samchain/econo-pairs-v1 huggingface dataset:
There are a host of unanswered questions about the transition to the higher target, including the potential for it to destabilise inflation expectations. And it is necessary to consider whether the benefits from less frequent episodes at the ELB justify the costs of the additional inflation at the permanently higher target. As Ben Bernanke has recently argued, unconventional policy tools already achieve the equivalent of raising the inflation target in the US from 2% to 5%, without needing to incur any of these costs. Moreover, research by the Bank of Canada shows that it is those who are most vulnerable and on the lowest incomes who lose out the most from higher inflation.37 So even if the costs of a higher inflation target might be small in aggregate, the distributional consequences could be considerable. Such fundamentally political considerations are a reminder why it is best for governments to choose the definition of price stability and for central banks to work out how to achieve it with the tools are their disposal. Before closing I would like to acknowledge a set of broader political economy considerations that could arise in a low-for-long world. These could complicate the execution of current inflation targeting remits, and in the extreme overwhelm them. While all monetary policy tools have distributional effects, asset purchases have generated far greater attention than have changes in interest rates. For example, there is a perception that asset purchases increase inequality.

Much hinges on the speed with which domestic confidence returns. As is entirely appropriate, there is a debate at the MPC over the relative merits of near term stimulus to reinforce the expected recovery in UK growth and inflation. 19  All speeches are available online at www.bankofengland.co.uk/news/speeches  19  On the one hand, there is a modest but rising degree of spare capacity in the UK and core inflation remains subdued. There are downside risks from global growth and the possibility that uncertainties over future trading relationships could remain entrenched. With the relatively limited space to cut Bank Rate, if evidence builds that the weakness in activity could persist, risk management considerations would favour a relatively prompt response. On the other hand, global growth is showing tentative signs of stabilising. The global manufacturing PMI has returned to expansionary territory, helping push the composite to a six month high in December. Past global monetary policy stimulus is gaining traction and global financial conditions are supportive. Early indicators, from financial market prices and the limited number of business surveys since the election, suggest that there has been some reduction in Brexit-related and domestic policy uncertainties. The labour market remains tight and domestically generated inflation remains generally firm. And total monetary policy space is larger than conventional measures would suggest. In the coming weeks, the MPC will watch closely surveys of business and consumer confidence (including intelligence from our Agents) as well as global developments. We will also undertake our annual supply stocktake.
What this means is that the MPF brings together a number of different companies and, along with these companies, their various regulators: the Mandatory Provident Fund Schemes Authority, the Securities and Futures Commission, the Insurance Authority and the HKMA. The involvement of four regulators creates an obvious need for clarity on their respective roles and coordination of these roles. The MPFA is clearly in the driving seat as the lead regulator. It has the responsibility to administer the MPF Ordinance and to ensure compliance with the legislation. It approves and regulates the trustees who have the central role in ensuring that schemes are properly managed. The MPFA has also produced a code of conduct for MPF intermediaries. However, the day-to-day supervision of such intermediaries rests with the SFC, Insurance Authority and HKMA depending on which of us is the main regulator of the intermediary in question. The SFC also has a role to play in authorising MPF funds and in the licensing and supervision of investment managers and advisers. BIS Review 71/2001  3  This may seem complicated, but it seems to work. The arrangements have been cemented by a Memorandum of Understanding among the various parties and through the establishment of a MPF Intermediaries Regulation Coordinating Committee that comprises representatives of the four regulators and the Financial Services Bureau. At a higher level, all the various parties are represented on the Council of Financial Regulators, which is chaired by the Financial Secretary and whose remit is to address cross-sectoral regulatory issues.

