samchain/econo-pairs-v1 huggingface dataset:
Banks are of course already used to dealing with at least some of the issues that crop up in an electronic banking environment, and so have built up experience and expertise to deal with these. However, I do believe that the internet, because of its low cost, global reach and versatility raises the stakes for the banks – both in terms of the opportunities it presents as well as the risks. Strategic risk In talking about these risks, let me start at the top – with the issue of strategic risk. In other words, will the bank get it right? Will it make the right choices when it comes to investing in e-banking or will it waste money by going down a technological blind alley? Should it attempt to take the lead in new technology ahead of its competitors, or should it be a follower and adopt a “wait and see” approach? The latter may be the safer course of action for smaller banks, though it does create the risk of being left behind. The advantages of e-banking, and internet banking in particular, are quite clear – the ability, for example, to disseminate information widely and instantaneously at low cost and to cross-sell products in a much more effective way. But there are also strategic threats. The cheapness and global reach of the internet opens up the threat of increased competition from new entrants who will no longer need a branch network to operate effectively in any given market.

This competition can be launched across national frontiers. In the meantime, existing players are faced with the problem of what they do with the branch networks they have so painstakingly built up over the years. Unless they can give the right incentives to existing customers to migrate to the new electronic delivery channels, and scale back their branch networks accordingly, the promised cost-savings from the internet may not be realised. Moreover, one of the key distinguishing characteristics of the internet is the ability which it gives customers to access and compare the offers of many different retailers, including banks. This greatly increases the power to “shop around”. This will increasingly be done with the help of automatic shopping agents that will travel the net looking for the best deal on behalf of customers or through the use of intermediaries who will offer consolidated product information and price quotes. This will drive down margins, particularly on commodity-type products, and erode customer loyalty. As has often been said, the Internet Age is all about customer empowerment. What in this situation is a traditional bank to do? Is it simply a matter of waiting to be overtaken by a trendy new virtual bank with a catchy name? Luckily, for the existing players it is not as simple as that. Banking is not simply about cheap delivery, although that will become more and more important.
Above and beyond this, in taking on the market maker of last resort function, a central bank assumes significant financial and reputation risks. To summarise, the direct and indirect costs of this kind of market intervention need to be weighed up against the overall economic costs of a system-wide implosion of liquidity. At a time of significant stress in the system, we must probably retain a second line of defence of this kind for use when needed, if we are to carry out our task of ensuring sustainable welfare growth in the spirit of our mandate. However, liquidity or market assistance of this kind needs to be examined carefully, case by case. It must be planned as a distinct supplement to the first line of defence and clear principles laid down in connection with its provision. Last but not least, it must only be used to “kick-start” a market that is fundamentally capable of survival. Taking on a permanent market replacement function is something that should, fundamentally, be avoided. 11 Conclusion Ladies and gentlemen, I now come to the conclusion of my remarks today. The accumulation of systemic risk represents a serious threat to the stability of financial systems. It is therefore important, on the one hand, to recognise this risk at an early stage and, on the other, to develop measures capable of containing it. I have spoken about four fundamental criteria for evaluating measures of this kind.

In particular, it is important that the measures are first and foremost designed to correct false incentives and to guide them in the right direction so that, first, unprofitable financial institutions leave the market of their own accord and, second, potential losses are borne by these institutions themselves, and not by the state. Consequently, in my opinion, measures such as a ban on proprietary trading or the introduction of a narrow banking system, that intervene too strongly in banks’ business models, are not very suitable. Such measures neither target the objective nor are they in line with the basic principles of the market economy. With regard to the TBTF issue, this principle has prompted the committee of experts appointed by the Swiss Government to draw up proposals including the creation of incentives for banks to become less systemically important overall, thereby reducing potential costs for the economy. At the same time, the committee of experts’ proposal will allow for improved resolution in the event that insolvency appears imminent, and this will significantly alleviate the TBTF problem. Are the measures “structural”? A second criterion is that the measures should not just address the specific circumstances of the most recent crisis. In other words, fighting the last war will not win the next one. At the same time, the lessons of history show us that certain basic mechanisms repeat themselves in every crisis. Consequently, it is very important that we recognise these general patterns and include them in regulatory considerations in order to improve our crisis prevention.
The age of informal responsibilities, nods, winks, secrecy and instinct is long past.20 In no small part due to the Mais Lectures of my predecessors, particularly Mervyn King, we have today a regime for monetary policy that is both democratically legitimate and highly effective. It rests on clear ultimate objectives delegated by Parliament, on sound governance arrangements to support independence, and on transparency of policymaking. We are extending this sound framework with our strategic plan. We will reinforce these foundations in monetary policy. And we will broaden them to financial stability. The case for the independent operation of monetary policy is firmly established around the time-inconsistency of governments with horizons dictated by the electoral cycle. That timeinconsistency argument applies even more strongly to both microprudential and macroprudential policy given the large potential size and long duration of credit cycles. The  20  That approach is perhaps best captured by Montagu Norman’s remark in 1930 when pressed by the Macmillan Committee to explain the Bank’s actions: “Reasons, Mr Chairman? I don’t have reasons, I have instincts”. 8  BIS central bankers’ speeches  avoidance of potentially unpopular measures to boost the resilience of the financial system today can have disastrous consequences many years later. Moreover, being tough and avoiding crises has no obvious reward. It is hard to be given credit for a counterfactual. The Bank’s independence must be supported by good governance arrangements. Now that Parliament has developed them, we must make them work.

