samchain/econo-pairs-v1 huggingface dataset:
The Committee has recently published a  4  BIS Review 45/2006  newsletter clarifying supervisors’ expectations in terms of the requirements to be met in order for these types of models and databases to be accepted under IRB approaches. Conclusion As we can see, there are a fair number of open topics on the table as regards Basel II implementation. Many of them already existed under Basel I, but now we have a much better idea of their size and nature, and have created better structures and processes to address them. Since work started on the application of the new capital recommendations, the Committee members and the supervisory community as a whole have made considerable progress in understanding and resolving difficulties, and along the way we have improved the level of cooperation and trust between supervisors, as well as the level of communication and mutual understanding with the banking industry on such sensitive subjects as the management of risks and capital. The reality we supervisors are facing was already complicated even before the introduction of Basel II. But now the quality of our knowledge and the way in which we handle the risks and challenges have improved thanks to the revised Framework’s introduction. I would say that all of this is, in my opinion, positive. I would like once again to extend my thanks to ASBA and the FSI.

While there has been considerable volatility in Treasury yields over the past several weeks, we attribute those movements primarily to incoming economic data and to broader risk events. However, we will continue to watch the markets and assess their adjustment to the end of the purchase program. Future evolution of the SOMA portfolio While I am sure you are happy to hear more about our actions to date, I realize that you may be even more interested in the evolution of the SOMA portfolio going forward. Just to be clear, I will not be saying anything about the likelihood of prospective policy actions beyond what has been conveyed in FOMC communications. However, I would like to make a few points about the portfolio under those prospective actions. As noted earlier, the current directive from the FOMC is to reinvest principal payments on the securities we hold in order to maintain the level of domestic assets in the SOMA portfolio. This approach can be interpreted as keeping monetary policy on hold. Indeed, one can generally think of the stance of monetary policy in terms of two tools – the level of the federal funds rate, and the amount and type of assets held on the Federal Reserve’s balance sheet. The FOMC has decided to keep both of these tools basically unchanged for now. Given the considerable amount of uncertainty about the course of the economy, market participants have observed that the next policy action by the FOMC could be in either direction.
In the light of experience and of the growing importance of cross border financial market infrastructure, particularly CCPs, these standards are now being reinforced in two main areas. First, CPMI-IOSCO has consulted on more granular standards for CCP resilience covering governance, stress testing, coverage and margin, as well as CCP recovery actions. The aim is to ensure both higher standards and greater consistency between jurisdictions. Second, as part of its work to address the problem of ‘Too Big To Fail’, the Financial Stability Board is developing standards for the resolution of CCPs, to ensure that a failure of a CCP could be resolved in an orderly way. Given their role, CCPs are by design systemic and need to ensure they handle risk very prudently, particularly the risks from the disorderly failure of their key counterparties – which typically consist of the systemically important global banks. Ensuring that these banks are themselves able to fail safely will reduce the risks to the CCPs of which they are members. But in the event of such failure, the authorities need to ensure that the CCP’s own recovery actions do not further amplify the stresses already in the system and that losses are apportioned and addressed in the most orderly way. 12  All speeches are available online at www.bankofengland.co.uk/speeches  12  This month the FSB published draft guidance on CCP resolution and resolution planning.

