The Reserve Bank of India (RBI) has warned that the asset quality continued to pose some concerns as the growth in non-performing assets (NPAs) outstripped growth in advances, leading to a deterioration of gross NPA ratios.
However, the RBI’s second Financial Stability Report (FSR) also said the financial sector in India remained stress-free notwithstanding intermittent volatility, especially in equity and foreign exchange markets. “This is also displayed by the Financial Stress Indicator for India, which was introduced in the first FSR. Financial institutions remained healthy, credit offtake has picked up, as has profitability, especially in the first half of 2010-11,” the RBI said. The Banking Stability Index points to a healthy improvement in the stability of the banking sector over the past few years. This is corroborated by the results of a range of stress tests undertaken by the RBI, the second FSR said, after assessing the health of India's financial sector.
“These (NPA) ratios deteriorated despite increased write offs and one time settlements. Doubtful and loss assets comprised over 50 per cent of the stock of NPAs indicating the preponderance of sticky advances. Recently, some concerns had arisen in respect of real estate firms allegedly involved in the loan syndication bribery case and the fallout of investigations in regard to issuance of 2G telecom licenses on bank exposures to telecom companies,” the FSR said.
Detailed enquiries have been undertaken though preliminary findings do not point to widespread irregularities or systemic concerns, it said. However, there could be a potential impact on the flow of credit to these sectors as banks adopt a more cautious approach to lending to these segments of the economy, the RBI warned.
Some deterioration in the capital position of banks is evidenced only in case of a very sharp increase from the current NPA levels. Some issues in the financial market microstructure will need to be addressed, it said. “Asset quality of banks and their asset-liability management position continue to warrant monitoring. Regulatory gaps in the non-banking financial sector will need to be plugged. A robust macro prudential framework for identification of systemic risks will need to be set up,” it said.
On the real estate sector, the RBI said, “though the share of credit flowing to real estate has remained stable, the NPAs in real estate sector recorded a rise, thereby underlining the need for more intensive monitoring. The real estate NPAs showed increase of 8 per cent during the quarter ended September 2010.” As against their share of about 60 per cent in the total real estate loans, the residential mortgage NPAs contributed nearly 80 per cent of real estate NPAs as at end September 2010. NPAs in residential mortgages increased on a year on year basis as at end September 2010. However, the gross NPA ratio remained unchanged at about 2.5 per cent.
Source: The Indian Express Limited
http://www.indianexpress.com
Thursday, December 30, 2010
Wednesday, December 29, 2010
93rd annual conference of the Indian Economic Association starts in Panjab University
Chandigrah: Dr C. Rangarajan, Chairman, Economic Advisory Council to the Prime Minister has underlined the need for central banks of the developing economics to be transparent and explicit with the objectives of growth and financial stability, having price stability as their dominant objective. "Tying central banks to specific target of inflation may be too restrictive, and many even be counter productive", warned Dr Rangarajan.
He said maintenance of price stability at a level considered appropriate by the central banks themselves was, perhaps, the best approach. By maintaining price stability a central bank can pave the way for fulfilment of other objectives as well over the medium term.
Dr Rangarajan made this suggestion in his inaugural address at the 93rd annual conference of the Indian Economic Association (IEA) being held on the Panjab University campus here today. More than 3000 delegates from all over India and abroad are participating in this three-day event.
Dr Rangarajan said there was a raging debate going on currently on whether the present financial crisis in the west was precipitated by monetary policy failure or regulatory failure. It has been agued that lax monetary policy led to low interest rates which caused many distortions in the system culminating in the crisis.
The macro conditions preceding the crisis which included low real interest rates due to "Great Moderation" with a long period of very stable growth and stable low inflation led to systematic underestimation of risks and very low risks premia in financial markets.
He, however, said those who argue that the crisis was triggered by regulatory failure point to lax regulation and supervision which led to increased leverage, regulatory arbitrage, and less due diligence in loan origination. He said it was interesting to note that the country hit hardest by the current international crisis – United States – had not formally adopted inflation targeting as its objective. On the other hand Canada or Australia which had formally accepted inflation targeting had been affected very little by the crisis, he added.
Dr Sukhadeo Thorat, Chairman, University Grants Commission, and Professor of Economics, Jawaharlal Nehru University, New Delhi in his presidential address stressed the need to modify the nature of the growth to make it more pro-poor and formulate policies to make farm and rural non-farm growth more pro-poor. He said there was also a need to strengthen the present pattern of agricultural growth by increasing the support and incentive for small and marginal farmers.
The per unit growth in agriculture brings greater decline in poverty or self-employed poor farmers than poor non-agricultural households engaged in non-farm production and business, he added.
The strategy for inclusive growth in the Eleventh Plan, he said, is not just a conventional strategy for growth but it is a strategy which aims at a particular type of growth process to meet the objectives of inclusiveness and sustainability.
Earlier, the Panjab University Vice-Chancellor Prof. R.C. Sobti in his welcome address informed the distinguished guests and delegates of the outstanding achievements of the university and its remarkably high ranking status globally (387 among 500 leading educational institutions) and nationally in scientific research (number one in India).
Prof. Sobti said by taking steps towards increasing the number of seats for reservation for the Other Backward Classes for the students in the Panjab University as part of university's obligation under the Central Education Institutions Act was in a way a tribute to the father of the nation, Mahatma Gandhi's and realization of his ideal of Swaraj. He said the university has already received a grant of Rs.150 crore for its development projects and hoped the UGC chairperson would use his good offices in the early release of another 58 crore needed urgently.
A documentary of the Panjab University prepared by the University's School of Communication Studies was also screened to the delegates which was highly applauded by all.
On this occasion mementoes were presented to honour Dr. C. Rangarajan, Dr. Anil Kumar Thakur, secretary and treasurer, IEA; Prof. M. Madaiah, former president, IEA; Prof. L.K. Mohana Rao, Principal, Andhra University College of Arts and Commerce, Andhra University, Vishakapatnam (AP); Prof. Sukhdeo Thorat, Chairman, U.G.C. and President, IEA.; Prof. G.K. Chadha, Chief Executive Officer, South Asian University, New Delhi; Prof. T.S. Papola, visiting professor, ISID, New Delhi; Prof. H.S. Shergill, former Professor of Economics, Panjab University; Prof. R.C. Sobti, Vice-Chancellor, P.U.; Mrs. Rangarajan and Mrs. Chadha; Mrs. Madaiah and Dr. Ajit Singh from Cambridge University, U.K.
Prof. L.K. Mohana Rao, Principal, Andhra University College of Arts and Commerce, Vishakapatnam and vice-president of Indian Economic Association read out the citation Prof. Sukhdeo Thorat presented the Sushila Thakur Merit Award for the Best Women Paper Writer to Ms. Harwinder Kaur of Punjabi University, Patiala. On this occasion various editions of Indian Economic Journal and so many books on economics were also released by Prof. Sukhdeo Thorat.
Prof. Thorat also released a book jointly written by Prof. Sucha Singh Gill, Prof. Gurmail Singh and Prof. H.S. Shergill and a Souvenir of the Panjab University. In his lecture, Dr. Anil Kumar Thakur, Secretary and Treasurer of the IEA highlighted in detail the activities and achievements of Indian Economic Association. He said that the IEA had more than 4600 members in India and abroad, at present.
The Indian Economic Association (IEA), the oldest and largest academic-discussion-led body of economists in India, which was founded by Dr. Gilbert State, Prof. C.J. Hamilton and Prof. Percy Ansely of the three Presidency Universities of Madras, Bomaby and Calcutta in 1917, has become worldwide. Its academic fragrance has already crossed the boundary line of India. 'A study of Village Economics' authored by eminent scholar Prof. V.K. Kale was the first paper for the IEA. The current periodical 'Indian Economic Journal' was first published in 1952 by Prof. C.N. Vakil, R. Bala Krishna and V.B. Krishnamuthi, and Prof. P.R. Brhmanda was a long service editor of this esteemed journal. Presently the Indian Economic Journal has reached top ranking under the stewardship of Prof. V.R. Panchmukhi among academic journals.
IEA's former presidents include renowned scholars like Dr Manmohan Singh, Prime Minister of India, Prof. Amartya Sen the Nobel Laureate, Prof. V.K.R.V. Rao, Prof. G.S. Bhalla, Prof. G.K. Chadha and Dr I.G. Patel, all eminent economists. Prof. Sukhadeo Thorat, Chairman, University Grants Commission is the President of Indian Economic Association currently. First time, 43rd Annual conference was organised on PU campus in December 1960 and then 78th annual conference of the IEA was held in December 1995.
Prof. Gurmail Singh, chairperson, department of economics and local organizing secretary of the conference proposed a vote of thanks.
Source: India Education Diary
http://indiaeducationdiary.in
He said maintenance of price stability at a level considered appropriate by the central banks themselves was, perhaps, the best approach. By maintaining price stability a central bank can pave the way for fulfilment of other objectives as well over the medium term.
Dr Rangarajan made this suggestion in his inaugural address at the 93rd annual conference of the Indian Economic Association (IEA) being held on the Panjab University campus here today. More than 3000 delegates from all over India and abroad are participating in this three-day event.
Dr Rangarajan said there was a raging debate going on currently on whether the present financial crisis in the west was precipitated by monetary policy failure or regulatory failure. It has been agued that lax monetary policy led to low interest rates which caused many distortions in the system culminating in the crisis.
The macro conditions preceding the crisis which included low real interest rates due to "Great Moderation" with a long period of very stable growth and stable low inflation led to systematic underestimation of risks and very low risks premia in financial markets.
He, however, said those who argue that the crisis was triggered by regulatory failure point to lax regulation and supervision which led to increased leverage, regulatory arbitrage, and less due diligence in loan origination. He said it was interesting to note that the country hit hardest by the current international crisis – United States – had not formally adopted inflation targeting as its objective. On the other hand Canada or Australia which had formally accepted inflation targeting had been affected very little by the crisis, he added.
Dr Sukhadeo Thorat, Chairman, University Grants Commission, and Professor of Economics, Jawaharlal Nehru University, New Delhi in his presidential address stressed the need to modify the nature of the growth to make it more pro-poor and formulate policies to make farm and rural non-farm growth more pro-poor. He said there was also a need to strengthen the present pattern of agricultural growth by increasing the support and incentive for small and marginal farmers.
The per unit growth in agriculture brings greater decline in poverty or self-employed poor farmers than poor non-agricultural households engaged in non-farm production and business, he added.
The strategy for inclusive growth in the Eleventh Plan, he said, is not just a conventional strategy for growth but it is a strategy which aims at a particular type of growth process to meet the objectives of inclusiveness and sustainability.
Earlier, the Panjab University Vice-Chancellor Prof. R.C. Sobti in his welcome address informed the distinguished guests and delegates of the outstanding achievements of the university and its remarkably high ranking status globally (387 among 500 leading educational institutions) and nationally in scientific research (number one in India).
Prof. Sobti said by taking steps towards increasing the number of seats for reservation for the Other Backward Classes for the students in the Panjab University as part of university's obligation under the Central Education Institutions Act was in a way a tribute to the father of the nation, Mahatma Gandhi's and realization of his ideal of Swaraj. He said the university has already received a grant of Rs.150 crore for its development projects and hoped the UGC chairperson would use his good offices in the early release of another 58 crore needed urgently.
A documentary of the Panjab University prepared by the University's School of Communication Studies was also screened to the delegates which was highly applauded by all.
On this occasion mementoes were presented to honour Dr. C. Rangarajan, Dr. Anil Kumar Thakur, secretary and treasurer, IEA; Prof. M. Madaiah, former president, IEA; Prof. L.K. Mohana Rao, Principal, Andhra University College of Arts and Commerce, Andhra University, Vishakapatnam (AP); Prof. Sukhdeo Thorat, Chairman, U.G.C. and President, IEA.; Prof. G.K. Chadha, Chief Executive Officer, South Asian University, New Delhi; Prof. T.S. Papola, visiting professor, ISID, New Delhi; Prof. H.S. Shergill, former Professor of Economics, Panjab University; Prof. R.C. Sobti, Vice-Chancellor, P.U.; Mrs. Rangarajan and Mrs. Chadha; Mrs. Madaiah and Dr. Ajit Singh from Cambridge University, U.K.
Prof. L.K. Mohana Rao, Principal, Andhra University College of Arts and Commerce, Vishakapatnam and vice-president of Indian Economic Association read out the citation Prof. Sukhdeo Thorat presented the Sushila Thakur Merit Award for the Best Women Paper Writer to Ms. Harwinder Kaur of Punjabi University, Patiala. On this occasion various editions of Indian Economic Journal and so many books on economics were also released by Prof. Sukhdeo Thorat.
