samchain/econo-pairs-v1 huggingface dataset:
In France, the Government has decided a reform where insurance and banking supervision will be merged under the umbrella of a “systemic” college under the auspices of the Banque de France. Clearly, the move towards macro financial supervision means that Central Banks will have to assume  BIS Review 104/2009  1  additional responsibilities. History tells us that the missions of Central Banks have taken major turns following financial crises. Second, regulation will become more global. Emerging market economies might feel that they are not part of the problem since they did not play a role in starting the crisis; but they are major actors and are part of the solution. Henrique Mereilles sitting at the table next to me is truly a sign of times, a sign clearly underlined by the increasing role of G2O and the recent expansion of the FSB. International standards in the field of prudential rules have already paved the way for an international level playing field. I strongly hope that Basel II can soon become a truly universal standard and framework for banking supervision. Beyond prudential rules, it is of the utmost importance that convergence be achieved in accounting standards if only for level playing field reasons. Finally, improved coordination between supervisors through supervisory colleges for all systemic actors (not just banks) will be a significant progress. The objectives of financial regulation have shifted. It remains important to increase the resilience of the financial system.

We need to ensure that intermediaries build, over time, stronger capital and liquidity cushions, especially for trading activities. The Basel committee has been very active and currently is devising proposals. But our main priority is to reduce procyclicality in our financial systems. Stronger capital and liquidity cushions must be built in good times and drawn down in bad times. The essential contribution however will come from a change in our provisioning rules. The objective is to build automatic and “through the cycle” stabilizers in a transparent way and according to a rule based system. I believe there is a lot to learn from the Spanish dynamic provisioning approach. Finally, nothing will work if we do not address the issue of incentives. In a market based economy, incentives determine the behaviours of agents. Regulators must aim at creating an environment that is conducive to both efficiency and stability and that can avoid excessive risk taking. This is why compensation practices are so important. They should be structured so as to induce appropriate risk behaviour and encourage "true" financial innovation. Competition between financial institutions in hiring staff creates a coordination problem and leads to many excesses, acknowledged by the institutions themselves. Compensation policies should therefore be guided by clear and internationally agreed rules covering: (i) the involvement of senior management in traders’ compensation policies, (ii) detailed disclosure requirements, (iii) clear and direct links between the payment of bonuses and the longer term profitability of institutions, i.e.
It goes without saying, however, that as a result of the rapid development of technology, especially in the ICT area, which drastically lowered the cost of the said exchange, the international integration of trade, investment, financial and other services is now more advanced than it has ever been before. The Economic Policy Committee of the European Union 3 points out four factors that have lead to the rapid development of globalisation over the past years: •  multilateral trade liberalisation; the average customs duty has been lowered by ca. 30%  •  successful economic reforms in many developing countries, especially in China and India  •  the technological advancement, especially in the ICT sector and transportation, which has significantly lowered the cost of trade. To give you and example, fees for sea, land and air transportation, telephone calls and satellite calls went down by 21%, 30%, 95% and 88%, respectively. •  the technological advancement has blurred the borderline between what can and what cannot become subject to international trade. Globalisation may create new macroeconomic interdependences to replace the traditional ones that we know from the books on economics. The majority of economists, politicians and investors may still not quite keep at pace with the “seismic changes” that take place in the economy 4 . However, if we really are witnesses to “seismic changes” in the economy, it may be worthwhile to have a closer look and think about their meaning. Globalisation and its impact on the economy may be viewed from different perspectives.

