samchain/econo-pairs-v1 huggingface dataset:
As asset prices fell and volatility climbed during this period, the financial condition of some dealers became more troubled. As a result, some investors in this market became worried about the risk that they might not get their cash returned in the morning, but instead might be stuck with the collateral that secured their lending. Investors responded by increasing their haircuts – that is the margin of extra collateral used to secure their funding – and reducing the range of collateral they would accept as security for their lending. Of course, these very rational reactions on the part of investors only further weakened the liquidity positions of the major securities firms. A similar dynamic occurred in the context of prime brokerage accounts. Some institutions treated the free cash balances associated with these accounts as if they were a stable source of funding. Implicitly, they assumed that these balances would be “sticky” due to the strength of broader business relationships and the cost incurred by customers in shifting the business elsewhere. However, once markets became strained, this assumption of stable funding proved to be false. Prime brokerage customers began to withdraw their free credit balances and some moved their business elsewhere. Both of these steps reduced dealer liquidity buffers and further tightened the funding noose. 1  The collapse of the shadow banking system, in turn, put intense pressure on commercial banks. Off-balancesheet items came back on to bank balance sheets and the quality of bank assets fell sharply.

This is because the bank may be disinclined to abandon its special vehicle if only to protect its name and reputation. Whatever the case, it means that the financing problems that affect the special vehicles can easily lead back into the bank. What one has regarded as true sale may in reality not always have been so. Credit ratings attracted investors but were used wrongly As you realise, the result has been an extremely complicated structure. Many asset classes have arisen, each with their own unique conditions and idiosyncrasies in pricing. This has in turn made it difficult to assess the different products. Then they can instead obtain help from the credit rating agencies. With the aid of the credit rating the agencies have issued, investors have been persuaded to invest in the products. Credit ratings are excellent aids that measure the probability of a failure or an expected loss. But they do not take into account how the risks covary and are otherwise distributed. Unfortunately, many investors appear to have disregarded these limitations. In addition, all of the repackaging, special middlemen and more or less visible guarantees have made it difficult to gain insight into where the risks are. In particular the geographical spread appears to have been greater than in earlier episodes of financial turbulence. 2  BIS Review 30/2008  Uncertainty increased and liquidity disappeared When the problems in the subprime market began to show here and there, this caused great uncertainty.
The US economy is more robust today than it was in 2011. The latest GDP figures for the euro area are once again more reassuring, although the situation remains difficult. In addition, the substantial fall in oil prices has had an easing effect. Despite all this, the risks – notably the debt dispute between Greece and the rest of the euro area, as well as the crisis in Ukraine – are not inconsiderable. In the long term, I am confident that our economy will be able to cope with Swiss franc appreciation. The currency has been strong in the past, and has a tendency to appreciate. While a strong currency is an expression of a sound economy, it also presents companies with major challenges, as an appreciating franc means higher prices for foreign customers buying from Swiss firms. In order to remain competitive, this disadvantage has to be continuously offset by adaptability, quality and innovation. Various competitiveness and innovation indicators suggest that Swiss companies have been very successful on this score in the past; the country regularly ranks among the leaders in these categories (cf. chart 6). These findings inspire optimism, however it is important to remember two things. First, we are dealing with averages here. When it comes to managing the new currency landscape, the options available to individual industries and companies will vary greatly; and so, in turn, will the impact of Swiss franc strength.