Prof. Thorat also released a book jointly written by Prof. Sucha Singh Gill, Prof. Gurmail Singh and Prof. H.S. Shergill and a Souvenir of the Panjab University. In his lecture, Dr. Anil Kumar Thakur, Secretary and Treasurer of the IEA highlighted in detail the activities and achievements of Indian Economic Association. He said that the IEA had more than 4600 members in India and abroad, at present.
The Indian Economic Association (IEA), the oldest and largest academic-discussion-led body of economists in India, which was founded by Dr. Gilbert State, Prof. C.J. Hamilton and Prof. Percy Ansely of the three Presidency Universities of Madras, Bomaby and Calcutta in 1917, has become worldwide. Its academic fragrance has already crossed the boundary line of India. 'A study of Village Economics' authored by eminent scholar Prof. V.K. Kale was the first paper for the IEA. The current periodical 'Indian Economic Journal' was first published in 1952 by Prof. C.N. Vakil, R. Bala Krishna and V.B. Krishnamuthi, and Prof. P.R. Brhmanda was a long service editor of this esteemed journal. Presently the Indian Economic Journal has reached top ranking under the stewardship of Prof. V.R. Panchmukhi among academic journals.
IEA's former presidents include renowned scholars like Dr Manmohan Singh, Prime Minister of India, Prof. Amartya Sen the Nobel Laureate, Prof. V.K.R.V. Rao, Prof. G.S. Bhalla, Prof. G.K. Chadha and Dr I.G. Patel, all eminent economists. Prof. Sukhadeo Thorat, Chairman, University Grants Commission is the President of Indian Economic Association currently. First time, 43rd Annual conference was organised on PU campus in December 1960 and then 78th annual conference of the IEA was held in December 1995.
Prof. Gurmail Singh, chairperson, department of economics and local organizing secretary of the conference proposed a vote of thanks.
Source: India Education Diary
http://indiaeducationdiary.in
Tuesday, December 28, 2010
Germany's Schaeuble:Euro-zone Nations Must Focus On Debt Cuts-Paper
BRUSSELS (Dow Jones)--Euro-zone countries must reduce their debt levels and the European Union must levy harsher sanctions on those who fail to follow advice on doing so, German Finance Minister Wolfgang Schaeuble wrote in an opinion column for Belgian newspaper L'Echo.
"The European Monetary Union will not function if certain countries keep running budget deficits and weakening their competitiveness at the expense of the euro's stability," he wrote in an article published Tuesday.
Schaeuble said the European Financial Stability Mechanism is a temporary measure while the euro zone fixes the "fundamental faults" in the stability and growth pact, the fiscal rules to which countries in the currency bloc must adhere.
"Countries who repeatedly ignore recommendations designed to reduce their excessive deficits, or who manipulate official statistics, would see their EU subsidies frozen and voting rights suspended," he wrote.
Source: http://online.wsj.com
"The European Monetary Union will not function if certain countries keep running budget deficits and weakening their competitiveness at the expense of the euro's stability," he wrote in an article published Tuesday.
Schaeuble said the European Financial Stability Mechanism is a temporary measure while the euro zone fixes the "fundamental faults" in the stability and growth pact, the fiscal rules to which countries in the currency bloc must adhere.
"Countries who repeatedly ignore recommendations designed to reduce their excessive deficits, or who manipulate official statistics, would see their EU subsidies frozen and voting rights suspended," he wrote.
Source: http://online.wsj.com
Monday, December 27, 2010
Fed's Free Money Lures This Important Writer: Kevin Hassett
If AIG was too important to fail, can’t I be, too?
The U.S. Financial Stability Oversight Council is working to identify parts of our financial system that can’t be allowed to go under. Once called “too big to fail,” these companies are now referred to as “systemically important” and fall under the authority of the Federal Reserve.
Therein lies my opportunity.
I’m no American International Group Inc., the huge insurer that needed a $182.3 billion federal rescue to survive its central role in the financial crisis. So no, I’m not too big. But I’m important.
See, I’m a Ph.D. economist with a reputation for parsimony fostered by a somewhat infamous wardrobe. My teenage son, for instance, can’t believe I still wear “that sweater.”
If I were to default on my debts, the world would see that even trained economists who spend little on their appearance can’t make ends meet. Imagine the global panic, the massive selloff, that would follow.
Clearly, then, I meet the definition of systemically important. Not convinced? The Dodd-Frank financial law, in creating the Financial Stability Oversight Council, empowered it to consider, in addition to a company’s leverage, size and exposure, “any other risk-related factors the council deems appropriate.”
Bear Stearns Precedent
What might those factors be? Given what has already happened, it could be anything at all. And when it comes to determining whom to lend money to, suffice it to say that if we can lend to Bear Stearns and AIG at ridiculously low interest rates, we can lend to me.
Sure, I’ve been paying my bills lately, but given the line of cut-rate credit waiting for me at the discount window should I need it, my creditors are rightly worried that I might stop payment at any moment.
Once I have access to the Fed, I will borrow at close to zero percent interest and invest in longer-term Treasuries that pay a higher interest rate. A few hundred billion dollars of such transactions, and I’ll be looking at some nice profits.
And for that I say: Thanks, America!
We shouldn’t fight the spread of the Fed’s power in the New Year; we should embrace it, rejoice in it, even baste ourselves in it. Looking back at the past two years with the benefit of hindsight -- that phrase always makes people think the forthcoming observation must be wisdom-filled -- it becomes clear that policy makers have not been creative enough. The policy that could take this fledgling recovery and turn it into an unprecedented boom has eluded them.
But I’m here now.
Not Stimulating
Many of our leading financial institutions have been handed the same free cash I’m seeking, but they’re sitting on it, not making loans, slowly recapitalizing after incurring massive losses. So much for stimulus.
While I might seem small by contrast, I’m a better risk than many of the troubled institutions that have been playing this game. I have no huge losses to tie me down. Right here, right now, I promise that I will spend every penny of my multibillion-dollar windfall. Hello, new Bentley. Ready for a spin?
Why should you, dear reader, support me in my quest to achieve systemic importance?
Once our financial overseers realize how stimulative I become, they will want to share their largesse with you as well. Before long, we’ll all be important, and the free money that previously was limited to banks will be available to us all. How great is that?
In the old days, we had to work hard to make ends meet. If the broad new powers granted by Congress are used to declare me systemically important, those sweat-filled days will be gone forever. The path to your personal fortune will become no more laborious than the well-worn path to your refrigerator.
Source: Bloomberg
http://www.bloomberg.com
The U.S. Financial Stability Oversight Council is working to identify parts of our financial system that can’t be allowed to go under. Once called “too big to fail,” these companies are now referred to as “systemically important” and fall under the authority of the Federal Reserve.
Therein lies my opportunity.
I’m no American International Group Inc., the huge insurer that needed a $182.3 billion federal rescue to survive its central role in the financial crisis. So no, I’m not too big. But I’m important.
See, I’m a Ph.D. economist with a reputation for parsimony fostered by a somewhat infamous wardrobe. My teenage son, for instance, can’t believe I still wear “that sweater.”
If I were to default on my debts, the world would see that even trained economists who spend little on their appearance can’t make ends meet. Imagine the global panic, the massive selloff, that would follow.
Clearly, then, I meet the definition of systemically important. Not convinced? The Dodd-Frank financial law, in creating the Financial Stability Oversight Council, empowered it to consider, in addition to a company’s leverage, size and exposure, “any other risk-related factors the council deems appropriate.”
Bear Stearns Precedent
What might those factors be? Given what has already happened, it could be anything at all. And when it comes to determining whom to lend money to, suffice it to say that if we can lend to Bear Stearns and AIG at ridiculously low interest rates, we can lend to me.
Sure, I’ve been paying my bills lately, but given the line of cut-rate credit waiting for me at the discount window should I need it, my creditors are rightly worried that I might stop payment at any moment.
Once I have access to the Fed, I will borrow at close to zero percent interest and invest in longer-term Treasuries that pay a higher interest rate. A few hundred billion dollars of such transactions, and I’ll be looking at some nice profits.
And for that I say: Thanks, America!
We shouldn’t fight the spread of the Fed’s power in the New Year; we should embrace it, rejoice in it, even baste ourselves in it. Looking back at the past two years with the benefit of hindsight -- that phrase always makes people think the forthcoming observation must be wisdom-filled -- it becomes clear that policy makers have not been creative enough. The policy that could take this fledgling recovery and turn it into an unprecedented boom has eluded them.
But I’m here now.
Not Stimulating
Many of our leading financial institutions have been handed the same free cash I’m seeking, but they’re sitting on it, not making loans, slowly recapitalizing after incurring massive losses. So much for stimulus.
While I might seem small by contrast, I’m a better risk than many of the troubled institutions that have been playing this game. I have no huge losses to tie me down. Right here, right now, I promise that I will spend every penny of my multibillion-dollar windfall. Hello, new Bentley. Ready for a spin?
Why should you, dear reader, support me in my quest to achieve systemic importance?
Once our financial overseers realize how stimulative I become, they will want to share their largesse with you as well. Before long, we’ll all be important, and the free money that previously was limited to banks will be available to us all. How great is that?
In the old days, we had to work hard to make ends meet. If the broad new powers granted by Congress are used to declare me systemically important, those sweat-filled days will be gone forever. The path to your personal fortune will become no more laborious than the well-worn path to your refrigerator.
Source: Bloomberg
http://www.bloomberg.com
Friday, December 24, 2010
Arlington Arrives: Introducing Santa Barbara's Arlington Financial Advisors
Arlington Financial Advisors, a new group of entrepreneurs, didn't need to burst onto the scene in Santa Barbara when they opened for business a couple weeks ago.
That's because they're largely doing the same work as they did mere days before, and for largely the same client base.
The difference?
The close-knit team at Arlington Financial Advisors has taken its tried-and-true methodology out from under the purview of finance giant Merrill Lynch, and begun practice as an independent firm.
Arlington wants to provide the same top-notch service, looking out for its clients' financial well-being, but ultimately wanted more stability for its client base than working directly for a major national firm allowed.
"We want to be proud of where we work, not read a headline and get 15 phone calls about some person out of my control buying [an extravagant] trashcan," said Dianne Duva, a Certified Financial Planner and one of the five founding partners of Arlington.
The comment was a callback to Merrill Lynch's former CEO John Thain, who famously spent $1 million on renovating his office, including $1,200 on a wastebasket, during one of the most tumultuous economic periods of the modern era.
Duva says that she, along with partners Wells Hughes, John Lorenz, Arthur Swalley, and Joseph Weiland, started kicking around the idea of jumping ship as early as 2008.
The financial markets were experiencing instability, and decisions by higher-ups—even non-trashcan related—weren't doing the team any favors when it came to reassuring clients through difficult economic times.
The fact that the team was subjected to a new upper-level manager about every 18 months also didn't promote consistency.
For the team that would form Arlington, it became a matter of what they could do to provide more stability for clients.
The team's own staffing continuity was certainly there; Duva, the newest member of the team, has been on board for more than 10 years.
The team explored several options, such as joining with another of the major players.
"It would have been more of the same thing, with upper-level management potentially making bad decisions that would make our clients nervous," said Duva. "So we went the independent route."
Thus Arlington Financial Advisors was born.
"We are an independent, boutique firm that helps individuals and families oversee their financial lives," explained Duva.
She describes the business as "a full service model" that puts a spotlight on a different aspect of a client's financial stability every quarter, from assets and investment portfolios to insurance and tax planning.
They help ensure nothing fall through the cracks as they aim to help clients achieve financial goals, even advising on what those goals should be.
With the products and services part of the business down pat, the challenge for this team is to exist as an independent entity, and all that entails. They've tackled important obstacles, including finding a bank to clear through (they went with Wells Fargo) and securing office space; they're still hashing out some of the day-to-day items.
Swalley, Arlington's director of investments, said that his only fear in in leaving Merrill was the potential loss of operational efficiency when it came to covering overhead and getting deals on basic business items.
"I was worried that things wouldn’t be as efficient, that they would cost a lot more on our own," Swalley shared. "But there's great support in the area for local business. Turns out it's even better in Santa Barbara for local business than I expected."
Arlington's office, at 100 E. De La Guerra, is certainly a professional space, but also has certain eclectic, homey qualities.
The design of the space—mostly modest-sized rooms; a circuitous layout; a rather quaint kitchen; an interesting chandelier in the conference room—certainly speak more to State Street than Wall Street.
The comforting, at-home feel of the space is in line with how Duva describes the firm's client base.