A bloom of the DIT strategy endorses the observation that central banks adopt the “technology” of low and stable inflation from one another. The dissemination of the DIT strategy was accompanied by a decrease in the average inflation level, especially in the developing countries that lowered inflation from a high level. This may prove that the dissemination of the DIT strategy was one of the factors that have contributed to disinflation. Admittedly, the impact of the DIT strategy on lowering inflation is a subject matter of discussion 23 ; however, empirical evidence exists that implementation of the DIT strategy improves macroeconomic  18  This is even called the Greenspan’s conundrum, after the name of the former Chairman of the US Federal Reserve. 19  FOMC (Federal Open Market Committee): the decision-making authority on interest rates in the Management Board of the US Federal Reserve. 20  Hannoun H. – ibidem. 21  Tytell I., Wei S-J. “Does Financial Globalization Induce Better Macroeconomic Policies?”, IMF Working Paper 04/84, May 2004. 22  The DIT strategy is applied in most developed countries outside the euro area and the USA. However, in the case of the euro area, one may talk of the de facto DIT strategy, and in the case of the USA – the current Chairman, Fed Ben Bernanke, is a zealous DIT enthusiast, so its implementation in the USA soon is not out of question. 23  See e.g.
In the first place, a credible inflation-targeting regime ensures the proper reaction of monetary policy to significant deviations of output from its full-employment level. In particular, negative demand shocks that may come from worsened external conditions should be accompanied by a reduction of the monetary policy rate to prevent a deanchoring of inflation expectations and allow the economy to stabilize without suffering unsustainable, and costly to revert, contractions. This is especially visible today that the Central Bank board has reduced the monetary policy rate by 775 basis points, placing it at its minimum level of 0.5%, and has complemented this reduction with additional measures to boost the monetary impulse. A second key element in this scheme is the floating exchange rate. This policy favors stability, allowing the real exchange rate to adjust to internal economic conditions and minimizing output adjustments. Oftentimes, persistent attempts to prevent the exchange rate to adjust to market conditions may encourage excessive capital flows and abrupt foreign exchange adjustments that may complicate the conduct of monetary policy (figure 9). Thus, the flexible exchange rate we have in place facilitates the adjustment as long as it is combined with a consistent macroeconomic policy and a solid and resilient financial system, as we have in Chile. If fiscal and monetary policy were inadequate, exchange rate fluctuations could occur that would exacerbate macroeconomic swings. In any case, our current foreign exchange scheme contemplates the possibility of intervening in the market under exceptional circumstances, which we have done in the past.

8  BIS Review 106/2009  Figure 8  2008  2007  2006  2005  2004  2003  1987  2002  0 2001  -4 2000  0,5 1999  -2 1998  1  1997  0  1996  1,5  1995  2  1994  2  1993  4  1992  2,5  1991  6  1990  3  1989  8  1988  3,5  % GDP  10  $  Copper price and fiscal balances  Copper price  Actual balance  Structural balance Sources: Bloomberg; Budgets Bureau, Ministry of Finance. Figure 9  120  4  110  3,5  2,5  90  2  80  $  3  100  1,5  Real exchange rate  2009  2007  2005  2003  2001  1999  1997  1995  1993  0,5 1991  60 1989  1 1987  70  1985  index, 1986=100  Real exchange rate and copper price  Copper price  Sources: Central Bank of Chile; Bloomberg. BIS Review 106/2009  9  References Acemoglu, D., S. Johnson, and J. Robinson (2003), “An African Success Story: Botswana,” in In Search of Prosperity: Analytical Narrative on Economic Growth, D. Rodrik, Princeton University Press. Arezki, R. and F. van der Ploeg (2007) “Can the Natural Resource Curse be Turned into a Blessing?
There is no other model to which we can refer – either in history or in a fully fledged political federation such as the US, and certainly not in comparison with centralised states such as Japan or the UK. But I’m always confident. In May we had additional proof of the capacity of Europe to cope with new challenges. Financial Times: Can you explain why [in May] the ECB changed its mind on government bond purchases? There was a lot of criticism in Germany especially. Jean-Claude Trichet: When I talk of “credible alertness” I really mean it. When we decided on 9 August 2007 that it was appropriate to embark in an unlimited supply of liquidity in our own money market, and we supplied 95 billion euros for 24 hours, that was not a decision that was in the textbooks. We were criticised a little bit at the time, and then, after a while, it was recognised that this decision had been wise and lucid. So in May this year I would say that we were in a situation where it was considered appropriate by the governing council of the ECB to take the decision, as I said earlier, to help restore a more normal functioning of our own monetary policy transmission mechanism. We had previously purchased covered bonds and we had not excluded intervening in other markets. Financial Times: What lessons do you draw in terms of euro governance from this crisis to date?