More generally we are conscious that everything we do affects the trust and confidence in the Bank and by extension the financial system. Monetary and macroprudential policy The interaction between macroprudential and monetary policy is central to the Bank’s success in achieving its dual objectives of monetary and financial stability. The case for discharging these responsibilities in a coordinated way is very strong. I am delighted that Ben Broadbent has today been appointed as the next Deputy Governor for Monetary Policy. In that role, he will be central to co-ordinating these functions and his experience in academia, financial markets, and as an external Monetary Policy Committee (MPC) member, makes him extremely well qualified to do so. The transmission channels of monetary and prudential policy overlap, particularly in their impact on banks’ balance sheets and credit supply and demand – and hence the wider economy.8 Monetary policy affects the resilience of the financial system, and macroprudential policy tools that affect leverage influence credit growth and the wider economy. In turn, financial stability is a pre-requisite for monetary stability – for example systemic banking crises are likely to be deflationary. In reducing the frequency and severity of financial crises, macroprudential policy therefore helps to preserve the role of money as a store of value.9 While price and financial stability are clearly connected, achieving both can be difficult.
... “that the bubble has reached such a size partly due to the fact that the dot-com bubble burst with very little footprint on global GDP”...that as late as April, 2007 the IMF noted that “global economic risks have declined, the overall U.S. economy is holding up well”; that “many quantitative firms whose number crunching sought to expose profitable market trading principles were successful so long as risk aversion moved incrementally (which it did much of the time)”; that “the risk management paradigm nonetheless, harbored a fatal flaw” i.e. that “in the growing state of high euphoria, risk managers, the Federal Reserve, and other regulators failed to fully comprehend the underlying size, length, and impact of the negative tail of the distribution of risk outcomes that was about to be revealed as the post-Lehman” that “for decades, with little, to no data, most analysts, in my experience, had conjectured a far more limited tail risk” and that “this is arguably the major source of the critical risk management system failures”. “In despair, says Greenspan, an inordinately large part of investment management subcontracted to the ‘safe harbor’ risk designations of the credit rating agencies.” But the  2  BIS Review 90/2010  analysts of the credit rating agencies proved no more adept and no more proficient at anticipating the onset of crisis than the investment community at large.

To incorporate fiscal stability through the highest act in the country, the constitution. V. As usual, the establishment of a new action framework is one thing, while whether this framework will become operational, functional, and to what extent, is another thing. It is obvious that the bunch of new ideas, new tools we talk about forced by the crisis, are focused on establishing a concept for managing systemic risk. Therefore, the questions whether it will function, on what the result depends most, are logical. 1) First, the systemic risk is not too hard to define. It is harder to provide operative contents, because of its different dimensions: procyclicality; contagion risk; the spillover effects of a single institution’s distress to the rest of the financial system; correlation risk; concentration risk; then, due to the fact that the risk can originate from several sources, etc. 2) Even when the source is identified, the history shows that there is no action at all, or the action is delayed, or the seriousness of the threat is underestimated. For example, the false reports of the Greek government for the real fiscal deficits were not unknown. And not only for theirs. It is not untrue that the Federal Reserve and the Treasury have proposed to the Congress a gradual reduction or possible extinction of the GSEs portfolio (Fannie Mac и Freddy Mac), quite before 2004 when their assets were several times smaller than US Dollar 3.2 trillion at the end of 2007.
Charles Kindleberger’s seminal work on financial crises documents a number of credit-fuelled investment manias and bubbles in which the trigger was simply a change in sentiment about the value of the asset leading to the drying up of credit or greater fools prepared to finance further speculation.7  3 This may well have been because debt with compound interest grew much faster than the productive capacity of agrarian economies. See Hudson (2018). 4 A similar debt reset mechanism for the ancient Israelites, was provided by the Jubilee set out in the Old Testament. And when debt and credit technologies subsequently transferred to ancient Greek societies, similar problems emerged. See Graeber (2011) and Hudson (2018). 5 See Frank (1935) 6 See Cipolla (1982) 7 These are documented in the appendix of Aliber and Kindleberger (2005). 3  All speeches are available online at www.bankofengland.co.uk/speeches  3  Whatever the trigger, the point is that widespread correction of debt and asset prices and consequent loss of wealth may not happen often but it does seem to happen periodically. In other words, it is not what today we would call a ‘bug’ in the system that subsequent improvements will correct. Rather, however unwelcome, it is a feature of the system. The question for those of us concerned with financial stability is not so much whether we can prevent such adjustments happening.