"We target nice people that we want to work with. We have a philosophy that since we spend more time at work than we do at home, we want to love the people that we work with ... and really our clients become part of our family."
Duva says that the firm's hands-on approach makes a real difference, and is both key to the loyalty of clients that have made the transition and the word of mouth that encourages new business.
"We have that service model that most financial planning and investment firms do not have," she explained, saying that Arlington's concerns go beyond the portfolio, adding that "we're trying to make sure that your life is taken care of."
So now the challenge, along with the logistics of doing business as an independent entity, is to enhance client experience.
"How do we take an already great platform and make it better? What will we do to make the client experience better? Because, really, our clients are what matter."
Keeping that priority from the get-go seems to have worked in Arlington's favor.
Duva says that nearly all of the clients that the new firm has been in touch with have decided to make the switch from Merrill along with them.
"That's the fear, that you make this move and that the clients don't come with you," she said. "If we had known how overwhelmingly positive our clients' reactions would have been, we probably have done it sooner."
"Honestly, it's been affirming, and a wonderful experience," she emphasized. "We couldn’t be happier."
Source: The Daily Sound
http://www.thedailysound.com
That's because they're largely doing the same work as they did mere days before, and for largely the same client base.
The difference?
The close-knit team at Arlington Financial Advisors has taken its tried-and-true methodology out from under the purview of finance giant Merrill Lynch, and begun practice as an independent firm.
Arlington wants to provide the same top-notch service, looking out for its clients' financial well-being, but ultimately wanted more stability for its client base than working directly for a major national firm allowed.
"We want to be proud of where we work, not read a headline and get 15 phone calls about some person out of my control buying [an extravagant] trashcan," said Dianne Duva, a Certified Financial Planner and one of the five founding partners of Arlington.
The comment was a callback to Merrill Lynch's former CEO John Thain, who famously spent $1 million on renovating his office, including $1,200 on a wastebasket, during one of the most tumultuous economic periods of the modern era.
Duva says that she, along with partners Wells Hughes, John Lorenz, Arthur Swalley, and Joseph Weiland, started kicking around the idea of jumping ship as early as 2008.
The financial markets were experiencing instability, and decisions by higher-ups—even non-trashcan related—weren't doing the team any favors when it came to reassuring clients through difficult economic times.
The fact that the team was subjected to a new upper-level manager about every 18 months also didn't promote consistency.
For the team that would form Arlington, it became a matter of what they could do to provide more stability for clients.
The team's own staffing continuity was certainly there; Duva, the newest member of the team, has been on board for more than 10 years.
The team explored several options, such as joining with another of the major players.
"It would have been more of the same thing, with upper-level management potentially making bad decisions that would make our clients nervous," said Duva. "So we went the independent route."
Thus Arlington Financial Advisors was born.
"We are an independent, boutique firm that helps individuals and families oversee their financial lives," explained Duva.
She describes the business as "a full service model" that puts a spotlight on a different aspect of a client's financial stability every quarter, from assets and investment portfolios to insurance and tax planning.
They help ensure nothing fall through the cracks as they aim to help clients achieve financial goals, even advising on what those goals should be.
With the products and services part of the business down pat, the challenge for this team is to exist as an independent entity, and all that entails. They've tackled important obstacles, including finding a bank to clear through (they went with Wells Fargo) and securing office space; they're still hashing out some of the day-to-day items.
Swalley, Arlington's director of investments, said that his only fear in in leaving Merrill was the potential loss of operational efficiency when it came to covering overhead and getting deals on basic business items.
"I was worried that things wouldn’t be as efficient, that they would cost a lot more on our own," Swalley shared. "But there's great support in the area for local business. Turns out it's even better in Santa Barbara for local business than I expected."
Arlington's office, at 100 E. De La Guerra, is certainly a professional space, but also has certain eclectic, homey qualities.
The design of the space—mostly modest-sized rooms; a circuitous layout; a rather quaint kitchen; an interesting chandelier in the conference room—certainly speak more to State Street than Wall Street.
The comforting, at-home feel of the space is in line with how Duva describes the firm's client base.
"We target nice people that we want to work with. We have a philosophy that since we spend more time at work than we do at home, we want to love the people that we work with ... and really our clients become part of our family."
Duva says that the firm's hands-on approach makes a real difference, and is both key to the loyalty of clients that have made the transition and the word of mouth that encourages new business.
"We have that service model that most financial planning and investment firms do not have," she explained, saying that Arlington's concerns go beyond the portfolio, adding that "we're trying to make sure that your life is taken care of."
So now the challenge, along with the logistics of doing business as an independent entity, is to enhance client experience.
"How do we take an already great platform and make it better? What will we do to make the client experience better? Because, really, our clients are what matter."
Keeping that priority from the get-go seems to have worked in Arlington's favor.
Duva says that nearly all of the clients that the new firm has been in touch with have decided to make the switch from Merrill along with them.
"That's the fear, that you make this move and that the clients don't come with you," she said. "If we had known how overwhelmingly positive our clients' reactions would have been, we probably have done it sooner."
"Honestly, it's been affirming, and a wonderful experience," she emphasized. "We couldn’t be happier."
Source: The Daily Sound
http://www.thedailysound.com
Thursday, December 23, 2010
It's reassuring that regulators are still worried about financial stability
The fact remains that the old risks have not all gone away, and upon close examination there are some new ones to fret about, too
The Bank of England's Financial Stability Report must be a tricky thing to put together. Its purpose is to lay bare the risks to the financial system, in the hope of encouraging remedial action and improving market transparency. But there is a thin line between warning of risks, in order to mitigate them, and raising the alarm too loudly and inducing a panic.
Furthermore, the steady increase in the Bank's responsibilities since the financial crisis has been such that its senior executives must now lie in bed at night not only worrying about the risks to the system, but worrying about which risks to worry about. And that is rather how I felt after reading Thursday's Financial Stability Report.
Since 2009, the Bank has had a much keener focus on financial stability, under the still new-ish Financial Stability Committee chaired by Paul Tucker - a recognition of the failure to pay sufficient attention to the big picture, rather than what individual banks were doing, in the run-up to the crisis. Europe-wide scrutiny of the financial system will also grow more intense under the new European Systemic Risk Board.
The Financial Stability Committee is laudably thorough both in categorising the manifold risks to the system and in attempting to gauge their severity. It is true that British banks have made considerable progress in raising the large amounts of financing they will need to meet new capital requirements, and that low interest rates and obliging banks have combined to keep default and repossession rates at surprisingly low levels; but as the Report points out, the fact remains that the old risks have not all gone away, and upon close examination there are some new ones to fret about, too.
Indeed, some of the old worries are still quite scary: British banks are in better shape than many of their European counterparts, but we should not be complacent, now that we know how swiftly contagion can spread; banks still have a lot of financing to do; and a double-whammy of higher interest rates and slower economic recovery could push households and companies over the brink.
The Report also highlights some interesting new risks, quite a few of which are the result of actions to tackle the old ones. That does not mean that it is wrong to attempt regulatory reform. In fact, I find it rather reassuring that the regulator is min
dful of the way that undesirable incentives are inevitably created by new rules: failure to think through the implications of, for example, capital requirements helped create the conditions for the financial crisis.
The Bank now recognises that financial institutions will always try to keep a step ahead, so regulators must also move rapidly. In fact, the Bank wants new powers to adapt rules and range more widely. This makes sense: the recent tightening of bank rules will inevitably push more risky activities outside the regulated financial system, into what is known loosely as the "shadow" banking system. But, again, the Bank must perform a balancing act. Financial stability requires stable rules which allow banks, and their clients, to plan for the long term.
In fact, parts of the shadow banking system will be indirectly constrained by the new rules anyway. Hedge funds, for example, which relied on big, cheap bank credit lines to take highly leveraged bets on market movements will find that they can no longer do so. Not because anyone has told them not to, but because new capital rules will make it uneconomic for the banks to lend to them on such favourable terms.
But the Bank's concerns are justified. Similarly, the post-crisis channelling of trading and settlement through central counter-parties, which was designed to reduce counter-party risk, will also concentrate risk in a single entity. Another unintended consequence - of interest rate policy rather than regulation - has been to encourage yield-hungry investors to take more risks in emerging markets, again increasing systemic risk.
In relative terms, the health of the British banking system has improved in the past year: British banks have higher capital ratios than counterparts in either the US, Germany or France, as well as Spanish and Irish banks. But there is always a flipside, it seems: weakness of some of these carries its own dangers for the financial system.
Our regulators remain nervous – and I prefer them that way. After all, the April 2007 report stated that "the UK financial system remains highly resilient, with banks well capitalised and highly profitable. But strong flows into riskier assets and a gradual increase in corporate indebtedness have caused risks to the UK financial system to edge up."
By Tracy Corrigan
Source: Telegraph Media Group Limited
http://www.telegraph.co.uk
The Bank of England's Financial Stability Report must be a tricky thing to put together. Its purpose is to lay bare the risks to the financial system, in the hope of encouraging remedial action and improving market transparency. But there is a thin line between warning of risks, in order to mitigate them, and raising the alarm too loudly and inducing a panic.
Furthermore, the steady increase in the Bank's responsibilities since the financial crisis has been such that its senior executives must now lie in bed at night not only worrying about the risks to the system, but worrying about which risks to worry about. And that is rather how I felt after reading Thursday's Financial Stability Report.
Since 2009, the Bank has had a much keener focus on financial stability, under the still new-ish Financial Stability Committee chaired by Paul Tucker - a recognition of the failure to pay sufficient attention to the big picture, rather than what individual banks were doing, in the run-up to the crisis. Europe-wide scrutiny of the financial system will also grow more intense under the new European Systemic Risk Board.
The Financial Stability Committee is laudably thorough both in categorising the manifold risks to the system and in attempting to gauge their severity. It is true that British banks have made considerable progress in raising the large amounts of financing they will need to meet new capital requirements, and that low interest rates and obliging banks have combined to keep default and repossession rates at surprisingly low levels; but as the Report points out, the fact remains that the old risks have not all gone away, and upon close examination there are some new ones to fret about, too.
Indeed, some of the old worries are still quite scary: British banks are in better shape than many of their European counterparts, but we should not be complacent, now that we know how swiftly contagion can spread; banks still have a lot of financing to do; and a double-whammy of higher interest rates and slower economic recovery could push households and companies over the brink.
The Report also highlights some interesting new risks, quite a few of which are the result of actions to tackle the old ones. That does not mean that it is wrong to attempt regulatory reform. In fact, I find it rather reassuring that the regulator is min
dful of the way that undesirable incentives are inevitably created by new rules: failure to think through the implications of, for example, capital requirements helped create the conditions for the financial crisis.
The Bank now recognises that financial institutions will always try to keep a step ahead, so regulators must also move rapidly. In fact, the Bank wants new powers to adapt rules and range more widely. This makes sense: the recent tightening of bank rules will inevitably push more risky activities outside the regulated financial system, into what is known loosely as the "shadow" banking system. But, again, the Bank must perform a balancing act. Financial stability requires stable rules which allow banks, and their clients, to plan for the long term.
In fact, parts of the shadow banking system will be indirectly constrained by the new rules anyway. Hedge funds, for example, which relied on big, cheap bank credit lines to take highly leveraged bets on market movements will find that they can no longer do so. Not because anyone has told them not to, but because new capital rules will make it uneconomic for the banks to lend to them on such favourable terms.
But the Bank's concerns are justified. Similarly, the post-crisis channelling of trading and settlement through central counter-parties, which was designed to reduce counter-party risk, will also concentrate risk in a single entity. Another unintended consequence - of interest rate policy rather than regulation - has been to encourage yield-hungry investors to take more risks in emerging markets, again increasing systemic risk.
In relative terms, the health of the British banking system has improved in the past year: British banks have higher capital ratios than counterparts in either the US, Germany or France, as well as Spanish and Irish banks. But there is always a flipside, it seems: weakness of some of these carries its own dangers for the financial system.
Our regulators remain nervous – and I prefer them that way. After all, the April 2007 report stated that "the UK financial system remains highly resilient, with banks well capitalised and highly profitable. But strong flows into riskier assets and a gradual increase in corporate indebtedness have caused risks to the UK financial system to edge up."
By Tracy Corrigan
Source: Telegraph Media Group Limited
http://www.telegraph.co.uk
Wednesday, December 22, 2010
Bailout bonds on sale
THE EUROPEAN Union is to sell off the first round of bonds to raise funds for Ireland's financial aid package.
The financial aids for distressed states will sell off bonds to raise up to €34.1bn for Ireland next year and then a further €14.9bn in 2012.