This will be aided by the fact that the relationship established via the MPF is likely to be a sticky one, and companies are unlikely to shift to another scheme unless there are good reasons to do so. This does not mean, however, that MPF providers can afford to provide a bad service. If they do, they will destroy goodwill and make it more difficult to sell other products. The cross-selling opportunities provided by the MPF are not theoretical. There are already signs that it is making an impact on sales of other funds to individuals. As your Association recently announced, the fund penetration rate in Hong Kong has risen from 7.8% to 10% in a year. This is a creditable performance in view of the weakness in the stock market. One of the reasons for the increasing willingness to invest in funds is undoubtedly the low return now offered by bank deposits. However, it also appears that the marketing of the MPF over the last year has helped by focussing employees' attention on the attractions of funds for long-term savings purposes and on the need to plan for retirement. The role of the regulators I have talked so far about the involvement of the banks in MPF business. In practice, however, the role played by banks themselves is mainly to act as intermediaries, selling and advising on MPF schemes. The various MPF services – trustee, administrator, custodian and investment manager – are generally provided by other companies which may be related to the bank.
For example, in 2001 - the most recent date for which comparative global information is available - the most prevalent disclosures covered accounting and presentation policies, on a bank’s capital structure and its measures of capital adequacy, and, for those that had them, on the kind of market risk models the bank used. Few banks disclosed much about their credit risk models, the types of credit risk mitigation techniques that they employed, or even the external or internal ratings assigned to their credit exposures. The relative paucity of data available publicly on a typical bank’s credit risk profile appears inconsistent with the fact that, for most banks, credit risk remains the single most important source of potential losses. At present, market participants seem to know only little about the extent of most banks’ exposure to credit risk. One could conclude that it seems unrealistic today to assume that they have enough knowledge of a bank’s position to exercise properly a benign influence on its handling of credit risk. Disclosure practices do not seem to have kept pace with the very rapid evolution in the ways that banks take on, measure, and ultimately manage their risk positions. BIS Review 47/2003  3  Incorporating Market Discipline into the New Basel Accord To improve the ability of markets to contribute to greater stability in the banking sector, the New Accord will contain a series of disclosure requirements.

Assessment of the Norwegian financial infrastructure The financial crisis was a reminder that increasingly complex financial instruments and demanding technological solutions have increased risk in the financial infrastructure. In the  4  Within certain amounts. Customers must still enter their PIN code in connection with large payments. BIS central bankers’ speeches  3  aftermath of the crisis, the international recommendations for the financial infrastructure have been tightened. 5 The new principles provide a comprehensive standard for the financial infrastructure across borders and across various systems. The purpose is to promote a robust and efficient financial infrastructure 6 that supports the stability of the global financial system. The new principles devote considerable attention to such areas as operational risk, derivate exposure and the use of central counterparties. Norges Bank oversees financial infrastructure and supervises interbank clearing and settlement systems. There are two systems that are licensed by Norges Bank to provide clearing or settlement: NICS and DNB as a private settlement bank. For these systems, Norges Bank, as supervisory authority, may require that owners take corrective action for noncompliance with licence terms or the Payment Systems Act. In collaboration with Finanstilsynet, Norges Bank has recently conducted an assessment of important parts of the financial infrastructure in Norway in accordance with the international principles. 7 The main conclusion is that the financial infrastructure in Norway is robust and efficient. Nevertheless there is a need for some improvements.
Of course, it would lead to changes, over time, in the capital structure of investment banking operations. Proper transitional periods would be needed. I suggest that it is worth debating. Maybe there is a fatal flaw. We should certainly search for the flaws. But if we do not find a way of resolving massive and complex trading books, the regulation of the business would probably have to be fiercer than otherwise in order to crush the probability of failure. Resolution is a way of coping with failure. Key voices are the nonbank financial sector and the corporate treasurers who finance the banking system. What would they get out of it? They might benefit from avoiding the risk that the authorities choose to liquidate a LCFI they had thought was too big to fail, with the depletion of value that entails; think of Lehman. They would, in effect, be trading off losses in one part of their portfolio against the prospect of protecting the rest of their investments from the fallout of a credit crunch that would follow the disorderly demise of a distressed LCFI. The cross-border dimension The other big issue is how to handle the resolution of internationally active banks. This is a challenge even for fairly vanilla commercial banking groups. There has been a Basel Concordat on how home and host authorities should co-operate in supervising international banks since 1975. It was updated in 1983 and 1992 to take account of group-level consolidated supervision following the failures of Banco Ambrosiano and then BCCI.

In either case, however, it would expose the authorities to risk of loss, and so would not always deliver the Objectives I think we share. It would not be assured to preserve orderly markets in all cases. And it would be insufficient if a firm was actually insolvent. A quite different, and rather more profound approach would be to deploy a super special resolution framework that permitted the authorities, on a rapid timetable, to haircut uninsured creditors in a going concern. By haircutting creditors in a going concern, there would be no need to close the business immediately (or, if regulators wished, even at all). That is a very high-level description. Variants obviously exist. Instead of haircuts, uninsured creditors could have part of their claim converted into equity. And it would need to be clear how the regime applied to the normal ranking in the capital structure, with common equity and subordinated debt being wiped out before any senior unsecured debt was haircut (or converted) at all. Precisely because investment banking is highly levered, relatively small percentage haircuts (or conversions to equity) could materially recapitalise a distressed firm. Creditors would recapitalise distressed LCFIs, not the state. In that, it shares some features of contingentcapital bonds, but would be on a statutory basis and could apply to all unsecured creditors in the extreme circumstances of systemic distress. The crucial feature is that haircuts/conversion would be applied up front to creditors of a going concern.
These changes should have no impact on the reform agenda and so I won’t pursue them further in this lecture. The PRA Board is independently responsible for delivering the PRA’s statutory objectives. It does this by making policies and rules, supervising authorised firms, giving directions, issuing guidance and carrying out other legislative functions. In practice the Board is the senior supervisory committee in the PRA, but delegates some of its functions to the PRA Chief Executive who in turn delegates to the management and staff. In 2014/15 the Board met physically 32 times and had one additional teleconference. That’s enough scene-setting. Let’s get on to the reforms themselves. Capital: banks Arguably the single most important objective of a prudential regulator is to make sure that firms have an appropriate level of capital. The objective is two-fold. First, there must be sufficient capital to absorb the losses that a firm might make, even under relatively pronounced stress. Second, after the stress, there should be sufficient capital left such that the firm can either (a) carry on its critical economic functions, with customers and market counterparties believing it remains safe and sound, enabling market access to funding and capital or (b) be safely wound up. It was evident during the financial crisis that the point at which a financial firm is no longer trusted by customers or counterparties can come before it runs out of capital completely or even approaches that level.