Likewise, exports from EMEs to EMEs increased from $ trillion to $ trillion during the same period. The increase in the volume of trade among EMEs has, to some extent, reduced the adverse effects of the weak course of external demand from advanced economies. Thereby, production and employment levels in EMEs have achieved a rapid pace of recovery after the 2008 global crisis. In line with the increased importance of these economies, we also witness significant changes in decision-making mechanisms worldwide. A wide range of important decisions on issues ranging from food and energy security to strengthening the global financial system are made at the Group of Twenty (G20). In line with the recent increase in their role in the G-20, the voice and representation of EMEs among international institutions such as the IMF, the World Bank, the Basel Committee and the Financial Stability Board is increasing as well. Distinguished Guests, EMEs withstood the global turmoil better than expected. A certain degree of decoupling has been observed between emerging and advanced economies in this regard. Underlying this resilience were several distinct factors, including sound fiscal fundamentals, a relatively low degree of leverage in the private sector, a lower reliance on wholesale funding as part of a more traditional banking business model and minimal exposure to toxic financial products. Improvements in the financial sector regulation and supervision frameworks have also added to this resilience. Although EMEs proved resilient during the global financial crisis, they have experienced new challenges in the aftermath of the crisis.
I would like to focus today on the Single Supervisory Mechanism, the most developed component of the Banking Union. In this connection, I shall review the milestones reached and address what I consider are the main challenges ahead for us. 2. SSM milestones  The first SSM milestone took place precisely before it assumed full supervisory responsibility, and it entailed successfully conducting the “comprehensive assessment” of all significant euro area banking groups. This review helped to enhance the information on the situation of BIS central bankers’ speeches  1  European banks and to identify the measures that could be necessary to strengthen their solvency. In this respect, it should be recalled that Spanish banks were those that evidenced fewest incidents in the asset quality review process, which entailed adjustments of little more than 0.1% of its risk-weighted assets. This outcome, along with the limited impact of the stress tests, highlighted the fact that the reform of the Spanish banking system undertaken in previous years had met its objectives. At present, we are working on the stress test scheduled for the coming year. This test, following the methodology of the European Banking Authority, will be made on a sample of banks – six of which Spanish – covering 70% of euro area banking assets. The results will be published at the start of the third quarter of 2016. One of the main challenges of the SSM at the outset was to make its complex governance structure workable.

**  1 – A year of stabilisation Last year, I had talked about the three challenges for growth: uncertainty, isolationism – particularly the United States – and impatience, which is hampering sustainable reform efforts. None of these has disappeared. But French growth is holding up at 1.3% in 2019 despite a slowdown at the end of the year, and we are expecting 1.1% in 2020. And we can practically rule out a US or European recession in 2020, which was often feared last year. These initial signs of economic stabilisation, highlighted in our latest December Eurosystem Staff projections, reflect a relative decline in trade uncertainties. If this stabilisation materialises, it should result in a stabilisation of monetary policy. This means two things: Seen from today’s perspective, like the markets do, it is [therefore] reasonable to expect that over the coming months our policies and interest rates will remain stable. The year 2020 will be all the more conducive to conducting the strategic review of our monetary policy under Christine Lagarde, focusing particularly on the key issue of our inflation target. Stabilisation of regulations too, for banks and insurers. This is important for you, as it is for me, even though we do not always understand it in exactly the same way. We mustn’t get carried away – there will not be a Basel IV –, or backtrack: we must transpose in Europe the Basel III international agreement concluded in December 2017.
But for funds investing in corporate bonds and even less liquid assets, it could be. So perhaps it should be no surprise that funds holding corporate bonds see redemptions that are seven times more sensitive to price moves than in equity funds and twice as sensitive as in sovereign bond funds. 20 (slide 14) Fortunately – as many of you know – there are normally other measures in place, from swing pricing and dilution levies to gates and suspensions. But, in a severe market stress it is not at all clear that such measures can be calibrated with the necessary precision or (to echo Jon Cunliffe) “whether their activation would dampen or amplify redemption pressures across the market generally”  Moreover, the impact of greater selling pressure under stress could be magnified by the coincident decline in corporate bond market liquidity more generally. Market-makers have become less active in their market making. Our analysis suggests that, in response to asset sales by high-yield bond funds, the extent to which dealers are willing to see their inventories of corporate bonds increase has shrunk by a factor of about seven. 21 (slide 15)  The flipside is that market prices respond twice as much to asset sales as they did, in order to draw in other buyers in a short timeframe.22  As with derivatives and collateral, we need better diagnostic tools to assess these risks (slide 16). That’s why we’re investing in simulation models to test what it would take for there to be material market impacts.