The EU will issue bonds under the auspices of the European Financial Stability Mechanism (EFSM) and European Financial Stability Facility, which will sell a total of seven to eight benchmark bonds.
Ireland's €85bn rescue last month includes €22.5bn from the EFSM -- which is managed by the commission -- and €17.7bn from the EFSF, overseen by euro-area governments.
Source: www.herald.ie
The financial aids for distressed states will sell off bonds to raise up to €34.1bn for Ireland next year and then a further €14.9bn in 2012.
The EU will issue bonds under the auspices of the European Financial Stability Mechanism (EFSM) and European Financial Stability Facility, which will sell a total of seven to eight benchmark bonds.
Ireland's €85bn rescue last month includes €22.5bn from the EFSM -- which is managed by the commission -- and €17.7bn from the EFSF, overseen by euro-area governments.
Source: www.herald.ie
Tuesday, December 21, 2010
China Supports EU Efforts At Financial Stability
China supports measures taken by the European Union and the International Monetary Fund to stabilize Europe's debt crisis, Vice Premier Wang Qishan said Tuesday.
China has also taken steps to help European nations combat the sovereign debt crisis, Wang said at the opening of the third China-EU High-Level Economic and Trade Dialogue.
Wang said the two sides "should have confidence and enhance cooperation to work together for a robust, sustainable and balanced growth," according to the official Xinhua News Agency.
Last week, EU leaders agreed to the creation of a permanent rescue mechanism for debt-laden countries in 2013 that would replace an existing bailout fund.
Ireland last month agreed to borrow up to euro 67.5 billion ($90 billion) from the EU and International Monetary Fund and implement severe spending cuts as its economy staggered under the weight of massively indebted banks.
The Irish rescue followed the EU-IMF bailout of Greece earlier this year and added to fears that other financially weak countries including Portugal and Spain would need bailouts, imperiling the future of the euro common currency.
China has also been involved in bailing out European countries, offering in October to buy Greece's debt. Last week, Portugal said that China had pledged increased support for its efforts to climb out of a financial crisis, reportedly promising to buy $4 billion in Portugese government debt.
The EU is China's largest trading partner, while China is the EU's second-largest trading partner behind the United States, Wang said. Two-way trade for the first 11 months this year reached $433.9 billion, an increase of 33 percent from the previous year.
Wang said global economic recovery is being hampered by weak demand, while world markets have excessive liquidity and are turbulent.
He reiterated that China would implement a prudent monetary policy to ensure the world's second-largest economy can maintain steady growth.
"China is taking a proactive fiscal policy and stable currency policy, while the EU is actively taking measures to combat the debt crisis," Wang said. "China and the EU should strengthen cooperation to promote strong, sustainable and all-around growth for the economies of China and EU and even the global economy."
Other officials participating in the talks include EU Competition Commissioner Joaquin Almunia, EU Trade Commissioner Karel De Gucht and China's Commerce Minister Chen Deming.
Wang said he expected "substantive" progress during the talks on a wide range of trade and economic issue, including recognition of China's market economy status and the loosening of EU restrictions on high-tech goods exports.
Wang said China and the EU should cooperate in a variety of sectors, including new energy and environment protection, while fighting protectionist measures.
"We need to jointly resist trade protectionism, advancing Doha round talks for balanced and all-around success," he said.
By The Associated Press
Source: www.npr.org
China has also taken steps to help European nations combat the sovereign debt crisis, Wang said at the opening of the third China-EU High-Level Economic and Trade Dialogue.
Wang said the two sides "should have confidence and enhance cooperation to work together for a robust, sustainable and balanced growth," according to the official Xinhua News Agency.
Last week, EU leaders agreed to the creation of a permanent rescue mechanism for debt-laden countries in 2013 that would replace an existing bailout fund.
Ireland last month agreed to borrow up to euro 67.5 billion ($90 billion) from the EU and International Monetary Fund and implement severe spending cuts as its economy staggered under the weight of massively indebted banks.
The Irish rescue followed the EU-IMF bailout of Greece earlier this year and added to fears that other financially weak countries including Portugal and Spain would need bailouts, imperiling the future of the euro common currency.
China has also been involved in bailing out European countries, offering in October to buy Greece's debt. Last week, Portugal said that China had pledged increased support for its efforts to climb out of a financial crisis, reportedly promising to buy $4 billion in Portugese government debt.
The EU is China's largest trading partner, while China is the EU's second-largest trading partner behind the United States, Wang said. Two-way trade for the first 11 months this year reached $433.9 billion, an increase of 33 percent from the previous year.
Wang said global economic recovery is being hampered by weak demand, while world markets have excessive liquidity and are turbulent.
He reiterated that China would implement a prudent monetary policy to ensure the world's second-largest economy can maintain steady growth.
"China is taking a proactive fiscal policy and stable currency policy, while the EU is actively taking measures to combat the debt crisis," Wang said. "China and the EU should strengthen cooperation to promote strong, sustainable and all-around growth for the economies of China and EU and even the global economy."
Other officials participating in the talks include EU Competition Commissioner Joaquin Almunia, EU Trade Commissioner Karel De Gucht and China's Commerce Minister Chen Deming.
Wang said he expected "substantive" progress during the talks on a wide range of trade and economic issue, including recognition of China's market economy status and the loosening of EU restrictions on high-tech goods exports.
Wang said China and the EU should cooperate in a variety of sectors, including new energy and environment protection, while fighting protectionist measures.
"We need to jointly resist trade protectionism, advancing Doha round talks for balanced and all-around success," he said.
By The Associated Press
Source: www.npr.org
Monday, December 20, 2010
ECB Trichet: EMU Govts Must Do More Individually,Collectively
PARIS (MNI) - European Central Bank President Jean-Claude Trichet reiterated Monday that the Eurozone does not face a currency crisis but rather "a problem of financial stability due to the fact that some countries have not managed their budgets as they should have."
"For a long time we have determined that the problem is not the currency," Trichet said in a radio interview. "The currency has retained its value, the currency is credible, it inspires confidence."
"The problem is thus the credit rating of several states," he explained. "This is not astonishing. We have always said: 'Respect the Stability and Growth Pact, pay close attention to your deficit budgets. They are a weakness that absolutely must be corrected'."
"We are experiencing at this moment a very serious crisis, that has intensified over the past two and a half years," he stressed. "Thus everyone must take the necessary measures."
Trichet urged the Eurozone governments to monitor each other collectively via "much better governance" and to establish "a stabilization fund capable of assuming all its responsibilities."
"That means, concretely, to do more individually and do more collectively," he insisted, adding that this message applied to France as well.
Trichet reiterated that the ECB had fulfilled its mandate for price stability -- "an essential element of stability in a very difficult period."
Concerning Ireland's consolidation program, the ECB believes "this plan must be applied in a very rigorous manner," he said.
Trichet again rejected the notion that a country could leave monetary union as "an absurd hypothesis."
Source: Imarketnews
www.imarketnews.com
"For a long time we have determined that the problem is not the currency," Trichet said in a radio interview. "The currency has retained its value, the currency is credible, it inspires confidence."
"The problem is thus the credit rating of several states," he explained. "This is not astonishing. We have always said: 'Respect the Stability and Growth Pact, pay close attention to your deficit budgets. They are a weakness that absolutely must be corrected'."
"We are experiencing at this moment a very serious crisis, that has intensified over the past two and a half years," he stressed. "Thus everyone must take the necessary measures."
Trichet urged the Eurozone governments to monitor each other collectively via "much better governance" and to establish "a stabilization fund capable of assuming all its responsibilities."
"That means, concretely, to do more individually and do more collectively," he insisted, adding that this message applied to France as well.
Trichet reiterated that the ECB had fulfilled its mandate for price stability -- "an essential element of stability in a very difficult period."
Concerning Ireland's consolidation program, the ECB believes "this plan must be applied in a very rigorous manner," he said.
Trichet again rejected the notion that a country could leave monetary union as "an absurd hypothesis."
Source: Imarketnews
www.imarketnews.com
Wednesday, December 01, 2010
Leaving the euro: how would it work?
Nils Blythe
Business correspondent, BBC News
Would Ireland be better off if it left the euro and revived the Punt? Would the Greek economy recover more quickly with a new Drachma?
Much has been written about the theoretical attractions for financially troubled countries in exiting the euro-zone.
But the question of how a country would go about it is less well explored.
And the more closely you examine the question of "how" - as opposed to "why" - a country might leave the euro, the clearer it becomes that the practical difficulties are huge.
Capital flight
To establish a new currency a country would have to convert all existing euro-denominated savings at a fixed rate on a given date.
But savers and businesses would not wait passively for that date to arrive.
The main reason for creating a new currency would be to increase the country's competitiveness by making its exports cheaper.
So savers and investors would assume that the new currency would depreciate against the euro - probably very rapidly - and want to keep their savings in euros, or transfer them to another well-established currency such as the US dollar.
The first practical problem, then, is that if it becomes clear that a country is seriously thinking of leaving the euro a huge amount of money will leave the country.
This is sometimes referred to as "capital flight".
The overall effect would be to trigger huge transfers of deposits out of the country and wreck the banking system.
The government in question would almost certainly try to impose controls to prevent this kind of capital flight, but senior policy-makers are very sceptical about whether such controls would be effective in 21st century Europe.
But if a prolonged national debate about leaving the euro creates a risk of capital flight, would the alternative be to prepare in secret and announce it suddenly?
Such a plan might work in a totalitarian state, but does not allow for parliamentary debate, legislation and all the other processes of a modern democracy.
And the idea that huge numbers of new bank notes could be prepared and distributed in secret - ready for the appointed currency conversion date - is absurd.
Risky approach
However, suppose for a moment that these practical problems could be overcome, where would the country leaving the euro stand financially?
It would have a large national debt denominated in euros.
Remaining committed to paying interest on that debt in euros while tax revenues are generated in the new currency would be a big risk.
The alternative would be to announce that national borrowings have been converted into the new currency.
For overseas bond investors, this would amount to a default.
When the country wanted to borrow more it would almost certainly have to pay punitive interest rates to persuade bond market investors to participate.
Unbreakable currency?
The counter-argument to all this is that currency conversions have been achieved successfully in the past.
The euro came into circulation without too many hitches, albeit with many years of preparation.
East Germany's Ostmarks were converted into Deutschmarks.
But the key difference is that in these cases the currency into which savings were being switched was perceived to be stable. The incentive for capital flight did not exist.
This does suggest that if the fundamental problem is substituting a weak currency for a strong one, the most practical solution would be for the strongest members of the euro-zone to leave the currency union.
It means that - in purely practical terms - Germany could leave the euro while weaker countries could not.
But while some Germans clearly feel nostalgic about the Deutschmark, it seems massively unlikely that a German government would initiate the break-up of the euro.
The euro was not designed with any possibility of break-up in mind.
Governments can choose to shadow another currency and then change their minds - the UK did just that in 1992.
Governments can create a supposedly fixed link to another currency which - in extreme circumstances - can be unfixed.
But the point of a currency union is that it is supposed to be unbreakable.
And whatever the theoretical attractions of breaking up the euro might be, the practical difficulties of doing so should not be under-estimated.
Source: BBC
www.bbc.co.uk
Business correspondent, BBC News
Would Ireland be better off if it left the euro and revived the Punt? Would the Greek economy recover more quickly with a new Drachma?
Much has been written about the theoretical attractions for financially troubled countries in exiting the euro-zone.
But the question of how a country would go about it is less well explored.
And the more closely you examine the question of "how" - as opposed to "why" - a country might leave the euro, the clearer it becomes that the practical difficulties are huge.
Capital flight
To establish a new currency a country would have to convert all existing euro-denominated savings at a fixed rate on a given date.
But savers and businesses would not wait passively for that date to arrive.
The main reason for creating a new currency would be to increase the country's competitiveness by making its exports cheaper.
So savers and investors would assume that the new currency would depreciate against the euro - probably very rapidly - and want to keep their savings in euros, or transfer them to another well-established currency such as the US dollar.
The first practical problem, then, is that if it becomes clear that a country is seriously thinking of leaving the euro a huge amount of money will leave the country.
This is sometimes referred to as "capital flight".
The overall effect would be to trigger huge transfers of deposits out of the country and wreck the banking system.
The government in question would almost certainly try to impose controls to prevent this kind of capital flight, but senior policy-makers are very sceptical about whether such controls would be effective in 21st century Europe.
But if a prolonged national debate about leaving the euro creates a risk of capital flight, would the alternative be to prepare in secret and announce it suddenly?
Such a plan might work in a totalitarian state, but does not allow for parliamentary debate, legislation and all the other processes of a modern democracy.
