation outlook, as part of the SAPI criteria, recent ECB and Euro-system staff projections have become more and more stable giving us increasing confidence that the improving economic growth we have seen will translate into rising wage and price inflation. In other words, whilst we might be a bit less certain precisely where we are in the cycle, we are more confident that we are heading in the right direction on inflation. Monetary policy decisions When would the Governing Council end the net asset purchases? When would it announce this decision? These were questions left hanging and the subject of market speculation before our meeting in Riga. Besides the famous and important three “Ps” – perseverance, patience and prudence - the Governing Council’s decisions were also guided by three “Cs”: credibility, consistency and clarity. Each element is important.   Credibility: Our actions are credible because they stick to our mandate and our economic forecasts, in particular with respect to the inflation outlook.

Theoretical models often assume the existence of a central bank reaction function. A well-known reaction function can be a powerful tool in stabilizing output and inflation because yield curves can adjust in anticipation of future policy in line with the evolving outlook for the economy. To return to my football theme, Mervyn King referred to this as the Maradona theory of interest rates. But credible reaction functions don’t fall from the sky and need to be earned by communicating and acting consistently through time. We are and will remain predictable for our stakeholders. Through its forward guidance, the Governing Council has also indicated its intention to move gradually and in accordance with the data. Faced with uncertainty about the strength of the transmission mechanism, we should be guided by pragmatism - the level of inflation relative to the medium-term objective and gradualism. The final C is for clarity. Central bankers should try to spell out what they will and won’t do as much as possible. On the first part, we were clear in Riga; on the second part, let me stress that we cannot fully compensate for the uncertainty created by other policy-makers; nor can we fully offset their effects. We have shown in the past few years that monetary policy is flexible, and we have been willing to use every instrument within our mandate to respond to too low inflation.
Against this backdrop, it seems appropriate to dedicate this year’s conference to taking stock of the transformations that have occurred in monetary policy, if not in the objectives, at least in the tools by which these objectives are achieved. Moreover, such introspection seems crucial to our understanding of how to go forward. Indeed, it is very likely that such measures will become standard practices, with the subtitle “unconventional” eventually scratched off altogether. In fact, there are several reasons to suspect these exceptional measures are here to stay. On the one hand, it might very well be the case that we are witnessing profound structural changes that imply a new normal of much lower interest rates that we have been accustomed to –I suspect the keynote address by Larry Summers tomorrow may touch upon such issues. If this is so, then it is more likely that we will run into the ZLB in future business cycles, forcing central banks to tap upon these so-called unconventional measures time and again. On the other hand, these measures have apparently worked. Why then should we not embrace them as part of our standard set of instruments? The structure of this conference follows the logic of addressing three main aspects of the transformation in the practice of Monetary Policy in the last decade. Our first session includes three papers that tackle, from both a theoretical and empirical perspective, the impact of such unconventional measures on interest rates at different horizons and over a wide variety of securities.

In this context, perhaps the biggest advances of monetary policy of the last 20 years leading to the GFC had to do with the transparency and the overall macroeconomic coherency of interest rate decisions, which led, among other transformations, to the adoption of explicit inflationary objectives in a number of advanced and emerging market economies. In the aftermath of the global crisis, it soon became clear that traditional MP was simply not going to cut it, especially given the limitations of other policy options, such as fiscal expansion, to reactivate the global economy after the major blow it suffered. Central bankers were forced to be creative and think outside the box of traditional monetary tools in order to make a difference. A useful framework to understand how policy tools have evolved is to think about interest rates in the following way. The price of a given form of debt, issued at a particular maturity and by a specific counterparty, is the sum of three main components. The first is the expectations of short-term, risk-free debt over the maturity of the instrument. Let’s call this component the path of risk-neutral rates. The second is the compensation for risk that must be offered to an investor to account for the fact that longer maturity instruments are more volatile (have higher duration) than short-term rates, let’s call it the term premium channel. The third is simply default risk.
The implementation of these rules, however, can broadly speaking take two forms. One form is where rules are agreed centrally but applied decentrally by national authorities. For this to work, however, there has to be very little room for discretion in how those rules are applied. Otherwise, political and economic preferences at the national level or industry lobbies can lead to substantial divergence between member countries. This in turn risks externalities for others in the currency area. Another form is where rules are agreed centrally and applied centrally by a European institution. In this case there can be discretionary decision-making, as the European institution, provided it has sufficient independence, is not influenced by preferences at the national level. Moreover, through appropriate accountability arrangements it will be de facto forced to take a euro area-wide view and apply that discretion evenly. When EMU was launched, only really monetary policy conformed to one of these forms. Monetary policy decision-making was fully centralised in a European institution, the ECB, which had substantial discretion in how it implemented its tasks. This was made possible by the ECB’s clear mandate referenced in terms of the euro area as a whole, for which it was  6  For a more in depth exposition of this argument see: Nedergaard, Peter. “The Influence of Ordoliberalism in European Integration Processes: A Framework for Ideational Influence with Competition Policy and the Economic and Monetary Policy as Examples.” MPRA Paper No. 52331, December 2013. BIS central bankers’ speeches  3  accountable ex post.