The importance of fisheries as a generator of foreign exchange revenue has diminished in relative terms - to less than a half of the total - while the importance of other sectors has risen, such as manufacturing industry, information technology and tourism. In these developments, Iceland is among other things drawing benefits from globalisation to strengthen the foundations of the economy. Foreign direct investment regulations are liberal with the exception that such investment is not permitted in the fishing sector. Foreign direct investment is most noticeable in power intensive industry, such as the production of aluminium, which is based on Iceland’s abundance of untapped renewable energy resources. Recent changes in corporate taxation in Iceland, lowering corporate taxes to among the lowest to be found, serve to attract foreign business to Iceland and encourage Icelandic companies with international operations to favour Iceland as the base of their operations. 2  BIS Review 55/2002  Direct investment by Icelandic companies abroad has risen rapidly in recent years and in a variety of areas, such as fisheries and fish processing, pharmaceuticals, retail commerce and financial services. These developments also benefit the Icelandic economy in the long run as they integrate Iceland further into the global economy, allow Iceland to draw more easily on the experience of others and bring in dividends.
Some factors have also been procyclical so that problems in the financial sector have had a negative impact on the real economy and vice versa. In good times, there is almost always a tendency to expand the provision of credit and to dismiss the risks this entails. However, when the downturn comes, the same players tend to run for the exit at the same time, which serves only to make the overall situation worse. Some of the characteristics of the financial regulations, for example the capital adequacy requirements and certain accounting regulations, have reinforced these tendencies towards herd behaviour among the financial players. We have been aware of these problems for a long time, but there have been no effective mechanisms for counteracting them. Nor have the supervisory arrangements adequately reflect the increased internationalisation of the financial sector. In recent decades, the financial markets have become increasingly interlinked and large, complex financial institutions now conduct extensive operations in several countries. At the same time, supervision has mainly been conducted on the basis of national mandates and focused on companies within individual, national jurisdictions. Supervision has thus lacked the oversight required. In the wake of the crisis, a number of initiatives have therefore been taken that aim to create a clearer link between the supervision that focuses on institutions and the more system-oriented supervision of stability, and to sharpen the tools we use to promote stability in general. So what needs to be done?

At the same time, faith in the ability of the financial markets to work effectively in all situations has been undermined. An effective financial sector contributes to growth and prosperity in the economy, and it is indisputable that more effective regulation and supervision are now required. In my opinion, however, it is important that the changes in the regulatory structures that are now being implemented are balanced and well considered. Above all, I believe that it is important to avoid the sum total of all the regulations that are introduced restricting growth or, in the worst case, giving rise to new crises. It would be a mistake to underestimate the inventiveness of the financial sector and its ability to circumvent regulations of different kinds. Producing a regulatory framework that makes the financial system safer and more secure without losing important welfare gains is really the major challenge that the authorities now face. Thank you! BIS Review 135/2009  9
Some products, such as ETD equities, saw unprecedented shocks to market prices and increases in volatility while other ETD products, such as metals and agriculture, saw relatively mild shocks relative to historical precedents. In this context it is to be expected that some margin models moved more on some products and asset classes than others. Indeed, for some markets and products, the increase in margin requirements was less pronounced than the corresponding volatility indices. However, looking at the response in 2020 across a range of CCPs, we were able to establish that the movements observed also reflect the selection of key model parameters, such as the choice of lookback periods, the incorporation of stressed market data, the base level of initial margin, the liquidation period and the confidence levels employed. 4/6  BIS central bankers' speeches  A degree of dispersion is to be expected. Clearing is a practice that is applied to a range of products and services to manage risk. How that practice is applied needs to be flexible and to reflect the underlying financial instrument being cleared – there is no ‘one size fits all’ margin model. To take one example, energy markets are subject to volatile natural phenomenon, and are prone to a greater frequency of peaks and troughs. But our assessment illustrated how much modelling parameters matter. The issues on variation margins are simpler as there is less of a risk judgement being made.

For mature economies, the LTCM investment fund crisis in 1998 illustrated not only the risks of the spill-over of crises in emerging areas but also the fragility created by the advent of new players and the development of financial derivative instruments. This fragility was further underscored by the failure of Enron in 2001. What are the prudential issues at stake in the recent developments in financial markets, particularly in the greater interdependence of national markets, the emergence of new instruments and new categories of economic operators in a context of increasing trading volumes? To find answers to some of these questions, the last session will take the form of a round table bringing together speakers from mature and emerging economies at different stages of integration into international trade, be they central bankers and/or from the private sector. It will afford an opportunity to discuss the consequences of the increasing global imbalances on international financial stability. Stanley Fischer will then provide a summary of the day’s work. It remains for me, Ladies and Gentlemen, to express my wish for this symposium to enable the further development and convergence of assessments of the current state of affairs and of economic policies. I wish you a fruitful day of discussions and now give the floor to President Jean-Claude Trichet. BIS Review 80/2005  3
Thus, although overall private sector issuance may increase as a means of closing the sector’s financing gap, there is some evidence - perhaps not conclusive - that this may be at the cost of some hardening of yields relative to government yields, at least for lesser names. Of course, in some cases the increase in yields may just be the more straightforward consequence of a rising level of corporate gearing. There are also indications that increased debt market activity may have been more evident in the floating rate sector than for longer-dated fixed rate issues, where it may have been difficult to establish appropriate new benchmarks. Thus, although crowding-in may be occurring, the process is more complex than the simple like-for-like substitution of corporate for government paper. Another consideration for certain investors is that they increasingly have to accept that a strategy based simply on purchasing the paper of top-rated issuers such as governments or multinational organisations may no longer be feasible or economic. Yet, if they are going to embrace lesser-rated paper in their portfolios, they may need to shift their approach towards a somewhat more sophisticated 1  BIS Review 57/2000  portfolio strategy, which permits the holding of lower-rated paper at prices which appropriately reflect the risks, with the risks balanced across the whole portfolio. This may necessitate changes in the ways in which fund managers are instructed to address their task and in the tools which they need to perform it.