Lenders were reducing interest rates, that is, their compensation for risk, and at the same time lending to higher risk segments of the market. They appeared to be basing this higher risk appetite on a marked fall in the rate of defaults on consumer loans over the past five years that they attributed to a structural improvement in the underlying creditworthiness of consumers since the crisis. However, the improvement in default rates also reflected the macroeconomic environment over the period of sustained employment growth and low interest rates and lenders appeared to be underestimating the losses they would incur in an economic downturn.27 The growth rate of consumer lending has fallen back, very possibly as a result of FPC and PRC action to correct this underestimation of risk. 26 27  Broadbent (2019) and Cunliffe (2016) These findings were set out in full in Bank of England (2017) 11  All speeches are available online at www.bankofengland.co.uk/speeches  11  We have in recent years seen other signs of growing risk appetite. Spreads on UK mortgages have come down noticeably over the past few years while loan to value and loan to income multiples have gone up.28 The increased risk appetite of mortgage lenders has not been matched by increased demand by house buyers. The number of mortgage transactions has remained pretty static over the past few years, one of the reasons why overall credit to households is not growing rapidly. Demand may currently be constrained by Brexit uncertainty.
It is hugely important for the future strength of the world economy that as domestic demand growth in the US moderates – as it almost certainly will, one way or another – domestic demand growth in the other industrial countries accelerates to take up the slack. Here in the UK both business and consumer confidence have improved since the autumn and overall output growth seems set to recover, on the back of accelerating domestic demand growth, to around its long term trend by about the middle of next year. But we, too, are having to continue to cope with the imbalance between the domestic and internationally exposed sectors of the economy as a result of continuing relative demand weakness in some key overseas markets and of relative price effects resulting from a renewed rise in the exchange rate, which, despite the sharp reduction in interest rates, has strengthened against the euro since the beginning of this year. These external factors will have a continuing dampening impact on our domestic inflation rate – which is likely to remain close either side of the inflation target. Overall then, although the prospect is for renewed growth with continuing low inflation over the next couple of years, the tension between the different sectors of our economy has not for the time being disappeared. Against the background of that brief description of recent and prospective developments in the economy, let me now try to draw out what we can, and what we cannot, hope to achieve through monetary policy.

Regulators and supervisors should try to make the playing field as level as possible and certainly be on the look out for regulatory distortions which unduly favour the creation of particular products or limit the creation of other welfare-improving innovative instruments. But the market place should decide which products match issuer and investor desires once all risks are correctly priced. 44 Looking into a crystal ball what are some of our expectations for future financial market developments? We will put forward 7 suggestions: •  First, there will be additional focus on simpler, more standardised products. For example, it would be a surprise and probably undesirable if mezzanine resecuritisations were to reappear. Simpler products should be easier to understand and therefore less prone to radical changes in expectations of their likely performance. Improved stability of expectations should help sustain market liquidity during periods of stress. Standardised products also economise on information requirements and therefore also improve liquidity in secondary markets. •  Second, products will be more transparent in design and content, to improve the ease of monitoring and hence lower information costs. Increased transparency should not be confused with reams of data. The issuance documentation for many securitisations often contained a barrage of statistics. For CDOs of ABS, these documents could run to thousands of pages given that the documentation for each underlying ABS could already comprise of hundreds of pages. Any investor with the appetite to conduct due diligence would have found this volume of information completely indigestible.
According to this Act, the objective of monetary policy is to maintain price stability. The Riksbank has specified this as an inflation target, which states that the annual rate of change in CPI should be 2 per cent, with a permitted deviation of ± 1 percentage point. The Riksbank shall also promote a safe and efficient payment system. The preliminary work to the Sveriges Riksbank Act also makes clear that the Riksbank as a public authority under the Riksdag, without neglecting the price stability target, should support the general economic policy objectives of sustainable growth and high employment. The Sveriges Riksbank Act also established increased independence for the Riksbank. Since 1999, decisions on the repo rate have been made by the Executive Board of the Riksbank and the members of the Board are expressly forbidden from seeking or receiving instructions when carrying out their monetary policy tasks. Price stability is thus the objective of Swedish monetary policy, but like Norges Bank and most other inflation-targeting central banks we conduct monetary policy that also to some extent takes into account activity in the real economy. The fact that the interest rate is often adjusted in relatively small and predictable steps can partly be regarded as an expression of this. If the aim had instead been to bring back inflation to the target as quickly as possible, without any other considerations, it is probable that larger and more frequent adjustments would have been warranted.

