samchain/econo-pairs-v1 huggingface dataset:
The Financial Cycle The global financial crisis was a painful reminder that the business cycle is not the only source of imbalances. Indeed, imbalances at the heart of the financial cycle have been the best predictors of downturns in recent decades. The financial cycle tracks the rise and fall in leverage and financial conditions around their sustainable levels. Compared to the business cycle, the financial cycle is greater in amplitude, slower moving and longer lasting, sometimes taking up to 20 years between peaks. As an economy expands, risk taking increases and lending constraints are relaxed. Debt and asset prices rise, reinforcing each other. Towards the top of the cycle balance sheets appear strong but are increasingly fragile. Equity and asset valuations are flattered by mark-to-market profits. Debt sustainability is vulnerable to shocks. At the very top irrationality sets in. Current conditions are assumed to continue forever. “House prices can only go up.” “Financial innovation reduces risk.” “Markets always clear.” People fall for the old lies and unknowingly take great risks secure in the belief that this time is different. To find a silver lining in the storm clouds of the financial crisis, there has been an explosion of work into how best to track the financial cycle and avoid its damaging extremes. 8  All speeches are available online at www.bankofengland.co.uk/speeches  8  A range of indicators are now monitored routinely by bodies, such as the Financial Policy Committee (FPC), tasked with maintaining financial stability.

Furthermore, Romania’s membership in the Banking Union would ensure the country has an active voice in the decision-making process; as such decisions would affect it anyway, regardless of its membership status. I will end here my brief comment. Once again, we take pride in hosting what will be a substantial dialogue about the role Romania will take within the transatlantic renaissance as a faithful partner and ambitious player. I wish you fruitful discussions and to enjoy the Leadership Awards and Gala dinner tonight, hosted in the beautiful Marble Hall of the Old Palace of the National Bank of Romania. Built in the late half of the 19th century, following the French architectural style, it has harbored the central bank from the moment it was founded. The National Bank of Romania is the 16th oldest central bank in the world, established 33 years before the Federal Reserve. I do remember, two years ago, on December, 5th, when Aspen Institute Romania celebrated five years of operations, I was presented with the “Values-based Leadership” award on behalf of Aspen Network of International Partners. I cherish that memory and what this award stands for. I would like to thank each and every one of you for joining us. 2  BIS central bankers’ speeches
Our risk-based Minimum Liquid Assets framework requires every bank to hold a minimum percentage of its qualifying liabilities in liquid assets. We are now looking to adopt the Basel III LCR rules, with some enhancements to suit domestic conditions. •  Although Basel III applies the LCR framework only to internationally active banks, we propose to extend the LCR requirement to all banks in Singapore in the first instance and grant various reliefs on the basis of risk-mitigating circumstances. •  We will also have a tighter definition of what qualifies as eligible liquid assets and not recognise equities and mortgage-backed securities. MAS has issued a consultation paper on the implementation of the LCR framework and will carefully consider industry feedback. Constraining leverage The third important area of reform is in constraining the build up of excessive leverage. At the height of the crisis in 2008, the banking industry was forced by markets to reduce leverage in a manner that led to downward pressure on asset prices, which in turn led to losses, declines in bank capital, and contraction in credit. Even banks with high risk-based capital adequacy ratios were found to be excessively leveraged. Basel III’s leverage ratio seeks to set a 3% floor for the amount of Tier 1 capital that a bank needs to hold relative to its total exposure. The ratio is designed as a non-risk based measure to complement the risk-sensitive capital adequacy ratios.