Having competent staff to deliver high quality products and services is critical to building customer confidence and goodwill, driving customer satisfaction, enhancing reputation and ultimately realising individual institutions' corporate vision and strategic goals. It is therefore, in the best interest of banking institutions to strengthen further the competence and professionalism of staff in the industry. In this regard, financial institutions can of course adopt the measure of “buying talent” from the market. This may however, risk in high compensations that are not commensurate with the value added. The more desirable option is the building, developing and maintaining a pipeline of talent from within the company. Let me turn to Malaysia's experience in human capital development for the financial services industry. In Malaysia, structured and comprehensive approach to human capital development has been a key part of our efforts for the development and advancement of the industry. The programmes by ICLIF, which is now in its 6th year of operations, provide programmes in leadership development for the senior management level in the financial services industry. The programmes carried out by the Institute of Bankers Malaysia, the training arm of the banking industry, have also been recently reviewed to meet the new demands of the financial sector. In addition, dialogue between the industry and other education providers including institutions of higher learning have taken place to promote well equipped supply of talent.
The recent events of the banking turmoil in the US and Europe, fifteen years after the Global Financial Crisis, are sobering reminders that a sound risk culture remains essential to the integrity and stability of banks, as well as public trust and confidence in banks. Such a culture begins with leaders of financial institutions who consistently demonstrate and model risk-aware behaviours, and employees at all levels who are equipped with the knowledge and tools  3/5  BIS - Central bankers' speeches  to identify, assess and manage risks effectively in a fast-changing and significantly more complex operating environment. Creating greater agility to meet changing business and employee needs Finally, future talent strategies will need to create greater agility for institutions and individuals to respond to changing needs by embracing new norms of talent mobility and encouraging diversity in the workforce. The pandemic has shaped a significantly more fluid and mobile workforce. In response to this, many organisations are pivoting their talent strategies from 'acquiring' talent, to 'accessing' talent. In other words, firms are looking to alternative ways to access ready talent apart from hiring. The ability to tap into external and more diverse talent pools to meet specific skill gaps is becoming a more important part of talent strategies of firms including financial institutions. This also reflects the rise of a segment of the workforce associated with the gig economy and professional experts that are not affiliated to any single organisation.

Overall, tax revenues, before the transfer to local and regional government, are projected to increase by 7.8% in 2017, while social contributions are projected to increase by 6.3%, which, given the macroeconomic forecasts and the impact of the tax reforms mentioned above, would entail a greater response by revenues to growth in activity than in the past, especially in the case of social contributions, which are projected to grow by more than their bases (employment and wages), even taking into account the effect on revenues of the legal changes mentioned above. If the uncertainties surrounding the estimates of the impact of the legislative changes on taxation are also taken into account, it is clear that revenue growth needs to be monitored constantly over the course of the year, so that a timely adjustment can be made to spending or revenue in the event that the risks to the deficit target materialise. Moreover, in such a decentralised country as Spain, where more than 40% of public spending is made at the local and regional level, the State and Social Security budgets give merely a partial view of the budgetary policy of the public sector as a whole for next year. From this perspective, the Updated Stability Programme to be published in the next few days is particularly important, since it consolidates the budgets of central government agencies with those of regional government and local government.
In all these areas, we have made substantial progress in recent years. During the crisis, the ECB has taken all appropriate measures to ensure that price stability provided an anchor in an uncertain and volatile economic environment. Consistent with this principle, our recent decisions have aimed at addressing the risk of too long a period of low inflation and at ensuring that inflation expectations remain firmly anchored. As for financial stability, the crisis has shown us how the functioning of an economy becomes impaired without a well-functioning, robust financial system. This requires striking the right balance between insuring against crises, curbing risk-taking behaviour and mitigating moral hazard with a strong incentive framework. The establishment of the European Stability Mechanism and the launch of banking union, with its Single Supervisory Mechanism and Single Resolution Mechanism, have been milestones in this respect. The stabilisation and ongoing repair of the Greek banking system is another example. As a third dimension, the crisis has shown us the kind of existential threat to monetary union that can be brought about by the build-up of excessive imbalances, i.e. by the lack of fiscal and macroeconomic stability. The lesson drawn from this existential threat was that there was a need to reform economic governance. We should be very careful now not to roll back this achievement, in particular in the fiscal domain. New growth will not be generated by new debt. On the contrary: sound fiscal policies are essential for growing out of debt.