Although we fully appreciated the benefits that Switzerland would draw from the creation of the euro in terms of increased transparency and lower transaction costs, we were also quite concerned about the possible risks. Three of these came to mind. First, we feared that the Swiss franc might be in for a bumpy ride. In the past, whenever the dollar was under attack, international investors turned their attention to the German mark and the Swiss franc. Their status as safe-haven currencies meant that at times of turbulences on foreign exchange markets they would move well beyond what economic fundamentals could justify. In fact, the Swiss franc often revealed a tendency to appreciate even more than the German mark, a phenomenon that was generally attributed to the relative narrowness of the Swiss financial markets. Now with the German mark gone, wouldn’t all attention focus almost exclusively on our currency? Would it not mean that in a dollar crisis the franc would have to bear even more of the adjustment than in the past? Even more frightful, what would happen if the euro itself were under attack? The last thing we needed was for the franc to become the first currency in the line of fire, or something like the lightening rod of the international monetary system. A second apprehension that we had was that it might become very difficult in the future to conduct an autonomous monetary policy. Switzerland, together with Liechtenstein, would now be totally surrounded by a single monetary zone.
When interest rates are low or negative, it is relatively attractive to hold cash (as opposed to bank deposits, for example) as a store of value. The increase in interest rates since June has meant that there is once again less of an incentive to hold cash. Against this backdrop, the value of banknotes in circulation fell by around CHF 10 billion to CHF 81 billion between June and October. Returns of the 1000-franc notes in particular were substantial, totalling CHF 7.7 billion. We expect this decline to continue. Nevertheless, demand for cash as a store of value is likely to persist. Companies and households consider such a safety net to be important. Page 1/2  Berne, 15 December 2022 Martin Schlegel  News conference  Of course, cash is not only used to store value, but also to make payments. Small denominations in particular play an important role here. The decline in banknotes in circulation observed since June is not related to the use of cash for payment purposes. The rise in interest rates has had no impact on the small denominations (cf. chart 2). While the growth rate for the small denominations dipped during the pandemic, demand has rebounded since early 2022 and has stabilised. Despite the general increase in the demand for cash, the use of cash for payments has declined in recent years. We are currently investigating changes in the use of cash as a payment method in our 2022 ‘Survey on payment methods’.

However, as I shall set out later, the launch of the Next Generation EU (NGEU) European recovery fund, which was not taken into account in the aforementioned scenarios, given the still-high lack of specifics for key tenets of the programme, is a factor operating in the opposite direction. The NGEU fund is a significant reaffirmation of the European construction process. Spain, moreover, would be one of the Member States with potentially most to gain, given the comparatively more serious impact of COVID-19 on our economy to date and the high likelihood that its consequences will be more persistent. 2 The risks to financial stability The unprecedented impact of the pandemic on economic activity has entailed a very significant increase in the risks to global financial stability. The forceful economic policy response (by the monetary, fiscal and supervisory authorities) and the effect of the farreaching international financial reform implemented in the past decade are helping mitigate and manage these risks. Indeed, the financial system has been acting to date as a mitigating rather than an amplifying factor of the impact of this crisis. But we should not be complacent. As I have stressed, the scale of this shock is very great, and its duration uncertain. I shall now review how the main risks in this area have evolved recently, drawing on the analysis of the effect of the crisis on various agents in the economy: non-financial corporations, households, the real estate and financial sectors, and general government.