Stress testing addresses this by a process of modelling losses under a range of macroeconomic scenarios, to ensure that a firm holds sufficient capital ex ante to withstand shocks of a specified degree of severity. An example might be to assume a recession, with an attendant housing market fall which would stress a portfolio of mortgage loans. In 2014 the FPC, supported by the PRA, undertook and published simultaneous, standardised stress tests for the major UK banks for the first time, following a partial exercise in 2013.3 Meeting minimum prudential requirements after a stress may not be sufficient to ensure financial stability. If a financial firm needs to rebuild its capital ratios then it can do so either by raising more capital or by reducing its assets. In the event of an economy wide stress, this latter approach could amplify the cycle if, say, all banks responded to lower capital by reducing their lending. The stress tests are therefore seeking to ensure that the banks have sufficient capital to at least maintain their levels of lending to the real economy and the stress tests are calibrated assuming that lending is not reduced beyond that which is driven by reductions in demand. The UK is not the only country with stress testing as part of its supervision tool kit: the US undertakes regular public stress tests of the major banks operating there and the European Banking Authority has also orchestrated stress tests across the major European banks.
That was advice based on the bestinformed analysis. Nowadays, the advice and exhortation is that babies should sleep on their backs Back to Sleep. This advice is equally drawn from the best possible known sources”. As the Court of Appeal pointedly continued, “It is obvious that these two views cannot both, simultaneously, be right”. Expert advice is invaluable, but it is not infallible. As Robert May said recently, “open contention of opinion is exactly what has served science so well over the centuries, and I believe we simply must learn to extend this openness to all forms of science advice in policy-making. Such open publication of advice, and frank admission of areas of uncertainty, ultimately engenders confidence” (May, 2003). That is the spirit in which the Monetary Policy Committee was created and continues to function. The challenge is to extend that spirit to other areas of policy.16 Effective communication of the relevant risks is vital. Thinking about how to present information may seem to be the role of a spin doctor. But whereas a spin doctor wishes to claim certainty for the correctness of his master’s decision, presenting accurate information about risks to the electorate at large is essential to democratic accountability. As one of the more illustrious members of the profession might have said, “spin doctors don’t do doubt”. That is the trouble with much debate on public policy. As Voltaire put it, “Doubt is not a pleasant condition, but certainty is an absurd one”.17  5.

But the precautionary measure has served us well. We will continue to be vigilant in anticipating issues, and in taking proactive measures to strengthen the resilience of our system. With regards to the flow of credit from banks to corporations, we believe this is best facilitated through government schemes to co-share some of the risks with banks. In February, the Government announced the Special Risk-Sharing Initiative (SRI). Under this Initiative, the Government will absorb 75% of the risk for insurance covering working capital and trade-financing loan facilities. The Government will also absorb 80% of the risk for bridging loans which go towards meeting firms' working-capital needs. We also have schemes for SMEs and micro-loans. Apart from ensuring that the financial system continues to function effectively, the Government has, as in past periods of downturns, used fiscal measures to minimise the impact of the crisis. This involves targeted help for families and companies, while continuing to build capabilities to prepare for the upturn. This time, a creative Jobs Credit Scheme has been added to help companies keep their workers. Conclusion Ladies and Gentlemen, these are very challenging times. The global economy is in recession, and the financial system remains fragile. We need tough, decisive and forwardlooking actions in the core economies that are deeply affected. Asian economies have also been severely affected, and policy adjustments are necessary. However, the medium-term prospects for growth remain strong.
They are not. Competitiveness is the real issue for these countries. No economy can survive and thrive unless it is competitive. The upshot of the recent U-turns is that the markets are completely confused and do not see any predictable outcome to adjust to. They see no will to allow Greece to leave the eurozone and depreciate, but they also see no willingness to support the country sufficiently. The solution to the crisis has already been made unavoidably costly due to past incredible and unclear communication. There are two possibly costly but credible ways to restore competitiveness. The first is a solution within the framework of the eurozone. This would involve restructuring the debt and imposing and rigorously enforcing fiscal discipline. But the structural reforms are hardly enough to restore competitiveness within a short enough period of time in such a scenario. In addition, tens of billions of euros in aid would have to flow from the strong eurozone economies to the weak ones to restore competitiveness. Such generous aid would very probably have to be conditional on the distribution of the aid not being managed by the Greek authorities. The ECB would provide liquidity support – and assurances of such support – to the Greek banking sector. I believe that given the relatively small size of Greece – and even, if need be, of Greece and Portugal – both those actions are within the realm of the politically feasible.