Peter Praet: Long-run saving and monetary policy Speech by Mr Peter Praet, Member of the Executive Board of the European Central Bank, at the Parliamentary evening on "Challenges for long term savings products in the context of the zerointerest rate policy", Brussels, 14 November 2016. * * * Accompanying slides The European Central Bank (ECB) has carried out a number of unconventional monetary policy measures since the crisis to bring about a return of inflation to our objective. These measures include targeted long-term repos, negative deposit facility rates since 2014 and large-scale asset purchases. We have received criticism of these unconventional policies from some quarters surrounding their potential negative consequences. In the light of that criticism, I wanted to answer three crucial questions tonight relating to our unconventional measures: Why have we implemented them? Have they been successful in their aims? And, finally, have they had unduly large negative side effects on the distribution of wealth and income? The determination of long-run interest rates First of all, I would like to spend a few moments discussing the determination of interest rates and what has happened to long-run interest rates over the past three decades. These two things have significant bearing on the rest of my remarks. Put most simply, saving is the decision to forgo consumption today, in return for higher consumption in the future. Since people are by nature impatient, they require compensation for delaying consumption, compensation usually in the form of interest payments.
As soon as the bubble associated with massive capital inflows unavoidably bursts, the fiscal surplus will help the government make up for the squeeze in private demand by allowing the public budget to slip into deficit. At the same time, potential risks associated with large capital inflows may be addressed via micro- and macroprudential measures. Two processes aimed at safeguarding the stability of financial institutions were initiated as early as the seventies, along with the liberalization of capital flows. One of these processes, set at microeconomic level, marked the establishment of a system of capital requirements. This led to Basel I back in 1986, followed by enhanced versions, including Basel III, which is a response to the ongoing crisis. The other process consisted in creating a closer link between prudential regulations and macroeconomic issues. In this vein, the Cooke Committee coined the term “macroprudential” in 1978. The concept was refined later on. Lamfalussy pointed out that the risk perception could be inadequate since it focused narrowly on the past performance of individual sovereign loans. The Cross Report (ECSC, 1986) warned against the risks that financial innovation (in particular derivatives and securitization) posed to the financial system as a whole. Finally, Crockett (2000, 2001) referred to the impact of regulation on the procyclicality of the financial system and the implications of the failure of systemically-significant institutions. Today we know that micro- and macroprudential measures are effective in addressing risks associated with capital inflows.

A full understanding of economic and financial realities – which stubbornly evade the patterns put forth by researchers – also calls for steady and diligent efforts to monitor and interpret such realities  12  BIS central bankers’ speeches  References  BIS central bankers’ speeches  13  14  BIS central bankers’ speeches  BIS central bankers’ speeches  15  16  BIS central bankers’ speeches  BIS central bankers’ speeches  17
Self-regulation doesn’t work if there is no clear and consistent allocation of responsibility for the public interest objectives of financial regulation to public bodies that are answerable to the government and to parliament. But likewise, public bodies cannot seek to take on the responsibility of managing within firms, something that has to be the responsibility of boards and management. The senior managers and certification regime is vital here because it creates the framework to establish effective responsibility within firms, while maintaining the role of the public authorities, the PRA and FCA, for supervising and enforcing the public interest. A very good example of how this should work can be seen in the recommendations of the Fair and Effective Markets Review, which provide a means to establish and maintain high conduct standards in financial markets. Structural reform I want now to turn to structural reform and ring fencing. This is a subject in its own right, but I can assure you that I intend to be brief on this one tonight. We are now well into implementation. Last week we issued our second consultation paper on implementing the regime, and we plan one more such paper which will be more in the form of a wrap up of points raised and a few outstanding actions. Any structural reform measure involves complex implementation, the devil is always in the detail, and we need to get that right. I read from time to time that we are apparently watering the regime down via the implementation.

And, if we only used a non-risk based system, we would incentivise firms to disregard the amount of risk per unit of assets on their balance sheet. The leverage ratio is firmly in the camp of necessary but not sufficient, as is the risk-based approach. The third reason why I disagree with the much more capital school of thought is because there are more important things for us to do, which revolve around getting the incentives for behaviour right in firms. This is why as supervisors, both prudential and conduct, we spend so much time on governance in firms and on getting the incentives aligned for individuals through our approach to remuneration and to the responsibility of individuals. 2  BIS central bankers’ speeches  We have achieved much progress towards strengthening the resilience of the global banking system, with stronger capital ratios, and this has demonstrated in my view the important principle that appropriately strong capital positions support rather than deter lending by banks. Jobs still to finish: three topical issues The Senior Managers Regime The Senior Managers and Certification regime for banks is a product of the Parliamentary Commission on Banking Standards chaired by Andrew Tyrie, put into legislation and to be implemented by the PRA and FCA by next March, so not long to go now. The current approved persons regime has not delivered effective incentives and thus behaviour.
More specifically, the financial services industry, the regulators and policy makers can and should work together to upgrade the 3Cs, which is essential in maintaining our competitiveness against other financial centres. Now I would like to name a few initiatives that the HKMA is pursuing in this regard in collaboration with the stakeholders. (a)  Competence: in conjunction with the SFC, the industry and professional bodies such as the TMA, the Hong Kong Institute of Bankers and the Hong Kong Securities and Investment Institute, we are seeking to revamp and formalise the professional qualifications and training for market practitioners in the fields of private banking and wealth management in general. The HKMA has also stipulated in its supervisory circular that banks must ensure that their staff have the necessary qualifications and professional training in the relevant fields. We are making good progress in this regard and we hope to be able to introduce an enhanced qualification and training framework in a few months’ time. (b)  Control: under the Banking Ordinance, directors and senior management of banks must be “fit and proper”, given the important roles they play in ensuring that their banks are run prudently and properly. In order to enhance the control and governance functions of individual institutions, the HKMA has recently refined the procedures for approving the appointment of bank directors and senior management. In addition to the usual vetting, we now convene face-to-face meetings with some of the nominated candidates.