But this is not to suggest that intermediating credit through non-bank channels is to be discouraged. The shadow banking system can provide market participants and corporations with a useful alternative source of funding and liquidity. Some non-bank entities may have  4  BIS central bankers’ speeches  specialised expertise that enables them to provide certain credit intermediation services more efficiently and at lower risk. Shadow banking need not be a bad word in finance. What we do need to watch out for is the accumulation of risks in the shadow banking sector and the potential spill-over of these risks to the regulated banking sector. The FSB is setting out approaches to monitor the shadow banking system and to identify possible regulatory measures to mitigate shadow banking risks. In Singapore, MAS has taken steps to limit the opportunities for regulatory arbitrage between the bank- and non-bank sectors by adopting broadly consistent rules for similar activities, even if they are being conducted by different types of entities. For instance, capital requirements for banks, insurance companies, and capital market intermediaries are broadly aligned for similar types of risks, to deter regulatory arbitrage. Cross-border implications of national rules The second unintended consequence is the cross-border implications of national rules. •  Take for example, the US CFTC’s OTC swap rules. These rules apply to financial institutions operating outside the US including foreign-domiciled financial institutions and foreign branches of US financial institutions.
That script has meant that the size of the global stock of bonds yielding more than 4% has fallen to only about $ in 2007 it was $ In that environment it may be just too tempting to succumb to the illusion that a higher yielding asset isn’t a higher risk asset. After all, recent performance has been good. Corporate insolvencies have been close to pre-crisis lows and, of course, interest rates have been low and stable for very many years. This ‘reach for yield’ explains why fixed income investors have been prepared to take on more risk to get returns just a little closer to what they had been used to. It helps to explain why compensation for risk on higher-yield bonds has fallen relative to that on investment grade bonds, which in turn has fallen relative to the return on safe assets. Regardless of what caused the stretch, we need to address the question of whether the economy is fit enough to deal with it. 3. Is the corporate sector reliant on these stretched valuations? There is better news in this regard. Despite recent headline examples of indebted companies, Britain is among a small group of major economies not to have seen overall corporate debt increase as a share of GDP over the past decade. Within that, amongst companies investing in commercial property, debt levels are well below pre-crisis levels and have remained static for four years. Rising property prices have been financed with more equity, not debt.

But, like the SIB, the SROs operate indirectly under statute, and have a duty to regulate in the public interest. We therefore have no self-regulation in the strict sense, rather a variety of statutory and statute-backed bodies with practitioner involvement, each with different relationships with the industry and with Government. Effective regulation needs the input of all BIS Review 21/1997  -4-  participants in the market if it is to offer appropriate protection without stifling innovation. Regulators can benefit greatly from effective practitioner input but to retain the confidence of the investing public they must persuade them that regulation puts their interests, and not those of the firms and their shareholders, first. The system we now have is undoubtedly capable of achieving an appropriate balance between market sensitivity and consumer confidence; it has, in many respects, worked well. But it has been stress-tested in a number of difficult episodes: the Maxwell affair, the private pension mis-selling saga, the collapse of BCCI, Barings Bank and Sumitomo. These episodes have taught us something about the strengths and weaknesses of our system, just as the S&L crisis and the Daiwa New York problem have done in the US. Furthermore, markets themselves have moved on. The financial landscape of today is almost unrecognisable from the one which informed legislators’ views in the early 1980s, before the Banking and Financial Services Acts were put on the statute book.
Nina Stoyanova: Bank of Bulgaria’s latest projects in the area of financial services and payments Speech by Ms Nina Stoyanova, Deputy Governor (Banking Department) of the Bulgarian National Bank, at the opening of the “Innovations” Financial Forum, Sofia, 14 June 2016. *  *  *  Dear colleagues and guests, I would like to welcome you at the Financial Forum ‘Innovations’ organised for the third year in a row by the ‘Bank of the Year’ Association in partnership with the University of Finance, Business and Entrepreneurship (VUZF). The topic of this forum gives us the opportunity to present and discuss the innovations in the financial sector in the area of technologies, banking products and regulations. In this regard, I would like to briefly present the latest projects in the area of financial services and payments, on which the BNB is working. Later today our colleagues are going to give you more details on these projects, which will have an impact on the financial sector over the next couple of years. As you are well aware, the legal and regulatory framework of financial services and payments in Bulgaria is consistent with all European trends and requirements aiming to achieve an integrated European market, to harmonise the rules and conditions for providing payment services, to promote innovative payment methods, to ensure a high level of security for payments and better consumer protection.