Thus, during 2010, the banking sector credit growth, albeit lower than in the pre-crisis period, was considerable, around 9%, while in some Central and South-Eastern European countries, it was negative. The deceleration of credit growth, which was initially driven by supply-side factors, is mostly a phenomenon attributed to the decline in the demand for loans. As a consequence of weaker expectations for activity development, businesses decreased their production capacity utilization, lowering investment objectives and the demand for loan. In spite of weathering the direct impact of the crisis, important challenges lay ahead of the banking sector and the Bank of Albania. First, the performance of credit quality should be monitored prudentially, aiming to timely identify non-performing loans, assess them correctly according to possibilities of their repayment and pursue proper policies, in order to recover the loan value within an appropriate time. Second, during this phase, it is necessary to strengthen the banks’ internal audit systems, not only related to credit risk but also to provide a higher standard of management. Third, banks should assess their expectations about the performance of their activity and take measures to strengthen their capital position in advance, in case of need. The Bank of Albania deems that in the periods ahead the Albanian banking sector and the economy need to determine and pursue more suitable development policies, which should include: setting realistic development objectives; setting more competitive prices for banking products and services; and increasing lending in the national currency.
This means positions that are less liquid under stress conditions will receive larger shocks. And, we have developed a new approach to stressing counterparty credit risk, which focusses on capturing losses from exposures that would become large under the stress scenario and for counterparties that would be most vulnerable in the stress scenario. Second, the Bank of England, working with the FCA and HM Treasury has set up the Fair and Effective Markets Review to restore trust and confidence in the fixed income, currency and commodity (FICC) markets in the wake of the serious wave of misconduct seen since the height of the financial crisis. The Review is taking a fundamental look at the root causes of these abuses, the steps that have already been taken by firms and regulators to put things right, and what more is needed to deliver less vulnerable market structures and raise standards of behaviour in future. The Review will publish its recommendations in June 2015. Out of this assessment, and based on consultations to date, will I believe come priorities on market structure “standards” and transparency, effective competition, professional culture within firms and effective, pre-emptive supervision which reduces the drama of ex-post enforcement. The third area of action concerns initiatives to improve the functioning of markets to support activity in real economies. Resilient market-based financing will help to support sustainable economic growth.

