samchain/econo-pairs-v1 huggingface dataset:
large international banks – should strengthen counterparty risk management practices as they are directly exposed to HLIs (first transmission channel). Second, core intermediaries should improve their robustness to the potential erosion of market liquidity (second transmission channel). Moreover, the FSF suggests that supervisors evaluate whether the link between HLIs and banks should be better monitored. The UK Financial Services Authority, for instance, conducts a six-monthly survey of prime broker dealers' exposure to hedge funds. Finally, the FSF encourages counterparties and investors to demand accurate and timely portfolio valuations and risk information from HLIs in order to strengthen market discipline. At present, HLIs disclose information to their investors and counterparties, but the level of disclosure varies considerably. The best practice guidelines issued by the Managed Fund Association aim at guaranteeing a minimum level of transparency. It is evident, however, that there are also limits to disclosure. A detailed disclosure of all portfolio positions in good time might be neither feasible nor desirable as it would force HLIs to give away proprietary information which is essential for their business. The recommendations by the FSF are an important contribution to the international debate on how to deal with HLIs. The correct measurement and proper management of the risk inherent in HLIs is crucial. Counterparties and creditors of HLIs are thus firmly requested to carry out regular stress tests designed to simulate risk exposures and liquidity during periods of stress.

What are the repercussions that banks are exposed to? The weak economy results in a deterioration in the quality of loan portfolios, and the collapse of stock prices has an adverse effect on profits. Banks not only suffer losses on their own securities portfolios. The stock market slump also has an impact on earnings from commissions and services. Lucrative services in investment banking, such as those in connection with IPOs or mergers, are less and less in demand, and the reluctance on the part of many investors – with the resultant lower turnover – cuts into the income from commission business. In the wake of falling stock prices, profits in asset management are declining as well. This is because a part of the fees and commissions levied on the assets under management is value- or performance-based. This year, the big banks recorded profit setbacks in most areas compared with year-earlier quarters, in some cases even considerable losses. This was especially due to the poorer results from trading for own account and to a decrease in investment banking business (new issues, mergers and acquisitions). Particularly insurance business accounted for these losses. In traditional banking business, notably in retail banking, the big banks recorded satisfactory results, however. The BIS equity ratios disclosed by the big banks clearly exceed the required minimum.
What is more, the European payment ecosystem has become extremely reliant on non-European players – today the global card schemes, and tomorrow the Bigtechs – with the result that it now has limited control over the management of personal data. In parallel, the rise of crypto-assets and above all of stablecoins means they could potentially try to replace central bank and commercial bank money, even though they offer none of the same guarantees in terms of liquidity, service continuity and neutrality. In light of this situation, Europe needs to develop a payments strategy. I have often pushed for 2/3  BIS central bankers' speeches  this over the past two years. Recently, we have made decisive progress thanks to the strong involvement of the ECB and the Commission. We now have to put this into action and “deliver” – this is urgent for the next two years. This strategy notably combines three elements: 1/ European regulation on stablecoins: on 24 September, the European Commission published its MiCA project, which in our view provides a good basis for reconciling innovation with consumer protection and financial stability. 2/ An acceleration on the European central bank digital currency (CBDC), the “digital euro”. We haven’t yet decided on it, but we need to be ready to decide if it becomes necessary, and as soon as it becomes necessary.

We therefore need to encourage innovation but also ensure that people trust innovations. At the Banque de France, we have taken various steps to promote innovation. First, we appointed a start-up correspondent at the national level [Maurice Oms], and we will soon have start-up correspondents in the regional French Tech capitals. The Banque de France’s innovation laboratory, the Lab, is working with numerous actors in the field. This year, we inaugurated a new site in Singapore, one of the epicentres of the Fintech industry. And recently, Paris was selected alongside Frankfurt to house the European branch of the BIS’s Innovation Hub. At the ACPR, we are doing our utmost to facilitate contact with Fintechs at all stages. First, there 1/3  BIS central bankers' speeches  is a single point of entry: the Fintech-Innovation Unit. Since 2016, it has met and advised between 100 and 150 project leaders per year, to help them flesh out the initial outline of their project before potentially submitting it for approval. The approval procedure has also been simplified with the creation of a digital portal, and we have adapted certain procedures to recent developments: introduction of a streamlined post-Brexit procedure in 2019, and of a simplified procedure for a large number of payment service providers (PSPs) in 2020. On top of this, in our day-to-day supervision, we apply the regulation using a proportional approach. For example, for small establishments, we allow a single individual to hold more than one key positions.
In assessing these risks, particular attention should be given to the liquidity profile of hedge funds and how margins are agreed upon and – in the event of market turbulence – how they are adjusted. Such stress tests could help to assess the risks of disorderly unwinding in adverse market situations, and enhance the understanding of how third parties impact market prices and liquidity. There may be situations in which intervention by a regulator is justified. The protection of less sophisticated retail “investors” who are indirectly – through pension funds – exposed to HLIs might be a legitimate concern. However, regulations are better implemented on the pension fund side by the relevant regulator than by directly regulating HLIs themselves. 14 A realistic assessment of the systemic importance and the disruptive capacity of HLIs leads us to the conclusion that direct prudential regulation would be difficult to justify. There is no market failure which needs to be addressed through regulatory measures. Thus the apparent benefits to be delivered by regulation appear not to justify the related costs, such as reduced market efficiency and slower financial innovation. Furthermore, the HLI industry is very heterogeneous and many funds are registered in exotic off-shore locations and, hence, beyond the jurisdiction of the main regulators. Therefore, we doubt that direct regulation is feasible and superior to market discipline or to a best practice approach. 5. Conclusions  The HLI industry has become increasingly important in recent years.

