samchain/econo-pairs-v1 huggingface dataset:
“Safety and soundness”—the guiding principle of microprudential supervision—is a shared objective, even if supervisors and the industry sometimes disagree how the concept applies to particular facts. I think we can agree that your work as first-line risk managers promotes safe and sound operations within your organizations. So let me begin with my thanks for your continuing efforts. Second, there are some things that I would like to get off of my chest. My topic this morning is financial crime—more specifically, crime that converts and corrupts the payment system to achieve its ends. This includes theft, fraud, money laundering, sanctions evasion, bribery, kleptocracy, cyber-terrorism, and electronic sabotage. Combatting financial crime should not be an issue that finds supervisors and industry on opposite sides of the “v.” It is in everyone’s interest—supervisors and their public constituents; the industry and its customers—to keep crime and the proceeds of crime out of the payment system. Of course, no one is perfect. But we must be honest with each other about what we’re doing, what we’re not doing, and how we can improve. Let me highlight just one example to demonstrate why I am so focused on financial crime right now. As I’m sure many of you have read, in February 2016 international criminals used fraudulent wire transfer instructions to steal and launder many millions of dollars from Bangladesh Bank’s account at the New York Fed. Bangladesh Bank is the central bank of Bangladesh.

Preet Bharara, Criminal Accountability and Culture, Remarks at the Federal Reserve Bank of New York’s  Conference: Reforming Culture and Behavior in the Financial Services Industry: Expanding the Dialogue, Oct. 20, 2016 (criticizing a “culture of minimalism,” in which firms “do the least amount possible to be in some kind of compliance with rules”). 8 Virtual Markets Integrity Initiative Report, Sept. 18, 2018. 9 2018 National Money Laundering Risk Assessment 6. 10 U.S. Immigration and Customs Enforcement, a division of the Department of Homeland Security, created its  Trade Transparency Unit in 2004. 11 FinCEN Advisory: Update on U.S. Currency Restrictions in Mexico: Funnel Accounts and TBML, May 28, 2014. 12 Office of Foreign Assets Control, Advisory on the Use of Exchange Houses and Trading Companies to Evade  U.S. Economic Sanctions Against Iran, Jan. 10, 2013. 13 United Nations Office on Drugs and Crime, Money Laundering and Globalization. 14 Debra Cassens Weiss, Group goes undercover at 13 law firms to show how US laws facilitate anonymous  investment, ABA Journal, Feb. 1, 2016. 15 Federal Financial Institutions Examination Council, Bank Secrecy Act Anti-Money Laundering Examination  Manual, App’x F (“Money Laundering and Terrorist Financing ‘Red Flags’”). 16 Section 314(b) of the USA PATRIOT Act is not codified in the United States Code, but is available as a historical  note to 31 U.S.C. § 5311. The operative rule appears in Department of Treasury regulations. See 31 C.F.R. § 1010.540 (“Voluntary information sharing among financial institutions”).
Before explaining the Bank’s thinking about these two issues, we need to lay out some basics about the Bank’s objectives, and how it seeks to meet them using its balance sheet. The Bank of England’s objectives and its balance sheet The Bank has two core purposes: maintaining monetary stability and contributing to the stability of the financial system. With some variations, these are the two cornerstones of policy for most central banks around the globe. Monetary policy is quite widely understood in a general sense – the Bank specifically defines it to mean price stability and confidence in the currency.1 Financial stability is less well understood generally but it entails detecting and reducing threats to the financial system as a whole, in order to make it more resilient.2 One major reason why it is for the central bank to pursue both of these purposes is because it has a balance sheet that can be used both to implement monetary policy decisions and to carry out financial operations to support financial stability. A simplified time-series of the Bank’s balance sheet is shown in Charts 1 and 2 below.3  1  Bank of England, Annual Report 2010, page 1. 2  See “A New Approach to Regulation”, HM Treasury consultation document Cm 8012. 3  The Special Liquidity Scheme and Asset Purchase Facility are off-balance sheet, so are not included in the charts.