And the idea that huge numbers of new bank notes could be prepared and distributed in secret - ready for the appointed currency conversion date - is absurd.
Risky approach
However, suppose for a moment that these practical problems could be overcome, where would the country leaving the euro stand financially?
It would have a large national debt denominated in euros.
Remaining committed to paying interest on that debt in euros while tax revenues are generated in the new currency would be a big risk.
The alternative would be to announce that national borrowings have been converted into the new currency.
For overseas bond investors, this would amount to a default.
When the country wanted to borrow more it would almost certainly have to pay punitive interest rates to persuade bond market investors to participate.
Unbreakable currency?
The counter-argument to all this is that currency conversions have been achieved successfully in the past.
The euro came into circulation without too many hitches, albeit with many years of preparation.
East Germany's Ostmarks were converted into Deutschmarks.
But the key difference is that in these cases the currency into which savings were being switched was perceived to be stable. The incentive for capital flight did not exist.
This does suggest that if the fundamental problem is substituting a weak currency for a strong one, the most practical solution would be for the strongest members of the euro-zone to leave the currency union.
It means that - in purely practical terms - Germany could leave the euro while weaker countries could not.
But while some Germans clearly feel nostalgic about the Deutschmark, it seems massively unlikely that a German government would initiate the break-up of the euro.
The euro was not designed with any possibility of break-up in mind.
Governments can choose to shadow another currency and then change their minds - the UK did just that in 1992.
Governments can create a supposedly fixed link to another currency which - in extreme circumstances - can be unfixed.
But the point of a currency union is that it is supposed to be unbreakable.
And whatever the theoretical attractions of breaking up the euro might be, the practical difficulties of doing so should not be under-estimated.
Source: BBC
www.bbc.co.uk
Saturday, November 20, 2010
George Osborne to give economic update on 29 November
Chancellor George Osborne is to give an update on the state of the economy to Parliament on 29 November.
The autumn statement will follow the release by the Office for Budget Responsibility of its own updated growth forecasts, giving Mr Osborne a chance to respond to the figures.
Mr Osborne has previously said he would scrap the pre-Budget report introduced by Gordon Brown when he was chancellor.
Mr Osborne has already announced the date of the 2011 Budget - on March 23.
The chancellor has said he will end the practice of having a pre-Budget report each autumn.
Under Gordon Brown, this became regarded as a mini-Budget in which draft tax and spending decisions were outlined.
Instead, Mr Osborne will comment on the OBR's latest analysis of the state of the economy, published that day.
The BBC's Business Editor Robert Peston said both MPs and the financial markets will be eager to see the OBR's forecasts for growth and government borrowing to see to what extent the coalition's deficit reduction plan is on track.
Initial estimates published last month suggest the economy grew at a rate of 0.8% between July and September - twice the rate expected by many analysts.
This followed growth of 1.2% in the second quarter of the year
Mr Osborne has said there is a "steady" recovery but Labour has said the cuts announced since the coalition came to power in May could endanger this.
Source: BBC
www.bbc.co.uk
The autumn statement will follow the release by the Office for Budget Responsibility of its own updated growth forecasts, giving Mr Osborne a chance to respond to the figures.
Mr Osborne has previously said he would scrap the pre-Budget report introduced by Gordon Brown when he was chancellor.
Mr Osborne has already announced the date of the 2011 Budget - on March 23.
The chancellor has said he will end the practice of having a pre-Budget report each autumn.
Under Gordon Brown, this became regarded as a mini-Budget in which draft tax and spending decisions were outlined.
Instead, Mr Osborne will comment on the OBR's latest analysis of the state of the economy, published that day.
The BBC's Business Editor Robert Peston said both MPs and the financial markets will be eager to see the OBR's forecasts for growth and government borrowing to see to what extent the coalition's deficit reduction plan is on track.
Initial estimates published last month suggest the economy grew at a rate of 0.8% between July and September - twice the rate expected by many analysts.
This followed growth of 1.2% in the second quarter of the year
Mr Osborne has said there is a "steady" recovery but Labour has said the cuts announced since the coalition came to power in May could endanger this.
Source: BBC
www.bbc.co.uk
Sunday, November 14, 2010
Great reforms in principle, quick and painful cuts in practice
Iain Duncan Smith's proposals will take years to make an impact. George Osborne's benefit-slashing will not.
F Scott Fitzgerald believed: "There are no second acts in American lives." In British political lives, there can be. Iain Duncan Smith was the least successful Tory leader in many decades; his contribution to history seemed to be making William Hague and Michael Howard look impressive. At the nadir of the brief and humiliating period when he was nominally in control of the Conservatives, cruel colleagues like to joke that IDS stood for In Deep Shit.
Yet he then reinvented himself as a social campaigner. That second act reached its zenith in the House of Commons on Thursday when he unveiled his white paper on welfare. It was received with a fanfare of headlines and editorials which have hailed him as the cabinet's boldest, bravest and biggest reformer. The much mocked "Quiet Man" has even been compared with Sir William Beveridge, the Liberal founding father of the welfare state. That is hyperbole, but it is flattering hyperbole none the less for a man once so ridiculed.
Why has such a fair wind filled his sails as he embarks on the notoriously treacherous seas of welfare reform? It helps that few question that Mr Duncan Smith is a serious-minded man genuinely moved to try to release people from the welfare dependency which impoverishes those trapped in it and their country. Even those who criticise his means tend to accept that his ends are well-intentioned. Unlike most of the cabinet, the work and pensions secretary has experience of what it is like to be jobless, having suffered a period of redundancy in the 80s. When I interviewed him recently, he spoke passionately about the feelings of rejection and dejection that accompany being made unemployed and told a story about wanting to rip the throat out of a Tory MP whom he heard pontificating about the jobless being work-shy layabouts.
He has also received a generally warm reception because there has been a growing, but until now rather covert, cross-party consensus that welfare dependency is a terrible social and economic sickness. The fundamental problem with benefits in Britain is not that they are lavishly generous. The last government allowed housing benefit to balloon out of control, but on the whole British welfare payments are quite stingy by western European standards. The trouble is that too many people are on benefits. Roughly 5 million working-age Britons are benefit-dependent. Approaching 1.5m of them have been receiving benefits for nine of the last 10 years.
Both Labour and the Tories feel guilt – or certainly ought to – about this national tragedy. The first big surge came under Margaret Thatcher in the 80s, a fact which has been largely overlooked in pieces marking the 20th anniversary of her fall. When unemployment shot up to 3 million, her government tried to make the figures look less horrendous by shunting hundreds of thousands of the jobless on to disability benefits. The long period of prosperity between 1997 and 2007 would have been an ideal time to provide the incentives and training to encourage the jobless to rejoin the world of work. New Labour made some attempts to reform welfare, but the effort was fitful and compromised by divisions at the top of the government. So there is a political market for reform to welfare. There is also a voter one. Polling conducted both before and after Mr Duncan Smith unveiled his plans found majority support favouring his approach.
Responding for Labour, Douglas Alexander has been a model of sensible opposition. He eschewed the temptation to spit venom about the proposals and instead did the smart thing, which is to support many of the general principles of reform while asking pertinent questions about how it is going to work in practice. That keeps Labour with the grain of the public mood while preparing the ground to be critical when and if things go wrong.
Mr Alexander's most salient point is his most obvious one: "Welfare to work requires there to be work." The number of long-term unemployed has more than doubled since 2008 to 800,000. This is not because all those people suddenly decided they would rather stay at home and watch daytime TV. It is because the recession has destroyed their jobs. That is not an argument against change. There is a powerful case for getting on with reform as rapidly as possible so that the currently workless might have a better chance of participating in the economy when the recovery is complete. But Mr Duncan Smith's promise to make work pay cannot be redeemed by those for whom there is no work available. He himself acknowledges that, with the country limping out of a painful recession and the government introducing a severe spending squeeze, this is "a dreadful period to try and do any of this".
Another reason to be cautious is that these reforms have been oversold as a revolution when much of it is a slow-cooking evolution. A lot of misleading headlines have suggested that this is a "year zero" for welfare. The government's propagandists have cleverly exploited two weaknesses of political journalism when it comes to reporting welfare. Most of the Westminster media do not understand the benefit system, which is not surprising when many of those who administer it or draw the benefits get lost in the labyrinth. Newspapers of both left and right are also suckers for stories about "crackdowns" on benefit claimants, the right because they want to applaud assaults on the idle and the left because they want to be outraged by attacks on the defenceless. Some reporting has suggested that Mr Duncan Smith will have every "feckless scrounger" thrown out of bed to join chain gangs picking up litter. In fact, these sort of "workfare" programmes already existed under the previous government, which is one reason you haven't heard Labour condemn them. Requiring people to do a few weeks' labour in return for benefits may have value in reintroducing the long-term jobless to some of the disciplines of work. But experience suggests that these schemes do little to assist the unemployed into real jobs because they don't equip the jobless with the skills that employers want.
The coalition affects to despise all things New Labour, especially its spin. Yet they appear to have been thumbing through an old propaganda manual left behind at Number 10 by its previous occupants. The government's spinners achieved domination of another morning's news coverage with headlines screaming: "Three strikes and you're out": the threat of a new range of tough measures against the work-shy, the most severe of which would penalise those who three times fail to apply for or accept work by removing all their job seeker's allowance for three years. By the end of the very day that those headlines appeared, Nick Clegg was on the airwaves predicting that this sanction would be used only "for a tiny, tiny number of people who really are systematically abusing the system".
Iain Duncan Smith's ambitions to be the great reformer are located in the centrepiece of his proposals. That is to replace many existing benefits with one universal credit. This has huge theoretical attractions because it has the beauty of simplicity. The complex tangle of current benefits encourages fraud and propagates errors. Billions are lost to both: more than £3bn in overpayments and an estimated £1.6bn in fraud last year. Many claimants need a degree in mathematics to work out whether or not they'd be better off in a job. A universal credit ought to reduce confusion and disincentives against working.
The work and pensions secretary is far from the first reformer to have this dream. Those who have gone before him then had nightmares finding a way to do it which did not either cost vast sums of money to introduce or create an angry army of losers. There is a huge number of questions left unanswered by Mr Duncan Smith's white paper, a document with many of the key figures missing. His assertion that there will be "no losers" is just that: an assertion. That can only be true if welfare rolls fall very dramatically or the government spends a lot more than the £2bn allocated to introducing his universal credit.
He has made the very big claim that the long-term effect will be a dramatic reduction in both adult and child poverty. What he can't or won't say when pressed is whether poverty levels will be lower or higher at the end of this parliament than they were at the end of the last one.
His centrepiece reform will only start to be phased in from 2013 and will not have a meaningful impact on significant numbers of people until after the next general election. The changes which will have much more immediate and painful effects are the £18bn of benefit cuts announced in George Osborne's budget and spending review.
In the play that Iain Duncan Smith has written for himself in his head, the fourth act will see him introduce his reforms and the fifth will climax with a standing ovation for the hero who finally cracked welfare dependency. Before any of that can happen, though, he must perform the third act, defending the benefit cuts already scripted by the Treasury.
Source: Guardian
www.www.guardian.co.uk
F Scott Fitzgerald believed: "There are no second acts in American lives." In British political lives, there can be. Iain Duncan Smith was the least successful Tory leader in many decades; his contribution to history seemed to be making William Hague and Michael Howard look impressive. At the nadir of the brief and humiliating period when he was nominally in control of the Conservatives, cruel colleagues like to joke that IDS stood for In Deep Shit.
Yet he then reinvented himself as a social campaigner. That second act reached its zenith in the House of Commons on Thursday when he unveiled his white paper on welfare. It was received with a fanfare of headlines and editorials which have hailed him as the cabinet's boldest, bravest and biggest reformer. The much mocked "Quiet Man" has even been compared with Sir William Beveridge, the Liberal founding father of the welfare state. That is hyperbole, but it is flattering hyperbole none the less for a man once so ridiculed.
Why has such a fair wind filled his sails as he embarks on the notoriously treacherous seas of welfare reform? It helps that few question that Mr Duncan Smith is a serious-minded man genuinely moved to try to release people from the welfare dependency which impoverishes those trapped in it and their country. Even those who criticise his means tend to accept that his ends are well-intentioned. Unlike most of the cabinet, the work and pensions secretary has experience of what it is like to be jobless, having suffered a period of redundancy in the 80s. When I interviewed him recently, he spoke passionately about the feelings of rejection and dejection that accompany being made unemployed and told a story about wanting to rip the throat out of a Tory MP whom he heard pontificating about the jobless being work-shy layabouts.