Jean-Pierre Roth: Monetary policy and credit markets Summary of a speech by Mr Jean-Pierre Roth, Chairman of the Governing Board of the Swiss National Bank, at the University of St Gallen, St Gallen, 22 January 2004. The complete speech can be found in German on the Swiss National Bank’s website (www.snb.ch). *  *  *  The economic slump of the past two years has affected the credit markets. Corporate loans declined, and on the capital market redemptions of shares and bonds of private borrowers exceeded new issues. In this speech, a few general points concerning credit financing and monetary policy will be discussed. The financing opportunities and, concomitantly, a borrower’s expenditure behaviour depend on the value of capital assets eligible as collateral or, more generally, on the borrower’s balance sheet structure. Due to the major significance of real estate as security, the situation on the real estate market in turn has a considerable bearing on credit conditions. The Swiss National Bank thus keeps a careful eye on price development in the real estate market. Monetary policy influences the prices of investments and thus impacts on the economy via the borrowers’ balance sheets. This is not the only channel - and certainly not the most important one through which monetary policy exerts an influence; it may, however, be relevant under certain circumstances. Since corporate balance sheets differ considerably from one enterprise to another, monetary policy has distributive effects.
However, new vulnerabilities have emerged, especially a broadbased deterioration in the fiscal positions in a number of non-euro area EU countries, a number of which are currently under excessive deficit procedures. As Chart 8 on slide 13 illustrates, it needs to be kept in mind that the stock of outstanding foreign currency loans in these countries, while no longer increasing, remains sizeable, which makes the quality of exposed banks’ assets vulnerable to exchange rate risks. Given that the exposures to the CEE region are rather concentrated among some euro area countries’ banking sectors, the risks remain material in these cases. The third risk that has been identified within the euro area financial system is that of heightened financial market volatility if macroeconomic outcomes fail to live up to expectations. Until the increase in volatility experienced this month, the stock markets in the euro area had broadly stabilised after a strong recovery in 2009, which mainly reflected the impact of improving macroeconomic news and better corporate earnings prospects. Chart 9 on slide 14 shows that most conventional valuation measures, such as the long-term price-earnings ratio do not suggest that valuations are particularly high by historical standards. But there is a risk of heightened financial market volatility, if expectations of macroeconomic outcomes are disappointed. I would also like to briefly comment on the current state of the euro area securitisation markets. The securitisation markets were rendered dysfunctional by the financial crisis for a variety of micro and macroeconomic reasons.

These relatively stable ratios, however, conceal some differences in the ways individual institutions have lowered their leverage ratios. Most of them have increased their Tier 1 capital, while many have also reduced their assets. Overall, the shock-absorbing capacities of euro area LCBGs improved substantially during 2009 and in the first quarter of 2010. Even those institutions with the lowest capital ratios managed to enhance their buffers to levels well in excess of minimum regulatory requirements. At the same time, the capital buffers in some segments of the euro area banking sector may not have improved as quickly as has been the case for the LCBGs and will require further strengthening. Conditions in euro area LCBG funding markets have also tended to improve for much of the past six months, although the recent rise in sovereign credit risks has led to a setback for longerterm debt financing costs. As shown in the right-side of Chart 5, the most important driver of euro area LCBGs’ net income throughout 2009 and in the first quarter of 2010 continued to be net interest income. By the first quarter of this year, around two-thirds of the total net income of the LCBGs was generated from this source, while, before the crisis, around half of the total came from net interest income.
Thus far, this disinflationary effect has mostly affected the 9  prices of goods (Chart 5), as trade in goods has been liberalised to a much greater extent than services. 10  Monetary policy makers in advanced economies have responded by accommodating relatively higher services price inflation in order to meet their inflation objectives. For example, in the UK core goods prices fell an average of 0.3% over the past two decades, services prices rose by an average of 3.4% and total CPI inflation was on average at target. 11  7  The slowing of trade growth since the financial crisis largely reflects the rotation of global growth to countries with less import intensive demand, notably the US and EMEs, as well as the declining import intensity of final domestic demand in China as the composition of growth there rotates towards consumption and services. 8 This positive supply shock comes about because the availability of cheap imports improves advanced economies’ terms of trade – the price of exports relative to that of imports. For more detail on this channel, see ‘Globalisation and Inflation’, speech given by Charles Bean at the LSE, 24 October 2006. 9 Abdih, Y, Balakrishnan, R and Shang, B (2016) ‘What is keeping US core inflation low?’, IMF Working Paper No. 16/124. 10 For example, barriers to services trade are estimated currently to be up to three times higher than those for goods trade. See ‘A fine balance’, speech by Mark Carney at the Mansion House, 20 June 2017.