Our focus is on the macro prudential; on ensuring the financial system serves the wider economy in bad times as well as good. And risks in markets do not translate automatically into risks to that. So our objective is not to protect investors from ups and downs in financial markets or to target some level for asset prices. The objective is to protect the wider economy from disruption if market risks materialise. The nature of corporate finance has shifted decisively in the past decade. Since the crisis, nearly all of the increase in debt of companies in the UK can be accounted for by bond issuance. The scale of business borrowing through markets is now on a par with their borrowing from banks. This shift in the balance of corporate finance should be positive for stability. A more diverse system can be a safer system. Bond finance has been the spare tyre that kept credit flowing while the banking system was punctured after the crisis. So these markets are clearly delivering for the economy. But conditions could develop in which they have the potential to disrupt: 1  If debt levels of companies, particularly banks, were to come to rely on stretched credit markets and those markets were then to adjust. Or if credit markets were to prove lacking in resilience so that they amplified any market adjustment, driving overshooting and tightening conditions for businesses.
The Governing Council of the ECB, which comprises the Governors of the 11 national central banks of the participating Member States plus the six members of the Executive Board of the ECB, has assumed this responsibility and is in charge of monetary policy decisions for the euro area. Decisions by the Governing Council will be implemented via the Eurosystem - that is, the ECB and the 11 participating national central banks (NCBs). Indeed, the introduction of the euro marks the culmination of much successful preparatory work over a period of many years. This has been reflected in the very positive and confident way in which financial markets have received the euro in the first three weeks of Monetary Union. Moreover, the enormous technical and logistical challenges posed during the changeover weekend at the start of the year have been surmounted. Monetary Union offers a unique opportunity to establish and maintain price stability within the euro area. It promises a credible and lasting environment of price stability for almost 300 million people. Price stability is at the core of the “stability culture” that we are seeking to establish throughout Europe. By fulfilling the unequivocal commitment of the Governing Council of the ECB to maintaining price stability in the euro area, we shall ensure that the single monetary policy contributes as much as possible to economic welfare in the broadest sense. At the same time, national fiscal authorities and general economic policies also have to demonstrate their commitment to the creation of this stability culture in Europe.

1  BIS Review 73/1999  Graph 2 Gold Reserves in Relative Terms  Gold per GDP Unit  Gold / Imports  0.9%  United States  United States  6.5%  Germany  6.3%  1.6%  Germany France  2.0%  France  9.0%  Italy  2.0%  Italy  8.9%  9.0%  Switzerland 2.6%  Netherlands Japan  0.2% 0.5%  United Kingdom  Canada  15.8% 22.0% 59.9%  France Italy  365.5  Switzerland 68.9  Netherlands  0.3%  Germany  45.0  Italy  Canada  1.6%  United States  54.3  France  Sweden  1.7%  Sweden  Gold / Currency in Circulation  45.1  Germany  Switzerland  Japan  12.3  33.0% 97.1%  Netherlands  6.0  46.8% 1.7%  United Kingdom  16.0%  Belgium  29.1  Belgium  Belgium  Canada  30.5  United States  United Kingdom  1.8% 1.6%  0.1%  Grams of Gold per Capita  Japan  Japan  0.6%  Sweden  5.2%  United Kingdom 1.1%  Belgium  25.4%  Switzerland Netherlands  19.5%  Sweden  16.6  Canada  2.6  14.3% 3.3%  Source : IWF, OECD  As you can see, Switzerland probably represents an extreme case with regard to gold holdings.
Individual banks do not have an incentive to take into account a fall in value that it inflicts on its counterparties. Contagion effects are externalities between banks that can lead to a situation where the risk in the financial system becomes greater than the sum of what individual banks believe their risk to be. Over the past years, I have travelled around the country and visited many savings banks in Norway, and without exception they report that risk management has improved considerably at their banks. That is no doubt true, but I cannot without a doubt conclude on that basis that systemic risk has been fully eliminated. Herd behaviour amplifies risk in the financial system. The more banks’ portfolios are alike, the more they are exposed to indirect contagion through a fall in the market value of their portfolios. When banks have similar portfolios, they are also vulnerable to the same external shocks. The banking system as a whole becomes vulnerable. The assumption that banks are intertwined and alike can lead to problems spreading between banks through expectations alone. If depositors see problems in one bank, they will run to their own bank and withdraw their funds before it is too late. Paradoxically, banks become more alike when they apply the same diversification strategies. The savings banks I mentioned may have become more alike if they are using the same risk management systems. That banks become more similar may also be a sought-after result on the part of banks. They may want to move in herd.

When many banks encounter problems at the same time, history shows that the authorities have little recourse other than to help them. In that case, being different brings little gain. When they are all in the same boat, bank executives can easily argue that the problems were not self-inflicted. However, the loss associated with being different is considerable if a bank is alone in encountering problems. The result is that banks engage in herd behaviour and the risk in the financial system becomes excessive. So far I have spoken about how various forms of market failure in the banking system lead to systemic risk that is higher than what is socially optimal. The level of credit in the economy may also become excessive. The economy then becomes vulnerable. The reason is external effects between banks and the wider economy. Loan collateral can give rise to such external effects. One reason banks demand collateral is because they do not have complete information about loan applicants. The collateral value is a security and a restriction on the amount that can be borrowed. When overall credit increases, the value of residential and non-residential property rises. Other economic agents experience a rise in their own collateral values, which they then use to borrow more. But rapid credit growth increases the risk of a deep economic downturn. The interaction can go into reverse. Borrowers that have to sell the collateral to deleverage, push down the collateral values of other borrowers.