He has also received a generally warm reception because there has been a growing, but until now rather covert, cross-party consensus that welfare dependency is a terrible social and economic sickness. The fundamental problem with benefits in Britain is not that they are lavishly generous. The last government allowed housing benefit to balloon out of control, but on the whole British welfare payments are quite stingy by western European standards. The trouble is that too many people are on benefits. Roughly 5 million working-age Britons are benefit-dependent. Approaching 1.5m of them have been receiving benefits for nine of the last 10 years.
Both Labour and the Tories feel guilt – or certainly ought to – about this national tragedy. The first big surge came under Margaret Thatcher in the 80s, a fact which has been largely overlooked in pieces marking the 20th anniversary of her fall. When unemployment shot up to 3 million, her government tried to make the figures look less horrendous by shunting hundreds of thousands of the jobless on to disability benefits. The long period of prosperity between 1997 and 2007 would have been an ideal time to provide the incentives and training to encourage the jobless to rejoin the world of work. New Labour made some attempts to reform welfare, but the effort was fitful and compromised by divisions at the top of the government. So there is a political market for reform to welfare. There is also a voter one. Polling conducted both before and after Mr Duncan Smith unveiled his plans found majority support favouring his approach.
Responding for Labour, Douglas Alexander has been a model of sensible opposition. He eschewed the temptation to spit venom about the proposals and instead did the smart thing, which is to support many of the general principles of reform while asking pertinent questions about how it is going to work in practice. That keeps Labour with the grain of the public mood while preparing the ground to be critical when and if things go wrong.
Mr Alexander's most salient point is his most obvious one: "Welfare to work requires there to be work." The number of long-term unemployed has more than doubled since 2008 to 800,000. This is not because all those people suddenly decided they would rather stay at home and watch daytime TV. It is because the recession has destroyed their jobs. That is not an argument against change. There is a powerful case for getting on with reform as rapidly as possible so that the currently workless might have a better chance of participating in the economy when the recovery is complete. But Mr Duncan Smith's promise to make work pay cannot be redeemed by those for whom there is no work available. He himself acknowledges that, with the country limping out of a painful recession and the government introducing a severe spending squeeze, this is "a dreadful period to try and do any of this".
Another reason to be cautious is that these reforms have been oversold as a revolution when much of it is a slow-cooking evolution. A lot of misleading headlines have suggested that this is a "year zero" for welfare. The government's propagandists have cleverly exploited two weaknesses of political journalism when it comes to reporting welfare. Most of the Westminster media do not understand the benefit system, which is not surprising when many of those who administer it or draw the benefits get lost in the labyrinth. Newspapers of both left and right are also suckers for stories about "crackdowns" on benefit claimants, the right because they want to applaud assaults on the idle and the left because they want to be outraged by attacks on the defenceless. Some reporting has suggested that Mr Duncan Smith will have every "feckless scrounger" thrown out of bed to join chain gangs picking up litter. In fact, these sort of "workfare" programmes already existed under the previous government, which is one reason you haven't heard Labour condemn them. Requiring people to do a few weeks' labour in return for benefits may have value in reintroducing the long-term jobless to some of the disciplines of work. But experience suggests that these schemes do little to assist the unemployed into real jobs because they don't equip the jobless with the skills that employers want.
The coalition affects to despise all things New Labour, especially its spin. Yet they appear to have been thumbing through an old propaganda manual left behind at Number 10 by its previous occupants. The government's spinners achieved domination of another morning's news coverage with headlines screaming: "Three strikes and you're out": the threat of a new range of tough measures against the work-shy, the most severe of which would penalise those who three times fail to apply for or accept work by removing all their job seeker's allowance for three years. By the end of the very day that those headlines appeared, Nick Clegg was on the airwaves predicting that this sanction would be used only "for a tiny, tiny number of people who really are systematically abusing the system".
Iain Duncan Smith's ambitions to be the great reformer are located in the centrepiece of his proposals. That is to replace many existing benefits with one universal credit. This has huge theoretical attractions because it has the beauty of simplicity. The complex tangle of current benefits encourages fraud and propagates errors. Billions are lost to both: more than £3bn in overpayments and an estimated £1.6bn in fraud last year. Many claimants need a degree in mathematics to work out whether or not they'd be better off in a job. A universal credit ought to reduce confusion and disincentives against working.
The work and pensions secretary is far from the first reformer to have this dream. Those who have gone before him then had nightmares finding a way to do it which did not either cost vast sums of money to introduce or create an angry army of losers. There is a huge number of questions left unanswered by Mr Duncan Smith's white paper, a document with many of the key figures missing. His assertion that there will be "no losers" is just that: an assertion. That can only be true if welfare rolls fall very dramatically or the government spends a lot more than the £2bn allocated to introducing his universal credit.
He has made the very big claim that the long-term effect will be a dramatic reduction in both adult and child poverty. What he can't or won't say when pressed is whether poverty levels will be lower or higher at the end of this parliament than they were at the end of the last one.
His centrepiece reform will only start to be phased in from 2013 and will not have a meaningful impact on significant numbers of people until after the next general election. The changes which will have much more immediate and painful effects are the £18bn of benefit cuts announced in George Osborne's budget and spending review.
In the play that Iain Duncan Smith has written for himself in his head, the fourth act will see him introduce his reforms and the fifth will climax with a standing ovation for the hero who finally cracked welfare dependency. Before any of that can happen, though, he must perform the third act, defending the benefit cuts already scripted by the Treasury.
Source: Guardian
www.www.guardian.co.uk
Saturday, November 13, 2010
Ireland 'in preliminary talks with EU on bailout'
he Republic of Ireland is in preliminary talks with EU officials for financial support, the BBC has learned.
It is now no longer a matter of whether but when the Irish government formally approaches the European Financial Stability Fund (EFSF) for a bailout, correspondents say.
The provisional estimate for EFSF loans is believed to lie between 60bn and 80bn euros ($82-110bn; £51-68bn).
Dublin says there are no talks on an application for emergency EU funding.
A spokesman for Ireland's department of finance said the country was funded until the middle of 2011, the public-service RTE broadcaster reported.
RTE had earlier said talks had been held on how a bail-out might happen in a theoretical worst-case scenario.
The European Commission would not formally comment on the matter.
Eurozone officials told the Reuters news agency on Friday that discussions were under way, with one saying that it was "very likely" Ireland would receive financial assistance.
The head of the International Monetary Fund (IMF), Dominique Strauss-Kahn, said on Saturday that it had not been asked for aid.
"So far I have not had a request, and I think Ireland can manage well," he told reporters at the Apec summit in Yokohama.
The IMF and EU had to step in with a 110bn-euro bailout package for Greece in May, sparking a Europe-wide sovereign debt crisis.
BBC business correspondent Joe Lynam says any bailout would not be agreed this weekend, but might though come as early as next month.
A meeting of the Eurogroup, composed of the EU member states whose currency is the euro, is scheduled for 6 December.
The Economic and Financial Affairs Council (Ecofin) - comprising the economics and finance ministers of eurozone countries - will gather the following day.
Lastly, the full European Council is to meet on 16 and 17 December.
By-election
Since 2008, Ireland has suffered the worst property collapse of all developed economies, with house values falling between 50% and 60%.
Our correspondent says the Irish government has also all but nationalised the country's banking system, which had lent recklessly at an estimated cost of 40bn to 50bn euros.
The country has promised the EU it will bring its underlying deficit down from 12% of economic output to 3% by 2014. Its current deficit is an unprecedented 32% of gross domestic product, if the one-off cost of bad debts in the Irish banking system is included.
The Irish government, which has a flimsy majority in parliament, is set to publish another draconian budget on 7 December, which will make spending cuts or tax rises totalling 6bn euros, and aims to bring the deficit down to between 9.5-9.75% next year, he adds.
That parliamentary majority is likely to be cut to only two on 25 November, when a by-election will be held that the governing Fianna Fail party is likely to lose.
The government had left the Donegal South West seat empty for 17 months but the Republic's second-highest court recently ruled that the delay was unreasonable. Three other by-elections are also required.
Investors fear the budget cuts are likely to worsen the country's already deep recession, leading to further losses to the government via falling tax revenues and higher benefit payments.
Source: BBC
www.bbc.co.uk
It is now no longer a matter of whether but when the Irish government formally approaches the European Financial Stability Fund (EFSF) for a bailout, correspondents say.
The provisional estimate for EFSF loans is believed to lie between 60bn and 80bn euros ($82-110bn; £51-68bn).
Dublin says there are no talks on an application for emergency EU funding.
A spokesman for Ireland's department of finance said the country was funded until the middle of 2011, the public-service RTE broadcaster reported.
RTE had earlier said talks had been held on how a bail-out might happen in a theoretical worst-case scenario.
The European Commission would not formally comment on the matter.
Eurozone officials told the Reuters news agency on Friday that discussions were under way, with one saying that it was "very likely" Ireland would receive financial assistance.
The head of the International Monetary Fund (IMF), Dominique Strauss-Kahn, said on Saturday that it had not been asked for aid.
"So far I have not had a request, and I think Ireland can manage well," he told reporters at the Apec summit in Yokohama.
The IMF and EU had to step in with a 110bn-euro bailout package for Greece in May, sparking a Europe-wide sovereign debt crisis.
BBC business correspondent Joe Lynam says any bailout would not be agreed this weekend, but might though come as early as next month.
A meeting of the Eurogroup, composed of the EU member states whose currency is the euro, is scheduled for 6 December.
The Economic and Financial Affairs Council (Ecofin) - comprising the economics and finance ministers of eurozone countries - will gather the following day.
Lastly, the full European Council is to meet on 16 and 17 December.
By-election
Since 2008, Ireland has suffered the worst property collapse of all developed economies, with house values falling between 50% and 60%.
Our correspondent says the Irish government has also all but nationalised the country's banking system, which had lent recklessly at an estimated cost of 40bn to 50bn euros.
The country has promised the EU it will bring its underlying deficit down from 12% of economic output to 3% by 2014. Its current deficit is an unprecedented 32% of gross domestic product, if the one-off cost of bad debts in the Irish banking system is included.
The Irish government, which has a flimsy majority in parliament, is set to publish another draconian budget on 7 December, which will make spending cuts or tax rises totalling 6bn euros, and aims to bring the deficit down to between 9.5-9.75% next year, he adds.
That parliamentary majority is likely to be cut to only two on 25 November, when a by-election will be held that the governing Fianna Fail party is likely to lose.
The government had left the Donegal South West seat empty for 17 months but the Republic's second-highest court recently ruled that the delay was unreasonable. Three other by-elections are also required.
Investors fear the budget cuts are likely to worsen the country's already deep recession, leading to further losses to the government via falling tax revenues and higher benefit payments.
Source: BBC
www.bbc.co.uk
Monday, November 08, 2010
EU visits Dublin as worries mount
Meanwhile financial markets increasingly fear the government will default on its debts, with Irish bond yields hitting new record highs.
The Irish parliament will vote in December on the budget.
The country has promised the EU it will bring its underlying deficit down from 12% of economic output to 3% by 2014.
The Irish Republic's current deficit is an unprecedented 32% of gross domestic product, if the one-off cost of bad debts in the state-guaranteed Irish banking system is included.
The draft budget will include a record 6bn euros (£5.2bn, $8.4bn) of spending cuts, and aims to bring the deficit down to between 9.5-9.75% next year.
Full details of the budget - which needs the EU's endorsement - will be published on 7 December.
Unreasonable delay
However, concerns are mounting that the Dail may not pass the budget.
The opposition Fine Gael party, while agreeing that the budget needs to be brought under control, has said it does not plan to support the budget because it has no confidence in the government.
The government has delayed four by-elections to the parliament, which have the potential to deprive it of its majority of just three seats.
After a ruling by the Republic's second-highest court, the government has agreed to hold the longest-delayed by-election on 25 November.
The Donegal South seat has remained vacant for 17 months, which in the court's opinion is an unreasonable delay.
However, the government said it would not hold the other three elections until the Irish supreme court had heard its appeal against the lower court's ruling.
Buyers' strike
Whether or not the budget passes, markets are increasingly concerned that Dublin will find its debt trap impossible to escape from.
Investors fear that the budget cuts are likely to worsen the country's already deep recession, leading to further losses to the government via falling tax revenues and higher benefit payments.
And there is concern that there may be more big write-downs of bad debts to come from the Irish banking system.
Writing in the Irish Times, economist Morgan Kelly of University College, Dublin, warned that losses at the other state-guaranteed banks could more than equal the approximately 30bn euros that the Irish government has already suffered at Anglo Irish Bank.