But that does not mean global effects are absent. The doubling of the effective global labour pool represents a huge, positive supply shock for the global economy. It has encouraged the shift of the production of goods and services that use lower-skilled labour intensively to countries with an abundance of lower-skilled workers – predominantly emerging market economies – while production of goods and services requiring more highly skilled labour has concentrated in countries with a greater share of higher skilled labour – predominantly advanced economies. The growing ability to split production components and tasks through global value chains has amplified this effect. 19  Globalisation has also increased the contestability of labour markets, weakening the extent to which slack in domestic labour markets influences domestic inflationary pressures. 20  That is, the increased ease with which  activities can be off-shored or domestic vacancies filled by sourcing workers from abroad may have reduced the relative bargaining power and wage expectations of workers. While it is difficult to measure precisely, available evidence suggests that contestability effects could be significant. 21  Greater openness appears to  22  and led to growth in domestic  have reduced the sensitivity of wages to domestic labour market conditions unit labour costs (ULCs) becoming more closely tied to global ULC growth. 23  Overall, the greater global supply of labour has lowered the relative wages of lower-skilled workers in advanced economies.
We – in this case I mean the IMF, its major creditors and the governments in the region – treated these cases as closer to the illiquidity extreme on the continuum, rather than to the insolvency extreme. In the Asian crisis countries, unlike in Russia or Argentina, there was no plausible case for arguing that the sovereign governments had accumulated debts they were unable to repay. A forced restructuring of the external debt of a country or a forced suspension of payments on those obligations would have made the crisis in Asia, and more broadly, substantially worse. These were not conditions of insolvency, but nor were they purely temporary liquidity problems that could have been addressed through the quick infusion of unconditional finance without any change in policies. The crisis economies all tried that strategy in the weeks and in some cases months before going to the IMF for assistance. Those strategies failed not simply because the governments ran out of reserves, but because they had failed to embrace a broader set of policy changes powerful enough to restore confidence in future stability and growth. It is worth emphasizing that the strategies ultimately adopted in each case were quite unorthodox and were certainly not uniform. Besides the novel approach adopted in terms of the scale and structure of financing and the degree of international cooperation in support of the programs, the policy packages were also notable in the degree of emphasis placed on, for example, financial-sector reform and improvements to disclosure.

It was exacerbated by classic moral hazard – the result of past government  BIS Review 69/2007  1  interventions to limit corporate and bank failures. And it was made worse by poor disclosure, which masked the scale of the increase in external liabilities and the deterioration in the level of official reserves. The scale of the buildup of foreign currency debt was fundamental to the dynamics of the crises. Once confidence weakened, and fixed exchange rate commitments became unsustainable, the economies experienced a sharp reversal in capital flows as both residents and nonresidents sought to limit their exposure to domestic institutions and assets. This broad flight from domestic assets created conditions similar to a classic bank run. The exchange rate decline magnified concern about potential losses in the corporate sector and banking system, which led to a further shift in assets out of the country, which exacerbated the exchange rate decline. These balance sheet vulnerabilities led to a vicious cycle in which the exchange rate and financial weaknesses reinforced each other. As economies slipped toward the edge of the cliff, policymakers were left with alarmingly few options to try to contain the crisis and mitigate the damage inflicted on the real economy. Given that real interest rates were already negative, relaxing monetary policy further risked accentuating the exchange rate decline, which would, in turn, have exacerbated the problems of the banking system. But with demand already in free fall, policymakers were equally reluctant to tighten policy and risk further damage to growth.