The credibility that the SNB has acquired over decades guarantees a stable currency. This constitutes a perfect numeraire for banking activities. Second, the money issued by the SNB, i.e. deposits that banks hold at the SNB and banknotes, is the Swiss legal tender. It represents the anchor of the Swiss monetary system. If their customers wish, banks exchange the money in customers’ deposits against banknotes issued by the SNB. Third, banks use the SNB’s infrastructure, the Swiss Interbank Clearing system, for their payment transactions. And fourth, the SNB provides liquidity to the banks, which they hold in the form of deposit accounts or banknotes. In this way, the SNB ensures that the payment system functions well and the demand for banknotes can be satisfied. By fulfilling its mandate, the SNB thus provides fundamental services for the operations of banks and the financial sector. At the same time, the SNB needs the financial sector in order to fulfil its mandate. The financial sector transmits the SNB’s monetary policy actions to the Swiss economy through its lending and borrowing decisions. Based on short-term money market conditions set by the SNB, banks adjust the cost of borrowing for households and firms. Through their core business, banks thus contribute to monetary policy transmission. More generally, the financial sector transmits changes in the short-term policy interest rate to other assets of different maturities. The resulting change in overall yields on Swiss assets influences their relative attractiveness. This also affects Swiss franc exchange rates.
If the risk of significant damage to growth from these financial market pressures is attenuated and if global growth remains strong and drives a continuing rise in energy and commodity prices, then inflation may not moderate as much as we anticipate. If the medium term outlook for inflation deteriorates significantly, the FOMC will move with appropriate speed and force to address this risk. This requires a fine balance. The principal challenge for policy is to provide an adequate degree of insurance against the downside risks that still confront the economy as a whole, without adding to concerns about inflation over the medium term. We cannot know with confidence today what level of the short-term real funds rate will be consistent with our objectives of sustainable growth and low inflation, but if turbulent financial conditions and the associated downside risks to growth persist, monetary policy may have to remain accommodative for some time. Liquidity provision Although concerns about credit quality are at the root of the current problems in financial markets, a substantial impairment in market liquidity conditions can exacerbate and prolong the adjustment in credit conditions. To mitigate this risk, we have taken a series of actions to help reduce the risk that market liquidity conditions exacerbate the adjustment process in credit markets.

It does appear likely that the high level of productivity growth has to some extent been cyclical and a result of the composition of growth. It is reasonable to believe that productivity will increase at a slower rate in future as growth is expected to be linked to a greater extent to strong domestic demand and increased production in the private services sector. All in all, declining productivity growth and higher wage increases as the labour market improves ought to lead to a gradual rise in companies' production costs. However, the cost increases look to be moderate, and we expect that cost pressures will remain relatively low over the coming years. It should be emphasised that it is difficult to determine exactly how far productivity growth will slow down and thereby how much companies’ costs may increase in future. It is likely that the rate of increase in productivity has risen as a result of the large-scale investment in information technology made by companies at the end of the 1990s and due to the effects of globalisation on competition and output. However, it is fully possible that we will have reason to revise up our forecast for productivity growth even more in coming years. It is just as conceivable that productivity growth will prove to be weaker than estimated. Gradually rising inflation Inflation has remained low since the end of 2003.
It is therefore reasonable to try to find out whether the Riksbank can use new methods and techniques to offer means of payment that are guaranteed by the Riksbank in the same way as banknotes and coins. 16  The Riksbank's role as supplier of liquidity in a changing world Technological advances and structural changes affect not only the methods of payment, but also the risks and threats to the financial system. This means that the authorities need to regularly evaluate and test their crisis preparedness. The Riksbank also needs to review and maintain its liquidity tools in good shape. Although the banks are still central to the payments system and comprise a natural focus in the Riksbank’s financial stability analysis, other agents such as central counterparties (CCPs) are gaining increasing importance in the financial system. Structural changes, such as the banks’ funding or how they choose to organise their cross-border operations, affect the liquidity risks in foreign currency, among other things. This is something that the Riksbank and other authorities must monitor. Financial innovations such as trading robots and other types of automated financial services can contribute to greater efficiency, but they can also give rise to considerable liquidity stress. 17 In line with technological advances, the speed at which the transactions can be implemented is also increasing. The fact that money and securities can, at the touch of a button, be moved immediately from one continent to another, is something that hardly reduces the liquidity risks in the financial system.