The annual yield on the Irish Republic's benchmark 10-year bond hit a record high of 7.84% on Monday, as investors demanded a higher return to compensate them for the risk of a debt default.
The difference in yield between the Irish bond and its German counterpart - which measures their relative riskiness - also hit a new high of 5.56%.
Some investors warned that the Irish government may face a "buyers' strike" by bond investors when it next needs to borrow from the market by the middle of next year.
If so, the Irish Republic may have to turn to the EU's new sovereign bail-out fund.
Source:BBC
www.bbc.com
The Irish parliament will vote in December on the budget.
The country has promised the EU it will bring its underlying deficit down from 12% of economic output to 3% by 2014.
The Irish Republic's current deficit is an unprecedented 32% of gross domestic product, if the one-off cost of bad debts in the state-guaranteed Irish banking system is included.
The draft budget will include a record 6bn euros (£5.2bn, $8.4bn) of spending cuts, and aims to bring the deficit down to between 9.5-9.75% next year.
Full details of the budget - which needs the EU's endorsement - will be published on 7 December.
Unreasonable delay
However, concerns are mounting that the Dail may not pass the budget.
The opposition Fine Gael party, while agreeing that the budget needs to be brought under control, has said it does not plan to support the budget because it has no confidence in the government.
The government has delayed four by-elections to the parliament, which have the potential to deprive it of its majority of just three seats.
After a ruling by the Republic's second-highest court, the government has agreed to hold the longest-delayed by-election on 25 November.
The Donegal South seat has remained vacant for 17 months, which in the court's opinion is an unreasonable delay.
However, the government said it would not hold the other three elections until the Irish supreme court had heard its appeal against the lower court's ruling.
Buyers' strike
Whether or not the budget passes, markets are increasingly concerned that Dublin will find its debt trap impossible to escape from.
Investors fear that the budget cuts are likely to worsen the country's already deep recession, leading to further losses to the government via falling tax revenues and higher benefit payments.
And there is concern that there may be more big write-downs of bad debts to come from the Irish banking system.
Writing in the Irish Times, economist Morgan Kelly of University College, Dublin, warned that losses at the other state-guaranteed banks could more than equal the approximately 30bn euros that the Irish government has already suffered at Anglo Irish Bank.
The annual yield on the Irish Republic's benchmark 10-year bond hit a record high of 7.84% on Monday, as investors demanded a higher return to compensate them for the risk of a debt default.
The difference in yield between the Irish bond and its German counterpart - which measures their relative riskiness - also hit a new high of 5.56%.
Some investors warned that the Irish government may face a "buyers' strike" by bond investors when it next needs to borrow from the market by the middle of next year.
If so, the Irish Republic may have to turn to the EU's new sovereign bail-out fund.
Source:BBC
www.bbc.com
Sunday, November 07, 2010
Fed's Bernanke defends new economic recovery plan
US Federal Reserve Chairman Ben Bernanke has backed the the central bank's new $600bn (£371bn) package to boost the economy.
And he has rejected fears that it may spur inflation.
Some Fed officials worry the money being pumped into the economy could create inflation or speculative bubbles in the prices of bonds or commodities.
But Mr Bernanke says the programme, unveiled on Wednesday, will not push inflation to "super ordinary" levels.
Criticism
Germany, China, Brazil and South Africa have criticised the US plan, with the German Finance Minister Wolfgang Schaeuble saying it was "clueless" and would create "extra problems for the world".
China's Central Bank head Zhou Xiaochuan has urged global currency reforms, while South Africa said developing countries would suffer most.
South Africa's finance minister Pravin Gordhan warned that "developing countries, including South Africa, would bear the brunt of the US decision to open its flood gates without due consideration of the consequences for other nations."
The US policy "undermines the spirit of multilateral co-operation that G20 leaders have fought so hard to maintain during the current crisis," he said.
The heads of state and government of the G20 group of the world's leading nations is due to meet in a week in South Korea, with currencies and trade imbalances high on the agenda.
Dual mandate
"We're not in the business of trying to create inflation, our purpose is to provide additional stimulus to help the economy recover and to avoid potentially additional disinflation, which I think we all agree could also be worrisome," Mr Bernanke said at the weekend.
He said the Fed was bound by a dual mandate for low and stable prices and firm employment, and by a duty to support the economy.
"We are committed to our price stability objective," said Mr Bernanke.
"I have rejected any notion that we are going to raise inflation to a supra-normal level.
"We've had a very significant disinflation since the beginning of the crisis. We should not be satisfied with a situation where we have both a large amount of slack on the employment side and inflation which is below our generally agreed upon level and seems to be declining over time."
That, he said, was the motivation for taking the action which will see the Fed buy $600bn worth of government bonds in a bid to make loans cheaper and get Americans to spend more.
Source:BBC
www.bbc.com
And he has rejected fears that it may spur inflation.
Some Fed officials worry the money being pumped into the economy could create inflation or speculative bubbles in the prices of bonds or commodities.
But Mr Bernanke says the programme, unveiled on Wednesday, will not push inflation to "super ordinary" levels.
Criticism
Germany, China, Brazil and South Africa have criticised the US plan, with the German Finance Minister Wolfgang Schaeuble saying it was "clueless" and would create "extra problems for the world".
China's Central Bank head Zhou Xiaochuan has urged global currency reforms, while South Africa said developing countries would suffer most.
South Africa's finance minister Pravin Gordhan warned that "developing countries, including South Africa, would bear the brunt of the US decision to open its flood gates without due consideration of the consequences for other nations."
The US policy "undermines the spirit of multilateral co-operation that G20 leaders have fought so hard to maintain during the current crisis," he said.
The heads of state and government of the G20 group of the world's leading nations is due to meet in a week in South Korea, with currencies and trade imbalances high on the agenda.
Dual mandate
"We're not in the business of trying to create inflation, our purpose is to provide additional stimulus to help the economy recover and to avoid potentially additional disinflation, which I think we all agree could also be worrisome," Mr Bernanke said at the weekend.
He said the Fed was bound by a dual mandate for low and stable prices and firm employment, and by a duty to support the economy.
"We are committed to our price stability objective," said Mr Bernanke.
"I have rejected any notion that we are going to raise inflation to a supra-normal level.
"We've had a very significant disinflation since the beginning of the crisis. We should not be satisfied with a situation where we have both a large amount of slack on the employment side and inflation which is below our generally agreed upon level and seems to be declining over time."
That, he said, was the motivation for taking the action which will see the Fed buy $600bn worth of government bonds in a bid to make loans cheaper and get Americans to spend more.
Source:BBC
www.bbc.com
Thursday, November 04, 2010
Cameron reveals Silicon Valley vision for east London
Prime Minister David Cameron has unveiled plans to transform London's East End into one of the "world's great technology centres".
[justify]Firms including Google and Facebook are to invest in the East London Tech City, he said in a speech.
He hopes the area, which includes Olympic Park, will challenge California's Silicon Valley as a global hub for technology.
[b]Mr Cameron[/b] made his announcement in Shoreditch, east London.
The initiative reflects his plan to create private sector jobs to fill the hole left by public sector spending cuts.
In a speech to businesses and entrepreneurs, [b]Mr Cameron[/b] said: "Right now, Silicon Valley is the leading place in the world for hi-tech growth and innovation.
"But there's no reason why it has to be so predominant.
'[b]Creativity and energy[/b]'
"Our ambition is to bring together the creativity and energy of Shoreditch and the incredible possibilities of the Olympic Park to help make east London one of the world's great technology centres."
He said the response from international technology firms and venture capitalists to the government's proposals had been "overwhelming".
Firms planning to invest in the area, which will stretch from Old Street to the Olympic Park, include Cisco, Intel and British Telecom.
The Olympic Park Legacy Company will provide office space in the Olympic Park.
[b]Mr Cameron[/b] said the government is committed to ensuring the UK can become "the most attractive place in the world" for innovative firms to start up.[/justify]
Source: BBC
www.bbc.co.uk
[justify]Firms including Google and Facebook are to invest in the East London Tech City, he said in a speech.
He hopes the area, which includes Olympic Park, will challenge California's Silicon Valley as a global hub for technology.
[b]Mr Cameron[/b] made his announcement in Shoreditch, east London.
The initiative reflects his plan to create private sector jobs to fill the hole left by public sector spending cuts.
In a speech to businesses and entrepreneurs, [b]Mr Cameron[/b] said: "Right now, Silicon Valley is the leading place in the world for hi-tech growth and innovation.
"But there's no reason why it has to be so predominant.
'[b]Creativity and energy[/b]'
"Our ambition is to bring together the creativity and energy of Shoreditch and the incredible possibilities of the Olympic Park to help make east London one of the world's great technology centres."
He said the response from international technology firms and venture capitalists to the government's proposals had been "overwhelming".
Firms planning to invest in the area, which will stretch from Old Street to the Olympic Park, include Cisco, Intel and British Telecom.
The Olympic Park Legacy Company will provide office space in the Olympic Park.
[b]Mr Cameron[/b] said the government is committed to ensuring the UK can become "the most attractive place in the world" for innovative firms to start up.[/justify]
Source: BBC
www.bbc.co.uk
Canada blocks BHP takeover bid for Potash
The Canadian government has blocked mining giant BHP Billiton's hostile takeover bid for the fertiliser group Potash Corporation.
The government said it was not convinced that the deal was in the Canadian interest.
BHP said it was "disappointed" with the decision, but believed that the deal would benefit Canada.
BHP now has 30 days to convince Canada the deal should be approved before the government makes its final ruling.
"In Canada, our natural resources are an important economic driver," said Canada's Industry Minister Tony Clement.
"I have come to the conclusion that BHP Billiton does not present a likely net benefit to Canada."
In response, BHP said that it would continue to cooperate with Mr Clement and would "review its options".
Mounting opposition
BHP made a $38.6bn (£23.7bn) bid for the Saskatchewan-based company in August.
Last month, the province's premier asked the Canadian government to block the bid.
Potash Corporation itself had already asked a US District Court in Chicago to block it, on the basis of BHP's "false statements and half-truths".
BHP said the lawsuit was "entirely without merit".
By law, government officials in Ottawa must review takeovers by foreign companies to make sure that Canada could gain a net benefit from any deal.
Anglo-Australian BHP Billiton is the world's largest mining company, while Potash Corporation controls more than 25% of the world's supply of potash - a common name given to salts mined for fertiliser.
The government said it was not convinced that the deal was in the Canadian interest.
BHP said it was "disappointed" with the decision, but believed that the deal would benefit Canada.
BHP now has 30 days to convince Canada the deal should be approved before the government makes its final ruling.
"In Canada, our natural resources are an important economic driver," said Canada's Industry Minister Tony Clement.
"I have come to the conclusion that BHP Billiton does not present a likely net benefit to Canada."
In response, BHP said that it would continue to cooperate with Mr Clement and would "review its options".
Mounting opposition
BHP made a $38.6bn (£23.7bn) bid for the Saskatchewan-based company in August.
Last month, the province's premier asked the Canadian government to block the bid.
Potash Corporation itself had already asked a US District Court in Chicago to block it, on the basis of BHP's "false statements and half-truths".
BHP said the lawsuit was "entirely without merit".
By law, government officials in Ottawa must review takeovers by foreign companies to make sure that Canada could gain a net benefit from any deal.
Anglo-Australian BHP Billiton is the world's largest mining company, while Potash Corporation controls more than 25% of the world's supply of potash - a common name given to salts mined for fertiliser.
Wednesday, November 03, 2010
Federal Reserve to pump $600bn into US economy
The Federal Reserve has announced that it will pump $600bn (£373bn) into the US economy by the end of June next year to try to boost the fragile recovery.
This stimulus, which equates to $75bn a month, is slightly more than many economists had expected.
The US economy grew by an annual rate of 2% between July and September, which is not enough to reduce high unemployment.
Some analysts see QE as the last chance to get the US economy back on track.
Second step
Interest rates are already close to zero, which means the Fed cannot reduce rates any further in order to boost demand - the more traditional policy used by central banks to stimulate growth.
Instead, it has announced a fresh round of QE, in which it will create money to buy long-dated government bonds. The move was widely flagged, with most analysts expecting the Fed to pump $500bn into the economy.
The programme has been dubbed QE2, after the Fed pumped $1.75tn into the economy during the downturn in its first round of QE.
It is in addition to the Fed's previously announced plan to reinvest $250bn-$300bn of repayments it is due from existing US mortgage debt investments over the coming year.
The Fed said in a statement that the "pace of recovery in output and employment remains slow. Household spending is increasing gradually, but remains constrained buy high unemployment, modest income growth, lower housing wealth and tight credit".