Yves Mersch: Strengthening the European financial industry amid disruptive global challenges Speech by Mr Yves Mersch, Member of the Executive Board of the European Central Bank, at the European Institute of Financial Regulation (EIFR), Paris, 3 September 2018. * * * Europe’s financial industry still faces a number of challenges. Its continued weak performance, with low price-to-book ratios and meagre profitability, is ample proof of that. Some of those challenges – such as high levels of legacy assets, the need for deleveraging and the burden of stricter regulation – are a result of the financial crisis. But even before the financial crisis, the industry was facing pressure on various fronts, and those challenges are still there. In particular, fundamental technological change continues to call established business models into question. Today, I will focus on disruptive challenges that are arising in a particular area of business: digital technology. Such technology is becoming ever more important in banking and is opening the door to competition from non-banks in core areas such as payments. Cascades of complementary innovations have already fundamentally altered the payment landscape, and European banks need to act now if they want to avoid losing out to bigger international players. The euro area has been very successful in providing a top-tier foundation for innovative payment services. However, this foundation has not yet been fully utilised by European players to provide true state of-the-art pan-European services.
For instance, we need to consider to what extent it is the Riksbank that is best suited to carry out this type of measure and whether it might instead be a task for a government agency. Summary I would like to summarise my speech as follows: Resource utilisation is falling rapidly and is at an unusually low level. All of the measures of resource utilisation that we have provide the same general picture. But it is difficult to ascertain how low it is and when it will turn around. Different measures paint different pictures on this issue. The GDP gap implies that resource utilisation will fall to minus 4-5 per cent at the beginning of 2010 before it turns around, and the employment gap points to resource utilisation falling to minus 3 per cent in 2011 before the labour market begins to improve. However, in both of these cases the measures are based on very uncertain estimates of the available resources in the economy. It is also difficult to ascertain what consequences the low resource utilisation will have for inflation and monetary policy. The assessment we made at the most recent monetary policy meeting was that the policy rate ought to be cut to 0.5 per cent. With this cut and the low level of the policy rate that we envisaged, resource utilisation would show an upturn and underlying inflation would be close to two per cent during the forecast period.

With floating exchange rates, the exchange rate may adapt to changes in growth prospects and changes in the terms of trade. Since the end of the 1990s the Swedish krona has depreciated against the Norwegian krone. During this period, Norway has experienced a considerable rise in prices for  2  Source: The Technical Reporting Committee on Income Settlements, Report no. 1, 2005, preliminary version. The estimates take account of both actual hourly wages and indirect costs. 3  Aftenposten, October 1982  2  BIS Review 15/2005  export products such as oil and aluminium, partly owing to high demand in China. Sweden, on the other hand, has been influenced by a slower rise in prices for goods such as ICT products. The close trade relations between Norway and Sweden are of benefit to both countries. Even if petroleum exports to Sweden rose sharply in the 1970s, Norway still ran a trade deficit with Sweden. We have needed goods from Sweden to build up our petroleum sector, and increased wealth has enabled us to increase goods imports from Sweden. Norway has thus maintained its import share of traditional goods from Sweden while our export share to Sweden has declined. Weaker business sector competitiveness in Norway in relation to that of Sweden is probably one important factor. Looking ahead, some of the features we have observed over the past 30 years may change. There is an imbalance between the cost level in Norway and in Sweden. The cost differential cannot be sustained in the longer term.
But once public debt reaches levels at which its sustainability comes into question, for some financial investors at least, there is the risk of self-fulfilling crisis. This uncertainty can weigh heavily on investment and growth. III. Monetary policy response to policy-induced uncertainty  How should central banks respond to this policy-induced uncertainty? I would like to return to the three C’s I mentioned earlier: credibility, consistency and clarity. Page 5 sur 5 To protect our credibility, we need to stick to our mandate of price stability. And in this regard I would say that we are more certain about the path of inflation than we are for growth. A protectionist shock would be undoubtedly bad for growth but the effect on inflation is more ambiguous, at least in the short run. A persistently high oil price would as well be negative for growth but contribute to inflation. Sticking to our mandate also means no fiscal dominance. The relationship between monetary and fiscal policy ultimately depends on who determines the price level. The risk with fiscal dominant regimes is that inflation rises in line with public debt because people expect it to be eventually monetized by the central bank. Modern central banking is unambiguous on this point – we cannot have fiscal dominance and the path of inflation is set by the central bank. Not only are central banks forbidden from monetary financing, the timing of monetary policy decisions is not determined by the fiscal problems of member states. The second C is consistency.