We will equally have the opportunity to listen today to Mr. Roberto Peccei’s “The Significance of Limits to Growth for the Work of the Club of Rome”, as well as to the co-authors of the first Report, Dennis Meadows and Jorgen Randers, who will look at the lessons of the first Report nowadays. In the new Report, “2052 – A Global Forecast for the Next Forty Years”, Jorgen Randers underlines the need to use the values or the lessons of the first Report for the future. And actually looking back 40 years, he will look to the next 40 years. We are eager to listen to him to see what the prospects are for the next 40 years. Looking at today’s agenda, I would like to mention the relationship between humankind and nature. We’ll have a special session, where Ernst Ulrich von Weizsäcker will discuss  BIS central bankers’ speeches  1  about “Factor Five: Transforming the Global Economy” and Anders Wijkman about “Bankrupting Nature”. I will also address the topic of transforming the financial and monetary system. I am sure that today’s debate will bring light to our faces and we will find together the best answers to the future of the humankind. I invite the panellists to start the first session. Thank you very much! 2  BIS central bankers’ speeches
A characteristic feature of the new programme is that it envisages large measures of flexibility in terms of its distribution over time and, in the specific case of public asset purchases, of the issuing country, too, if market conditions were to make it necessary, in particular if any sign of financial fragmentation within the euro area were to emerge. 23  This announcement completed the broadening of the APP on 12 March, which entailed an increase in the volume of net purchases, to the end of the year, of € billion. Lastly, the Council decided to increase the asset classes of private issuers that can be purchased, deeming commercial paper of sufficient credit quality to be eligible. As regards liquidity programmes, on 12 March the ECB announced the application of more favourable conditions to its so-called and already existing “targeted longer-term refinancing operations” (TLTRO-III). These operations provide financing at a favourable cost to banks. This may be all the more attractive if banks meet a series of requirements regarding the use of such funds. The requirements involve maintaining or increasing the volume of their lending to households (excluding lending for house purchase) and to firms during the period from 1 March 2020 to 31 March 2021. The current conditions, which are the outcome of an additional review conducted on 30 April to make them even more favourable, offer funds to banks at a cost 50 bp lower than the ECB’s deposit facility rate (currently at -0.50%).

And, at the same time, the launch of the programme of public guarantees to loans extended by financial institutions for a very sizeable amount is a most powerful lever enabling firms to finance their liquidity needs. This programme limits 21  the risk of firms disappearing and therefore preserves the productive system for the time at which the restrictions on activity imposed as a result of the pandemic are lifted. The data I shall later offer underscore the importance of these programmes of public guarantees to loans granted by financial institutions to firms, and particularly to SMEs, for the purpose of preserving the business sector and employment in the economy. It is highly likely that the interruption of activity, either completely or partly through the setting of maximum permitted numbers, will most sharply affect the tourism and leisurerelated sectors. In this respect, a temporary extension of the mechanisms implemented to date to provide liquidity to firms in those sectors that will be affected by the crisis over a longer period would seem desirable. Generally, the pace of the return to normality will evidently differ across the different productive sectors and firms. Accordingly, the fiscal policy response should also be tailored to these circumstances, with the dual aim of preserving that part of the productive system most affected by the crisis and containing the impact of these measures on public finances.
A recent industry survey has estimated that the global ICT spending on enhancement of branch network alone was more than USD15 billion in 2001 and expected to increase to USD20 billion by 2005. Not all of such investments however, will produce the desired improvements. IT investments need to be backed by strong business justification and implementation consideration. New technologies need to be adopted with adequate review as to how it will operate within the broader organisational context. This also applies to initiatives to implement organisation-wide IT enhancements, so that it will bring about the intended results. Indeed such investments as in the CRM application need to be well tailored to individual business models. BIS Review 28/2004  3  Wasteful investment needs to be avoided. The key is to align and integrate ICT into the business models. As technology end-users, the industry is faced with a multitude of product offerings with solutions to improve processes and business activities. This has required sound decision making. The assessment on the return on IT investment needs to be based on a longer time horizon, incorporating both qualitative and quantitative benchmarks to ensure that it will translate into improved performance. A key part towards achieving such return targets would be to ensure smart deployment of IT applications within the organisation. Underlying this process is the need for close interaction between technology and business operators in the customisation stage.

Strategic decisions about the future needs to be made to sustain the ability to offer and deliver unique value propositions to customers whilst at the same time effectively managing customers’ expectations. An area that banking institutions may venture into is micro-financing. Micro-enterprises perform an important economic activity for a large segment of the country’s population. While institutional arrangements are being put in place to increase access to financing for such micro-enterprises, the banking sector with its large network of branches can become an important channel for such financing. 4  BIS Review 28/2004  These could be provided via a micro-financing window. Global experience has shown that such microfinancing operations can be successful and profitable with good loan portfolio quality. As part of the efforts to raise the quality performance in the financial services sector, Bank Negara Malaysia initiated a nation-wide survey in 2003 to assess the requirements, expectations and the satisfaction level of consumers on the quality of products and services offered by banking institutions. While the primary objective of the study is to develop an index on the levels of quality of customer service, the findings indicate that the real issues in enhancing the industry’s level of performance goes beyond this, towards developing a stronger customer-centric orientation. The findings provide a discernable indication of the differences in customer needs and requirements, and identify specific areas where customer-orientation issues tend to arise. Let me briefly share some of the key findings of the survey.
Another, not mutually exclusive, explanation is that by virtue of holding large “trading” books that were marked to market, banks found themselves having to make very large portfolio write downs in the face of sharp rises in liquidity premia in asset markets. As highly-levered institutions – as banks are unavoidably: deposits are debt – those mark-downs depleted their net worth to the point of imperilling solvency. That caused a retrenchment in the availability of credit, helping to plunge the world economy into recession, and so impairing traditional loan books, in a vicious spiral. The point of this account is that it emphasises the role of banks’ leverage. Combined with maturity transformation, this unavoidably makes banks brittle. And that underlines just why our predecessors placed such great weight on the safety and soundness of banks. Indeed, the original reason for regulating capital was that an assurance of capital adequacy, for all but the most extreme circumstances, would make runs less likely. But that was hardly meant to lead to the neglect of liquidity highlighted a few years ago by one of my predecessors, Andrew Large, and others. Liquidity We therefore welcome the Turner Report’s exploration of “core funding”. And we very much support, and have encouraged, the FSA’s plan that all banks should in future hold a minimum level of high-quality government bonds, on the grounds that only they carry a reasonable assurance of market liquidity in stressed conditions. I hope the same approach can be adopted internationally.

