Bank for International Settlements – BIS

Large language models (LLMs) offer powerful tools for analysing unstructured text data, but their full potential requires careful planning, good research design and awareness of the tools’ limitations. In the latest BIS Quarterly Review, Byeungchun Kwon, Taejin Park, Fernando Perez-Cruz, and Phurichai Rungcharoenkitkul provide an accessible introduction to LLMs through a practical primer tailored to economists. Mirroring econometric practices, the primer presents a step-by-step workflow including data preparation, signal extraction, quantitative analysis and outcome evaluation. To illustrate, it applies the workflow using more than 60,000 news articles to study perceived US stock market movers. Throughout, the primer highlights best practices as well as common pitfalls to help researchers make the most of LLMs. Sample code is available on GitHub to facilitate adoption. An online glossary additionally provides succinct technical background on relevant technologies underlying LLMs. Read the full article: https://bit.ly/49pribs #BISQuarterly #MachineLearning #AI

The Basel Committee on Banking Supervision has issued final guidelines for counterparty credit risk (CCR) management. The guidelines, which replace the “Sound practices for banks’ interactions with highly leveraged institutions” published in January 1999, include key practices critical to resolving long-standing industry weaknesses in CCR management, including the need to: (i) conduct comprehensive due diligence of counterparties both at initial onboarding and on an ongoing basis; (ii) develop a comprehensive credit risk mitigation strategy to effectively manage counterparty exposures; (iii) measure, control and limit CCR using a wide variety of complementary metrics; and (iv) build a strong CCR governance framework. The guidelines provide a supervisory response to the significant shortcomings that have been identified in banks’ management of CCR, including the lessons learned from recent episodes of non-bank financial intermediary (NBFI) distress. The guidelines are designed to be broadly applicable to manage banks’ CCR exposures to all types of counterparties. However, the greatest potential benefits are expected to be in cases where banks have high-risk exposures to counterparties, including NBFIs. Banks and supervisors are encouraged to take a risk-based and proportional approach in the application of the guidelines, taking into account the degree of CCR generated by banks’ lines of business, their trading and financing activities and the complexity of such CCR exposures. The Committee encourages full adoption of its guidelines by members, particularly for their internationally active banks, as soon as possible. It will continue to monitor implementation of the counterparty credit risk management guidelines on an ongoing basis. Read more here https://lnkd.in/dzSMMr44 #BaselCommittee

Inflation can be driven by the demand for goods or services within an economy, or by the supply of goods and services. Monetary theory and the doctrine of central banks operating under inflation targeting or similar regimes prescribe a stronger response to inflation when it is driven by demand factors than by supply, which could include, for example, bad harvests or trade disruptions. Conventional monetary policy rules used to describe central banks’ reaction functions, however, do not account for such a targeted response to inflation. In the latest BIS Quarterly Review, Boris Hofmann, Cristina Manea and Benoit Mojon separate inflation into its demand and supply components to estimate refined versions of monetary policy rules. The new rules allow for a targeted response to inflation depending on its underlying drivers and show that central banks have closely followed their doctrine by responding much more strongly to demand- than to supply-driven inflation. Through the lens of the new estimated targeted rules, the initial slow reaction to the post-pandemic inflation surge was partly due to a misdiagnosis of inflation as mainly supply-driven. Central banks thus thought they could ``look through” it, while it was in fact driven to a significant extent by strong demand. https://bit.ly/3OFM3WV #BISQuarterly #MonetaryPolicy #TargetedTaylorRules #DemandsupplyInflation

The latest BIS Quarterly Review is out! Looking at the period from 7 September to 2 December, investor optimism over the near-term outlook despite lingering risks set the tone for financial markets. As the global economy appeared on track for a smooth landing and with conclusive results from the presidential elections in the United States, rising stock markets and compressing credit spreads eased global financial conditions. At the same time, rising government bond yields and an appreciating US dollar tightened conditions, pulling in different directions. Measures of risk premia and volatility ticked up in bond markets, amid signs that investors were pricing in higher fiscal and geopolitical risks. However, the markets for risk assets mostly shrugged off these uncertainties and sentiment remained positive on balance. Read more at https://bit.ly/3ZHJeek And see more analysis on inflation targeting, monetary policy transmission to housing markets, large language models and the architecture of international banking at https://bit.ly/4imcP3V #BISQuarterly

In our latest BISness podcast, Deputy General Manager Andrea M Maechler explains why price stability matters for consumers, employers and investors and how central banks provide trust in money on three fronts. “Maintaining the purchasing power of money, that's what monetary policy does. But you also have financial stability, that is ensuring that savings that people have can be saved over time. And...you also need to be sure that the money that you have in your pocket, you can use it whenever you want it.” Speaking to host Krista Hughes, she also talks about structural changes in the economy that might make inflation choppier in future, explains how artificial intelligence is helping central banks fulfil their mandates and discusses the importance of multilateralism in a changing landscape, among other topics. Listen to the full wide-ranging conversation here: https://lnkd.in/eBC7d9k5 #Inflation #ClimateChange #CentralBanks #Multilateralism #AI

Coming soon📢 The #BISQuarterly will be out on 10 December with analysis on recent developments in financial markets, inflation targeting, monetary policy transmission to housing markets, large language models and the architecture of international banking. https://bit.ly/3ZCGEGi

Join host Alan Soughley in this episode of BISness, featuring Jon Frost, Head of Economics for the Americas at the BIS, and Holti Banka, PhD , Senior Financial Sector Specialist at The World Bank. Dive into the transformative world of fast payments and central bank digital currencies (CBDCs). Discover how these innovations are reshaping digital payments, the key differences and similarities between them, and what the future holds. Whether you're a financial professional, a tech enthusiast or simply curious about the future of money and payments, this episode offers valuable insights and expert perspectives. Tune in for an engaging discussion on the evolving landscape of digital payments! Check out the podcast on Spotify, Apple Podcasts, your favourite podcast platform or the BIS website: https://lnkd.in/ezcmj66f

We welcome the IAIS’ adoption today of the global Insurance Capital Standard as a prescribed capital requirement for internationally active insurance groups. The adoption of this standard will enhance the effectiveness of insurance supervision and strengthen the resilience of the insurance sector globally.

Is productivity in the post-pandemic world following an old trend or a new path? Find out in our data story below, and discover more in our recent research on productivity growth https://bit.ly/4ic9Efl #BISDataStories #BISStatistics #DataStories

Fast payment systems (FPS) and retail central bank digital currencies (CBDCs) hold the promise to transform the payments and financial system. But are they rivals or partners? A new BIS and The World Bank paper analyses how retail CBDCs and FPS compare with each other and why some jurisdictions have opted for a retail CBDC, while others have chosen to introduce an FPS or both. Based on interviews with central banks from 14 jurisdictions, the authors conclude that the choice is very contextual and will depend on the market features, ecosystem and degree of maturity and innovation of existing payment infrastructures in a jurisdiction. They also distil key insights regarding success factors, design choices and the role of central banks and the private sector. Read the full paper or listen to our most recent BISness podcast where Jon Frost and Holti Banka, PhD talk to Alan Soughley about the findings of this research. Link to Paper https://lnkd.in/eYQfnVXj Link to Podcast https://lnkd.in/ezcmj66f