Is there a risk that the payments market will become an oligopoly, with high thresholds for competitors and where payment services are expensive? Can we ensure that those who do not have access to the banks’ services in the future will still be able to manage their payments in a safe and efficient way? What would happen in a future financial crisis, if the general public distrusts the banks and wants to withdraw savings in cash – but the banks no longer hold cash? 13 Withdrawals from ATMs have also declined significantly in recent years. In 2010, Swedes withdrew around SEK 225 billion and in 2015 they withdrew only SEK 153 billion. 14 See, for instance, the Swedish Post and Telecom Authority's report on its task from the Government with regard to fundamental payment services, 27 February 2017: http://www.pts.se/sv/Dokument/Rapporter/Post/2017/Aterrapportering-av-PTS-regeringsuppdrag-inomgrundlaggande-betaltjanster---17-201-/ 15 To some extent the Riksbank has contributed to this development by reducing the number of cash depots in Sweden. See, for example, Daltung and Ericson (2004). 11 [14]  Central bank money will still be needed in the future These important questions must be answered. In my opinion, there is reason to examine whether the Riksbank should offer money in digital form to the general public. If the printing press made it possible to print banknotes in its time, then our current technology enables electronic payments.
The concept of risk is always linked to a loss which is, by definition, uncertain. Any loss which is certain is not a risk anymore; it is simply a cost. Nevertheless, financial risk is always the consequence of specific financial choices; namely, the decision to purchase an asset or grant a loan gives rise to certain risks for the institution. Despite the uncertainty, the financial risks posed by that given transaction can generally be measured, in the sense that losses tend to be limited and associated with known events, which are likely to occur with a certain probability. The rationale of banks’ business models is to take on this financial risk and generate profit from it. Of course, banks should assess this profitability jointly with the level of risk assumed in order to take informed decisions. However, the nature of non-financial risk makes it far more difficult for banks and supervisors to tackle. Non-financial risk, whether related to misconduct, non-compliance, IT, reputational, cybersecurity or operational challenges, is not linked directly to financial decisions and has only a downside. In other words, unlike credit or market risk, here there are only potential losses, which can be large. In addition, non-financial risk can only be reduced or mitigated, but not eliminated, and it is far more difficult to quantify than financial risks. Despite all these difficulties, or perhaps because of them, non-financial risk has been on regulators’ and supervisors’ radar for quite some time.

In fact, it’s been more than 15 years since the Basel II capital accord included a capital charge for operational risk. 2/6  15 years later, I believe we can draw two conclusions. First, measuring these risks is still challenging. Second, their importance for the banking business has not diminished a bit. On the contrary, it has become more relevant for banks and, certainly, supervisors. Indeed, looking at the 2020 priorities, released by supervisors worldwide, it is clear that nonfinancial risks are on the top of the list. Let me give you a few illustrative examples: the importance of IT has soared, since it has become a key component of any viable Business Model, which makes cyber risk an even greater source of concern. Second, considering recent scandals across the EU I believe I don´t need to emphasize that Anti-MoneyLaundering is more relevant than ever. Finally, it is also clear that the nature of retail banking business means that conduct risk is a major source of concern. In this regard, it is not easy to compile all the losses stemming from the wave of fines and lawsuits that has swept through the financial industry during the crisis and its aftermath. According to a report from the ESRB1, the cumulative losses to December 2014 stemming solely from misconduct exceeded 200 bn € worldwide, with more than 50 bn € affecting EU banks. But, despite the size of these losses, the direct financial consequences are not the only source of concern.
European Central Bank: Press conference – introductory statement Introductory statement by Mr Jean-Claude Trichet, President of the European Central Bank and Mr Lucas Papademos, Vice-President of the European Central Bank, Frankfurt am Main, 3 September 2009. *  *  *  Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to today’s press conference. We will now report on the outcome of today’s meeting of the Governing Council, which was also attended by Commissioner Almunia. On the basis of its regular economic and monetary analyses, the Governing Council decided to leave the key ECB interest rates unchanged. The current rates remain appropriate, taking into account all the information and analyses that have become available since our last meeting on 6 August 2009. In this respect, at today’s meeting we also decided that the rate for the twelve-month longer-term refinancing operation to be allotted on 30 September 2009 will be the prevailing rate on the main refinancing operations. This decision, which continues to guarantee liquidity support to the banking system of the euro area for an extended period of time at very favourable conditions, should promote the extension of credit to the euro area economy and, therefore, further underpin its recovery. Price developments are expected to remain subdued over the policy-relevant horizon. Annual HICP inflation was slightly negative in August according to Eurostat’s flash estimate. This reflects mainly the base effects of the strong rise in commodity prices in 2008.