In fact, its capital, Prague, lies more than 90 miles west of Vienna. In the words of a famous Londoner – the actor Michael Caine – “Not a lot of people know that”. What is more, the Czech economy is further west than you might think not just geographically, but also economically. This brings me to shocking fact number two. Despite tepid real growth averaging 3%, the Czech economy has grown by 10% on average in recent years thanks to appreciation of its exchange rate. Therefore, the Czech economy has multiplied in size more than 4.5 times since 1993 in nominal terms in euros. Consequently, it could have bought on average more than 7% p.a. of the core European countries’ real GDP over the last 18 years. And now for shocking fact number three. Despite, or maybe thanks to, our first-hand experience with financial crisis (bad loans exceeded 40% of GDP in the late 1990s), no bailout has been needed and no taxpayers’ money has been used to save any Czech financial firm in the latest turmoil. Finally, and a good deal less shockingly I’m pleased to say, the Czech National Bank has been not only the central bank, but also the integrated supervisor of the Czech financial industry since 2006. This set-up gives us many advantages in terms of dealing with the financial crisis and maintaining financial stability at national level, and it hopefully also enhances our understanding of the current events in the eurozone.
The pre – crisis global context was marked with low aversion to risk, strong confidence and global liquidity glut. The environment was conducive to rising cross – border capital flows, which underpinned demand and led to significant deterioration of current account balances. The burst of the crisis brought sudden reversal of capital flows, 5  This part of the presentation in focused on eleven counties, part of the CESEE region: Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Hungary, Czech Republic, Montenegro, North Macedonia, Poland, Romania, Serbia and Slovenia. 7  loss of confidence and risk appetite, demand contraction and sharp correction of external imbalances. A decade after the crisis, current account balances seem to be moderate across board, with many of the countries even exhibiting surplus. The initial post – crisis adjustment might have been cyclical in nature, and a correction process of unsustainable excesses. Observing the dynamics, before the crisis the average CAD for the region6 equaled around 7% of GDP. High deficits were present across the board, with the new EU member states like Czech Republic (average current account of 3,9% of GDP), Poland (4,4% of GDP) and Slovenia (2% of GDP) performing significantly better than some of the Western Balkans countries (Montenegro with average current account of 44,6% of GDP, Serbia 18,8% and Bosnia and Herzegovina 13,5%). With the emergence of the crises adjustment in the current account occurred. The larger the pre-crisis deficit, the larger the adjustment. On average the 2018 data shows around 10 p.p. improvement in the current transactions balance.

Chart 1 Tariffs and Global Value Chain Participation2  (Value added weighted average over countries and sectors percent) 50  6 5.5  45  5 4.5  40  4  35  3.5 3  30  2.5  Average GVC participation  2015  2014  2013  2012  2011  2010  2009  2008  2007  2006  2005  2004  2003  2002  2001  2000  1999  1998  1997  1996  2  1995  25  Average tariffs (right scale)  Source: Source: IMF, WEO April 2019  Global external imbalances have been at the forefront in the macro - discussions and risk assessments. One of the first steps when scrutinizing external positions and imbalances is the current account position. Current account imbalances can be healthy or a sign of  2 Chart extracted from the IMF WEO, April 2019. 2  macroeconomic and financial stress. In many cases, current account imbalances can be entirely appropriate, even necessary. For instance in converging economies, with vast investment opportunities, they benefit from foreign funding, and can afford to accumulate debts (by running current account deficits), provided they can repay them out of future income. Sometimes, however, external imbalances can point to macroeconomic and financial stress. Economies that accumulate external liabilities on too large scale may become vulnerable to sudden stops in capital flows that force abrupt cuts in spending–making financial crises more likely.