We expressed our confidence in the convergence towards SAPI (a sustained adjustment in the path of inflation). Let me elaborate somewhat on the foundations of this confidence, looking first at economic data and forecasts and second at some principles of our monetary policy. Data and forecast In economics, it can be hard to know exactly where you are. Monthly and quarterly data can be quite jumpy and there are often multiple plausible hypotheses to explain them: measurement error; abnormal season effects; one-off effects like strikes or natural disasters; or a genuine change in the underlying economy. What happened to output in Q1 is a case in point. Was the slowdown from 0.7% real GDP growth in Q4 2017 to 0.4% in Q1 2018 mismeasurement errors across quarters? Unusually cold weather or a German influenza outbreak? A sign of concern about a potential trade conflict? Or a warning of a slowdown in underlying economic growth? The Governing Council judged that it was largely a moderation from the exceptionally strong growth of Q4 compounded by some temporary and supply-side factors at both the domestic and the global level, as well as weaker impetus from external trade.
In other words, central bankers seemed not to believe research results suggesting that the welfare benefits of macroeconomic stabilisation were small. 14 Caring passionately about the benefits of price stability is part of what makes us – a bunch of “conservative central bankers” 15 – suitable for the job. Environmental conditions for independence: institutions One might think that would be it; that independence would follow from a consensus being established around those ideas and values. Not at all, and for good reasons in the UK context. I recall 16 various arguments being advanced through the 1980s and into the 1990s against independence for the Bank. Mostly, they had their roots in the Bank comprising unelected officials, without a democratically elected minister as its head. Thus, the then Governor was told in the very early 1990s that if the Bank ever combined responsibility for bank supervision with monetary policy it would be “an overmighty citizen”. More important, a number of commentators argued that it was a real obstacle to independence that  12  O. Blanchard and S. Fisher in “Lectures on Macroeconomics”, MIT Press 1989, state that “money is said to be neutral if changes in the level of nominal money have no effect on the real equilibrium. It is said to be superneutral if changes in money growth have no effect on the real equilibrium.” (note 8, page 207).

In my opinion, the leverage ratio is a welcome complement to the risk-based capital measure. The Basel Committee’s agreement means that we now have a common method for calculating the leverage ratio, which we did not have before. This is good. The agreement on the leverage ratio is therefore a major step forward. The regulations for the structural liquidity measure, the NSFR, complete Basel III The fourth measure in Basel III is thus the structural liquidity measure, the NSFR. The aim of the NSFR is to ensure that the banks fund their operations with sufficient long-term and stable funding so as to reduce the risk of being hit by funding and liquidity problems. The NSFR thus constitutes an important complement to the short-term LCR measure that aims to protect the banks when, in some sense, liquidity stress is already a fact. The NSFR is the component of the Basel III framework that has not yet been finalised. Finalising the regulations for the NSFR is one of the Committee’s most important priorities for 2014. This will in principle mark the completion of the work with the entire Basel III regulatory framework. As part of this work, the Committee recently published a revised proposal for the NSFR for stakeholders outside the Committee to comment on. In connection with this the Committee reiterated that it intends to introduce the NSFR as a quantitative requirement from 1 January 2018.
I want to thank you all for your support, trust and commitment, which has enabled us to reach this first step towards an integrated, more efficient, and harmonised post-trade market in Europe. In particular, I would like to take this opportunity to thank the national communities, namely the national central banks, the securities depositories and their clients, for their involvement and cooperation. Moreover, I would like to thank the 4CB (composed of Banque de France, Deutsche Bundesbank, Banca d’Italia and Banco de España) for developing and now also running the T2S platform. Let me also acknowledge the hard work and dedication of the people at the ECB who coordinated the implementation of the project. In particular, I thank Jean-Michel Godeffroy, who steered the T2S ship through sometimes stormy waters for many years, and Marc Bayle, who brought the ship to a safe harbour on 22 June 2015. And a special thanks to Ms Tumpel-Gugerell, who was the ECB board member in charge during the project’s inception. A popular saying is that “Two heads are better than one”. From the very beginning T2S has managed to unite the efforts of both the private and the public sector. T2S was not initiated by the market, but owing to its post-trade harmonisation agenda it has evolved into a marketdriven initiative which is supported by the public sector. In many ways it has been a unique project. First of all, no one was forced to join the T2S Community.