Against this background, we expect price stability to be maintained over the medium term, thereby continuing to support the purchasing power of euro area households. As the transmission of monetary policy works with lags, we expect that our policy action will progressively feed through to the economy in full. Hence, with all the measures taken, monetary policy is providing ongoing support for households and corporations. Once the macroeconomic environment improves, the Governing Council will make sure that the measures taken are unwound in a timely fashion and that the liquidity provided is absorbed in order to counter effectively any threat to price stability over the medium to longer term. By so doing, the Governing Council will continue to ensure a firm anchoring of medium-term inflation expectations. Such anchoring is indispensable to supporting sustainable growth and employment and contributing to financial stability. Accordingly, we will continue to monitor very closely all developments over the period ahead. As regards fiscal policies, the latest quarterly euro area data and developments in individual countries confirm a substantial deterioration of fiscal positions in 2009, which is projected to continue in 2010. In finalising their 2010 budgets and medium-term fiscal plans, governments must now substantiate their commitment to ensuring a swift return to sound and sustainable public finances in line with the Stability and Growth Pact. In particular, it is crucial that ambitious and realistic fiscal exit and consolidation strategies, underpinned by concrete structural measures, are put in place.
Admittedly, in all these areas progress is still possible and desirable, but what has been achieved so far now enables you to address a number of institutional issues for the solution of which Western experience is fast becoming increasingly and directly relevant. But before considering some of these issues, allow me to make some remarks about the macroeconomic situation of the Hungarian economy and about the new framework within which the National Bank of Hungary will be operating. Both these areas are of key importance for the management of your banks. At the same time, both have a bearing on Hungary’s declared intention to join the European Union (and within this, probably at a later stage, also EMU). Last but not least, both are important areas in themselves, irrespective of considerations relating to European integration. THE MACROECONOMIC SITUATION That there has been a significant improvement since mid-1995 in Hungary’s macroeconomic situation is beyond doubt. Here are a few facts and comments on some of the features of this improvement. 1. The current account deficit reached $ billion in 1993 and almost $ billion in 1994, i.e. more than 10% of GDP - an obviously unsustainable situation by any standards, but even more so for a country with a high debt ratio.

Now let me come to the risks that a generalised move towards universal banking could entail, and the ways and means of containing them. The main risk, of course, is the emergence of conflicts of interest. One such potential conflict of interest may arise within any bank, between the bank’s own risk-taking activity and risk-taking for its customers. The classic example of this is the potential conflict of interest between credit-granting and securities underwriting, but this is only one example. The traditional way of avoiding the misuse of such conflict-creating situations is (a) to devise an organisational structure with clearly distinguishable lines of responsibility, (b) to avoid flows of “inside” information between the various activities, (c) to attribute to each activity costs, income and profits, and (d) to entrust external auditors with the surveillance of the systems put in place. The end-result will, of course, never be entirely safe. Moreover, the building of “Chinese walls” inside a multi-polar banking organisation may weaken, or even destroy, the synergy between those poles, i.e. it may undermine the rationale of a multi-polar organisation. I would not want, however, to overstate the internal conflict of interest argument. In the long run, the kind of conflict to which I have referred is unlikely to be very strong. In a longer-term perspective, no bank can afford to favour its own risk-taking activity at the expense of its customers - especially if auditing makes it certain that any misuse of the bank’s powers would come to light. 3.
This increase in yields did not solely reflect an increase in credit risk; it also reflected a genuine loss of confidence and an accompanying increase in risk aversion. Yield spreads on even the very safest ABS obligations soared hundreds of basis points. This can be seen in the fact that AAA-rated student loan tranches, with underlying loans 97% guaranteed by the federal government, climbed to yield levels as much as 400 basis points over LIBOR. With the spike in yields, the economic incentives to issue evaporated – issuance was just too costly and there was no active market. After averaging around $ billion per quarter of new originations in 2007 and the first three quarters of 2008, consumer ABS issuance plunged to only $ billion during the fourth quarter of 2008. Issuance of commercial mortgage backed securities ground to a complete halt and this market currently remains closed. So why did the ABS market collapse? There are many reasons. One factor was that in some areas, the risk management incentives of banks and other issuers of ABS were misaligned with those of the end investors in these securities. This misalignment manifested itself in the overall deterioration in lending standards that took place across the economy beginning during the middle part of this decade. Some originators did not do an adequate job of due diligence because the underlying loans were swiftly moved off their balance sheets through the securitization process.

To the extent that issuers and investors are unwilling to participate in TALF because of fears that their involvement might lead to unforeseen complications at a later date, this would lead to the unattractive outcome of underutilization and the achievement of only a portion of the potential benefits. Of course it is of critical importance in this facility and in all the programs instituted in response to this crisis that the interests of the taxpayer be protected, and the safeguards and restrictions on the use of TARP funds are designed to achieve this. However, I think it is fair to say that TALF got off to a relatively slow start because investors were worried that the use of TARP funds in TALF could restrict their ability to conduct their business activities more broadly, perhaps in unanticipated ways and potentially retroactively. Put simply, to the extent that the use of TARP monies creates stigma, this may limit the effectiveness of TALF and other programs that use TARP funds. Although we think these fears among market  4  BIS Review 69/2009  participants that use TALF are misplaced, such anxieties have had an impact on the program. Another challenge faced by the TALF is to increase the participation of real money investors (such as mutual funds, pension funds and insurance companies), many of whom are not permitted to use leverage.