Page 4/10  supervisory measures taken in the aftermath of the 2008 global financial crisis, the capital buffers and liquidity positions of most banks have improved in recent years. Let me conclude this section with two observations. First, crisis resilience requires more than good crisis management skills. Fending off a crisis depends not only on what policymakers do once the crisis has erupted. It also hinges on what has been done to render the financial system as a whole more resilient ahead of a new shock. Second, policy coordination and cohesion matter. Although the SNB has reaffirmed its important role as a crisis manager, monetary policy alone is not a panacea. We mentioned earlier the powerful effect of the concerted efforts of central banks to calm financial markets and instil confidence. The same is true at the national level. The unique nature of the COVID-19 crisis required an unprecedented combination of fiscal and monetary policy. Fiscal policy directly supported households’ and firms’ incomes, while monetary policy supported bank credit provisioning and dealt effectively with the risk of financial market turmoil. The two policy areas complemented each other while remaining within their respective remits. So far, we have discussed how the COVID-19 pandemic shock prompted the SNB to react with a set of timely and targeted policy responses. Let us now turn our attention to a different facet of the COVID-19 pandemic, namely, how it has catalysed digitalisation and what the implications of this development might be for the SNB.
Another one is the covered bond market. 3/6  Both securitisations and covered bonds have traditionally been important financing sources for banks and it is my opinion that they will regain importance in banks’ funding strategies as the ECB’s targeted longer-term refinancing operations (TLTRO II) progressively mature, opening up new opportunities for the markets. In the field of securitisations, despite the stigma that has surrounded this product since the recent financial crisis, the European authorities have considered that appropriately regulated and well-structured securitisations can contribute to diversify funding sources, to promote better risk management and, ultimately, to mobilise more funds for the real economy. For these reasons, two Regulations were published on 28 December 2017 in the Official Journal of the European Union amending the regulatory framework applicable to securitisations, in an attempt to harness their benefits, restricting the risks arising from their inappropriate use. One Regulation establishes a general framework for all securitisations, and creates a specific framework for those that are to be known as STS (simple, transparent and standardised). The other Regulation transposes the new Basel III framework, making amendments to the prudential regulation of credit institutions and investment firms, both for general and for simple, transparent and standardised securitisations, which will benefit from a better treatment. These regulatory changes may incentivise changes in banks’ funding and risk management strategies, and may trigger a renewed interest in securitisations, providing an opportunity to reactivate this market. Covered bonds are another instrument where progress is being made.

Karolina Ekholm: How can financial crises be avoided in Sweden? Speech by Ms Karolina Ekholm, Deputy Governor of the Sveriges Riksbank, at a meeting at Handelsbanken, Stockholm, 27 September 2012. *  *  *  The views expressed in this speech are my own and are not necessarily shared by the other members of the Executive Board of the Riksbank. I would like to thank Jill Billborn, Johanna Fager Wettergren and Per Åsberg-Sommar for their great assistance in the writing of this speech. Four years after the financial crisis broke out, we are still living with its consequences: a sovereign debt crisis in the euro area, sluggish recovery in the United States and United Kingdom, with unemployment entrenched at high levels and a world beyond Europe and the United States that is finding it hard to adjust to the fact that their most important export markets are faltering. The realisation that the costs of financial crises are dreadfully high has led to a general understanding that economic policy must focus much more on preventing such crises. Here in Sweden, we have coped relatively well through the recent turbulent years. But, even here, unemployment remains on a high level – and part of the high Swedish growth rate has merely been a recovery from the great fall in GDP in 2008 and 2009.
May I also again urge governments to implement decisively the structural reform agenda, both within the area of fiscal expenditures and revenues and in labour and product markets. Such action is needed to enhance potential output growth over the medium term. At the same time, the prompt implementation of structural reforms would contribute towards strengthening confidence in the euro area and thereby support economic growth in the short term. We are now at your disposal for questions. 2  BIS Review 64/2002

If losses have to be shared on a large scale this can put the core of the financial system in peril. Corporate bonds and securitised assets can have similar risks, especially if they are effectively held in the banking system. Debt instruments generally can be destabilising if they cannot easily be restructured when losses occur. Equity provides the most efficient form of risk sharing, suggesting perhaps that this area should be a priority for CMU. The nature of investors also matters in ensuring that an increase in cross border market-based financing in the EU does not increase financial stability risks. In general, sources of market-based financing are more likely to be resilient if the investor base is diverse, not excessively reliant on leverage and “sticky”. It is abundantly clear from all of the above that achieving the necessary step change in market-based financing in the EU means a marathon not a sprint. Although it shares its nomenclature with Banking Union, Capital Markets Union is a very different animal. The former is essentially designed to improve stability of and between the euro members through institutional change and moving major financial stability responsibilities to sit at the euro level alongside monetary stability. It was possible to make these institutional changes relatively quickly, though their implementation will take longer. Capital Markets Union, in contrast, aims to deepen and widen the single market, though it needs to have regard to financial stability. It does not require institutional change.