The result was therefore greater volatility in financial markets, and a dramatic increase in the vulnerability of economies to financial shocks. This contraction in credit supply was thus a powerful channel through which the financial sector hit economies. The result was the largest contraction in real economic activity since the Great Depression. In the better times, securitisation and the shadow banking system appeared to have reduced the sensitivity of the aggregate supply of lending and thus the sensitivity of the real economy to transitions in bank funding conditions. But they did not do so at the point it would have been most valuable, during the global crisis. As Stanley Fischer has recently put it: “when non-banks pulled back, other parts of the system suffered. When non-banks failed other parts of the system failed.” (Fischer (2015)). The originate to distribute model created tradeable assets – the securities in securitisation. The success of the model depended on there being liquid secondary markets for these securities. In its broadest sense, market liquidity refers to the ease with which one asset can be traded for another, and thus different markets can be more or less liquid. The level of liquidity in financial markets depends on among other things the amount of arbitrage or market making capacity and whether specialised dealers (market makers) will step in as buyers or sellers in response to temporary imbalances in supply and demand (Fender and Lewrick 2015).
The FSB’s recommendation to develop alternative reference rates alongside LIBOR recognises that there are, broadly speaking, two main applications for benchmark interest rates: (i) as reference rates in credit products, including bank loans, thereby helping banks to hedge their unsecured funding costs; and (ii) as reference rates in derivatives contracts, whose users are likely to be seeking to hedge exposure to the general level of interest rates, or to hedge secured funding costs. LIBOR originated as a reference rate for bank loans, and became the dominant reference rate in interest rate swap contracts because it was already the major established reference rate at the time the swap market developed. However market participants’ input to the FSB report suggested that many users of derivatives would prefer not to have exposure to banks’ term funding costs through LIBOR swaps, and would instead prefer those contracts to reference a near risk-free rate. This change will not happen spontaneously – liquidity in long-dated swaps is firmly concentrated in contracts referencing LIBOR and no individual player can change that situation. What is required is a collective effort to change market practice. That is why we have initiated the Working Group on Sterling Risk-Free Reference Rates. It will be tasked with identifying a suitable near risk-free reference rate for sterling markets, and formulating a transition plan to catalyse a change in market practice so that a significant portion of derivatives contracts reference the new RFR rather than LIBOR.

Chris Salmon: Remarks given at the first meeting of the Working Group on Sterling Risk-Free Reference Rates Remarks by Mr Chris Salmon, Executive Director for Markets of the Bank of England, at the first meeting of the Working Group on Sterling Risk-Free Reference Rates, London, 18 March 2015. *  *  *  Over the past two and a half years, the Bank of England has been firmly committed to benchmark reform. Much has already been achieved by regulators, administrators and market participants. Those achievements include the Wheatley Review of Libor, the development of IOSCO Principles for Financial Benchmarks, the FSB’s recommendations on interest rate benchmark reform, and most recently the extension of the UK regulatory framework to cover additional critical benchmarks – including the interest rate benchmarks, SONIA and RONIA. But there is still much to do. The way ahead was signposted in the July 2014 Financial Stability Board Report, “Reforming Major Interest Rate Benchmarks”. That Report recommended a “multi-rate” approach involving the strengthening of existing “IBOR” rates (such as LIBOR) by using, to the greatest extent possible, transactions data; and developing alternative near risk-free reference rates (RFRs) for use in derivatives contracts.
7  See Eaton, J., M. Eslava, M. Kugler and J. Tybout (2008), “The Margins of Entry into Export Markets: Evidence from Colombia,” in E. Helpman, D. Marin, and T. Verdier, eds., The Organization of Firms in a Global Economy, Cambridge, MA: Harvard University Press; and Blum, B., S. Claro and I. Horstmann (2012), “New Exporter Dynamics and Capital Adjustment Costs,” Mimeo, University of Toronto, Central Bank of Chile and Pontificia Universidad Católica de Chile. 8  Melitz, M., and D. Trefler (2012), “Gains From Trade When Firms Matter”, Journal of Economic Perspectives 26(2). 4  BIS central bankers’ speeches  Challenges facing China I would like to end by referring to China’s challenges in the short run, and the impact that current developments may have on the economies of the region. Already in the mid-2000s the Chinese economy was in a transition to becoming less dependent on the external sector and investment demand, and thus trying to promote domestic consumption. There were obvious signs of investment exhaustion in some sectors, together with doubts about the capacity to sustain such high rates of export growth. The reforms adopted in the middle of the past decade to enhance the operation of the financial system and thus attain a more efficient allocation of credit – to offset the natural fall in the savings rate – came to a halt during the crisis of 2008–2009 due to the great boost in government expenditure and public credit.

But that is the reality of development – we will continuously be called upon to respond to new and unfamiliar challenges and to effectuate changes wherever we can. I am optimistic that we can all contribute to do our part to make the change that is required. Global awareness on climate change and its risks being showcased today and during this Climate Week is reflective of a world that is determined to rise to the immense challenges before us. Thank you again to the organiser of this event and to all participants. I look forward to more meaningful engagements on this issue as we continue this onward march for a better life and a better future for our children and for mankind. Thank you. 3/3  BIS central bankers' speeches