Chart: Excess return, cumulative annual since inception and quarterly The long-term return and the wide annual variations in the Fund’s value are largely dependent on financial market developments. The most important questions therefore relate to the Fund’s strategy. We have nevertheless continuously sought to exploit the scope for profitable active management. The contribution from active management to the overall annual return was set at 0.25 percentage point by the Executive Board in 2001, which may appear to be neither considerable nor demanding. According to the Ministry’s calculations, the expected real return on the Fund rose by 0.4 percentage point when the equity allocation was increased from 40 per cent to 60 per cent 10 . In this context, a contribution of 0.25 percentage point does not seem small. It is also fairly demanding to achieve this. The degree of efficiency in financial markets is generally high. In a model, Nobel prize winner William Sharpe divides investors into two groups: passive and active investors. In this model, all passive investors will achieve a return in line with the general market. The return earned by active investors will on average be lower than the market return because of higher management costs 11 . The idea that rational and profit-motivated participants should, on average, lose money is a paradox, as pointed out by Sanford Grossman and Joseph Stiglitz in 1980 12 . For investors and managers to expend resources on gathering and analysing information, opportunities for profit in the markets must be sufficient to cover their costs.
Germany and France did not respect the Pact in 2003–4, while Spain and Ireland respected it more or less fully until 2007. Indeed, Spain was running a budget surplus before the crisis. Neither does it seem that fiscal policies played a primary role in driving the economic cycle before the crisis. There was no uniform rise in government debt ratio in the euro area before the crisis, and in several countries debt-to-GDP ratios actually fell. In Spain, for instance, the  BIS central bankers’ speeches  1  public debt ratio fell from 62% of GDP to 36% from 1999–2007 and in Ireland from 47% to 25%. The more important factor driving the economic imbalances up to 2007 was the increasing private financial deficits – or put differently, rising private debt levels financed by the banking sectors of both core and peripheral countries. Contrary to public debt ratios to GDP, private debt was increasing much more rapidly in all peripheral countries before the crisis. In Portugal the private debt ratio to GDP increased by 49% from 1999 to 2008, in Spain by 75%, in Ireland by 101% and in Greece by 217%. To fund this expansion of private debt, cross-border lending between euro area banks increased significantly, encouraged by the absence of exchange rate risks after the introduction of the euro. The exposures of banks from core to peripheral countries more than quintupled between 1999 and 2008. These developments largely explain the evolution of fiscal, current account and competitiveness positions before the crisis.

Øystein Olsen: Navigating normalisation Speech by Mr Øystein Olsen, Governor of Norges Bank (Central Bank of Norway), at the Bank of Thailand – OMFIF High-level Seminar, Bangkok, 9 October 2018. * * * First, let me thank you for the opportunity to speak to you today. I am very happy to visit the Bank of Thailand and to participate on this panel. The financial crisis demanded powerful economic policy measures. Monetary policy had to take on substantial responsibility, in Norway as in many other countries. As we are hopefully heading for more normal times, it is important to evaluate our policy framework. Our experience is that a flexible inflation targeting regime has helped dampen the impact on the real economy. In recent years, output and employment volatility has been relatively limited despite large shocks to the Norwegian economy. The exchange rate has played an important role as a shock absorber, especially during the financial crisis and in periods when oil prices have fallen. At the same time, the interest rate level abroad places limitations on the room for manoeuvre in monetary policy in a small open economy like Norway. Our economy and economic policy Before I elaborate on this, I would like to give you some background on my country. Norway is a small country with a little more than five million inhabitants. The economy is open; total imports and exports make up about 2/3 of GDP.