Second, on top of that, we are fully conscious that we are speaking simultaneously to twelve different cultures today, and many more when time comes. Making sure that a decision is exactly understood simultaneously by a German, an Italian or a Spanish household, by an Irish, a Portuguese and a Dutch citizen is another extraordinary challenge that no other central bank has to cope with. Third, last but not least, we are also simultaneously speaking to the global market participants who have themselves their own language and their own culture. For the ECB to be credible means being credible vis-à-vis all parties concerned. Our transparent communication must permit all parties to understand our mandate and our strategy to ensure price stability, to anchor their medium term and long term expectations and to accurately predict our future behaviour. For the European and global market participants in particular I know how predictability is important. I attach the utmost importance to our predictability which has been very good in the past, thanks to our conceptual transparency, to our own candid explanations on our diagnosis and decisions and - last but not least - to the quality and lucidity of yourself, members of the Frankfurt Economic Journalists, of ECB watchers in general, of economists and of market participants. I will continue to take care that this predictability remains as excellent as possible. BIS Review 5/2005  5
The variety and volume of capital flows are made even more potent by the Velocity with which capital moves around the world. The advance of telecommunications and information technology now means that distance and national boundaries are no longer important restraints. Two consequences follow from this. First, huge amounts of money can be moved into an economy in a very short space of time, and can be moved out just as quickly. In 1996,  BIS Review 35/1999  2  for example, capital was flowing into the emerging economies of Asia at the rate of about $ billion. By the second half of 1997 it was flowing out of the region at about half that speed. Secondly, with the negation of distance and boundaries, events in one particular market can have immediate, dramatic, but often quite unpredicted effects on other markets on the other side of the world. Last year, for example, the debt default in Russia affected mortgagebacked securities as far away as the US and Brazil. Earlier this year, the devaluation of the Brazilian real raised expectations – unfounded, as it turned out – that the ripples from that crisis would destabilise the renminbi. 9. During periods of instability or uncertainty, the volume, variety and velocity of international capital flows can, in an increasingly liberalised and globalised financial environment, often add up to the fifth ‘V’: Volatility. Indeed, the behaviour patterns of capital flows can magnify minor local uncertainties into extensive, prolonged and highly destabilising crises.

In Adam Smith’s conception, it is the ‘invisible hand’ of the free market that organises the seemingly chaotic and self-interested activities of human beings into a beneficent and productive social order. For Milton Friedman, ‘the organisation of the bulk of economic activity through private enterprise operating in a free market’ is ‘a necessary condition for political freedom.’ 15. In its daily operation, a free market serves three main purposes. It manages resource allocation by supplying answers for buyers and sellers to the basic economic questions of what, how, and for whom goods and services are to be produced. It provides price discovery by channelling competition and adjusting prices to reflect changes in supply and demand for different commodities. And specifically in terms of money, it arranges financial intermediation by matching the needs of ultimate lenders – or those in possession of surplus loanable funds – with those of ultimate borrowers – or those in need of liquid funds: interest rates, which are determined by the supply and demand of liquidity in the loanable fund market, play a crucial role in this process. BIS Review 35/1999  4  16. The philosophers are agreed that, in general, the less a government has to do with these various functions, the more efficiently the market can do its job: centralised, directive authorities, or ‘big government’, are anathema to true economic freedom; governments should, at most, play a minimal, instrumental role in fostering the conditions in which each individual has the freedom to make his or her own economic choices.