It added that it would "regularly review the pace of its securities purchases and the overall size of the asset-purchase programme in light of incoming information".
One member of the Fed's Open Market Committee, which decides interest rates and QE, voted against the additional stimulus measures.
Thomas Hoenig argued that further stimulus could, over time, create inflationary pressure and "destabilise the economy".
Bank lending
Opinions are divided about how effective QE2 will be, partly because of questions about how much impact the first, much larger, round of QE had.
Some credit the programme with pulling the US out of recession, while others argue that it had little impact on consumer demand and the tight credit conditions that make it hard for individuals and businesses to access bank finance.
As a result, some economists believe the Fed will have to pump far more than $500bn into the economy to make a meaningful difference.
"The bottom line is the plan provides a boost to the economy's growth, but it is not going to solve our problems," said Mark Zandi, chief economist at Moody's Analytics.
"Even with the Fed's action, we're going to feel uncomfortable about the economy in the next six to 12 months."
Slow growth
What most do agree on, however, is that the Fed had to do something.
The US economy grew at an annualised rate of 2% between July and September.
The annualised rate is the rate at which the economy would grow over a year if the three-month growth rate were replicated over all four quarters.
While this was an improvement on the 1.7% annualised growth seen between April and June, it was less than the 3.7% annualised growth recorded in the first three months of the year.
Together, these growth rates are below the historical rates posted by the US economy during recoveries from past recessions.
Also a cause for concern is the fact that growth in business inventories made up more than two-thirds of the annualised 2% third-quarter growth - in other words, businesses simply re-stocking following the downturn.
Job losses
Such modest rates of growth are having little impact on the high level of unemployment in the US, which currently stands at 9.6%.
Official figures show that the economy lost a 95,000 jobs in September, as public-sector cuts outpaced hiring by the private sector.
This was almost double the figure for August, when 54,000 jobs were lost.
It is this high level of unemployment that is acting as a key drag on economic growth.
This stimulus, which equates to $75bn a month, is slightly more than many economists had expected.
The US economy grew by an annual rate of 2% between July and September, which is not enough to reduce high unemployment.
Some analysts see QE as the last chance to get the US economy back on track.
Second step
Interest rates are already close to zero, which means the Fed cannot reduce rates any further in order to boost demand - the more traditional policy used by central banks to stimulate growth.
Instead, it has announced a fresh round of QE, in which it will create money to buy long-dated government bonds. The move was widely flagged, with most analysts expecting the Fed to pump $500bn into the economy.
The programme has been dubbed QE2, after the Fed pumped $1.75tn into the economy during the downturn in its first round of QE.
It is in addition to the Fed's previously announced plan to reinvest $250bn-$300bn of repayments it is due from existing US mortgage debt investments over the coming year.
The Fed said in a statement that the "pace of recovery in output and employment remains slow. Household spending is increasing gradually, but remains constrained buy high unemployment, modest income growth, lower housing wealth and tight credit".
It added that it would "regularly review the pace of its securities purchases and the overall size of the asset-purchase programme in light of incoming information".
One member of the Fed's Open Market Committee, which decides interest rates and QE, voted against the additional stimulus measures.
Thomas Hoenig argued that further stimulus could, over time, create inflationary pressure and "destabilise the economy".
Bank lending
Opinions are divided about how effective QE2 will be, partly because of questions about how much impact the first, much larger, round of QE had.
Some credit the programme with pulling the US out of recession, while others argue that it had little impact on consumer demand and the tight credit conditions that make it hard for individuals and businesses to access bank finance.
As a result, some economists believe the Fed will have to pump far more than $500bn into the economy to make a meaningful difference.
"The bottom line is the plan provides a boost to the economy's growth, but it is not going to solve our problems," said Mark Zandi, chief economist at Moody's Analytics.
"Even with the Fed's action, we're going to feel uncomfortable about the economy in the next six to 12 months."
Slow growth
What most do agree on, however, is that the Fed had to do something.
The US economy grew at an annualised rate of 2% between July and September.
The annualised rate is the rate at which the economy would grow over a year if the three-month growth rate were replicated over all four quarters.
While this was an improvement on the 1.7% annualised growth seen between April and June, it was less than the 3.7% annualised growth recorded in the first three months of the year.
Together, these growth rates are below the historical rates posted by the US economy during recoveries from past recessions.
Also a cause for concern is the fact that growth in business inventories made up more than two-thirds of the annualised 2% third-quarter growth - in other words, businesses simply re-stocking following the downturn.
Job losses
Such modest rates of growth are having little impact on the high level of unemployment in the US, which currently stands at 9.6%.
Official figures show that the economy lost a 95,000 jobs in September, as public-sector cuts outpaced hiring by the private sector.
This was almost double the figure for August, when 54,000 jobs were lost.
It is this high level of unemployment that is acting as a key drag on economic growth.
Santander UK chief to take over as Lloyds head
Antonio Horta-Osorio, head of Santander's UK business, is to take over from Eric Daniels as chief executive of Lloyds Banking Group.
The appointment is a coup for Lloyds, as Mr Horta-Osorio has built a strong reputation at the Spanish bank after leading a series of bold UK acquisitions and has kept the business in good shape throughout the financial crisis. He had been considered a potential successor to Alfredo Saenz, chief executive of Santander.
Mr Daniels, who had been under pressure to step down since Lloyds' controversial acquisition of HBOS, the troubled lender, said in September that he would retire next year.
Lloyds said on Wednesday that Mr Horta-Osorio would take over in March 2011. The announcement may come as a surprise given that Lloyds had recently signalled that the succession process was still in the early stages.
Mr Daniels returned Lloyds to profitability in the first half of the year and has overseen the bulk of the integration of the HBOS business, acquired at the height of the financial crisis.
However, Mr Horta-Osorio faces a number of big challenges. He will be charged with overseeing the disposal of the UK government's 41 per cent sake in Lloyds and will also have to negotiate the forced sale of 600 of its UK branches, as requested by European regulators.
Mr Horta-Osorio will be in a good position to lead this sale having recently overseen Santander's purchase of 300 retail branches that were sold by Royal Bank of Scotland.
Following a strong first half, Lloyds struck a note of caution on Tuesday about its performance in the third quarter, saying the two drivers of its recovery -- net interest margins and falling impairments -- had only been "modest".
Mr Horta-Osorio's defection is a blow to Santander, which is set to list its UK business on the London Stock Exchange in the first half of next year.
The bank has lined up Ana Patrica Botin, the daughter of Santander chairman Emilio Botin, to replace Mr Horta-Osorio as head of the UK business, though it has yet to announce the appointment.
Source: FT.com
The appointment is a coup for Lloyds, as Mr Horta-Osorio has built a strong reputation at the Spanish bank after leading a series of bold UK acquisitions and has kept the business in good shape throughout the financial crisis. He had been considered a potential successor to Alfredo Saenz, chief executive of Santander.
Mr Daniels, who had been under pressure to step down since Lloyds' controversial acquisition of HBOS, the troubled lender, said in September that he would retire next year.
Lloyds said on Wednesday that Mr Horta-Osorio would take over in March 2011. The announcement may come as a surprise given that Lloyds had recently signalled that the succession process was still in the early stages.
Mr Daniels returned Lloyds to profitability in the first half of the year and has overseen the bulk of the integration of the HBOS business, acquired at the height of the financial crisis.
However, Mr Horta-Osorio faces a number of big challenges. He will be charged with overseeing the disposal of the UK government's 41 per cent sake in Lloyds and will also have to negotiate the forced sale of 600 of its UK branches, as requested by European regulators.
Mr Horta-Osorio will be in a good position to lead this sale having recently overseen Santander's purchase of 300 retail branches that were sold by Royal Bank of Scotland.
Following a strong first half, Lloyds struck a note of caution on Tuesday about its performance in the third quarter, saying the two drivers of its recovery -- net interest margins and falling impairments -- had only been "modest".
Mr Horta-Osorio's defection is a blow to Santander, which is set to list its UK business on the London Stock Exchange in the first half of next year.
The bank has lined up Ana Patrica Botin, the daughter of Santander chairman Emilio Botin, to replace Mr Horta-Osorio as head of the UK business, though it has yet to announce the appointment.
Source: FT.com
Tuesday, November 02, 2010
Australia unexpectedly raises rates
By Peter Smith, FT.com
(FT) -- Australia's central bank has defied market predictions by lifting its official interest rate by 25 basis points to 4.75 per cent as it attempts to damp inflationary pressures as the country's economic recovery gathers pace.
The surprise move on Tuesday lifted the Australian dollar by as much as 1.1 per cent to US$0.9993.
Lifting rates for the first time since May, the Reserve Bank of Australia warned the country's economy was "subject to a large expansionary shock from the high terms of trade and has relatively modest amounts of spare capacity".
Seventeen out of 24 economists surveyed by Bloomberg had expected rates to be held steady although many had predicted an increase before the year end.
The central bank has now raised rates seven times since October last year when they hit a 49-year low of 3 per cent. Australia stood alone among the developed world by narrowly avoiding technical recession during the global financial crisis and its central bank was the first among the Group of 20 nations to begin raising rates in the aftermath of the downturn.
Canada, Norway, New Zealand and other nations have since tightened monetary policy, although not as aggressively as Australia which is enjoying boom conditions in its mining industry.
Glenn Stevens, RBA governor, said concerns about a larger than expected slowdown in China, Australia's top trading partner, had lessened, while most commodity prices had firmed.
"The [commodity] prices most important to Australia remain at very high levels, with the result that the terms of trade are at their highest since the early 1950s," Mr Stevens said. Australia's biggest exports are coal and iron ore.
"While there has been a degree of caution in private spending behaviour thus far, the rise in the terms of trade, which is now boosting national income very substantially, is likely to lead to stronger private spending over the next couple of years, especially in business investment," he said.
Annette Beacher, senior strategist at TD Securities, said the deteriorating outlook for inflation in Australia had driven the latest rate hike and the central bank had now made "the official jump into restrictive monetary policy".
She predicted that the central bank will raise rates to 5.75 per cent "over the next year".
(FT) -- Australia's central bank has defied market predictions by lifting its official interest rate by 25 basis points to 4.75 per cent as it attempts to damp inflationary pressures as the country's economic recovery gathers pace.
The surprise move on Tuesday lifted the Australian dollar by as much as 1.1 per cent to US$0.9993.
Lifting rates for the first time since May, the Reserve Bank of Australia warned the country's economy was "subject to a large expansionary shock from the high terms of trade and has relatively modest amounts of spare capacity".
Seventeen out of 24 economists surveyed by Bloomberg had expected rates to be held steady although many had predicted an increase before the year end.
The central bank has now raised rates seven times since October last year when they hit a 49-year low of 3 per cent. Australia stood alone among the developed world by narrowly avoiding technical recession during the global financial crisis and its central bank was the first among the Group of 20 nations to begin raising rates in the aftermath of the downturn.
Canada, Norway, New Zealand and other nations have since tightened monetary policy, although not as aggressively as Australia which is enjoying boom conditions in its mining industry.
Glenn Stevens, RBA governor, said concerns about a larger than expected slowdown in China, Australia's top trading partner, had lessened, while most commodity prices had firmed.
"The [commodity] prices most important to Australia remain at very high levels, with the result that the terms of trade are at their highest since the early 1950s," Mr Stevens said. Australia's biggest exports are coal and iron ore.
"While there has been a degree of caution in private spending behaviour thus far, the rise in the terms of trade, which is now boosting national income very substantially, is likely to lead to stronger private spending over the next couple of years, especially in business investment," he said.
Annette Beacher, senior strategist at TD Securities, said the deteriorating outlook for inflation in Australia had driven the latest rate hike and the central bank had now made "the official jump into restrictive monetary policy".
She predicted that the central bank will raise rates to 5.75 per cent "over the next year".
Tuesday, October 26, 2010
Mervyn King attacks 'absurd' bank risk
Bank of England Governor Mervyn King has attacked the 'absurd' level of risk taken on by banks in a speech.
He called the banks' reliance on short-term debt to meet funding needs in 2008 an "accident waiting to happen".
He said that, in future, banks must be forced to rely much more on equity to finance their risky activities.
His comments raise the prospect that big UK banks will be required to hold significantly more equity than new international rules require.
In order to do this, the banks might have to issue new shares, pay out less profits as dividends, or ration new lending more tightly.
Tighter rules
In September, the Basel international committee of bank regulators raised the minimum ratio of equity that banks must hold to absorb losses on loans and other risky investments from 2% to 7% of assets.
However, the committee said that even higher ratios were still to be agreed for the biggest banks whose failure would pose a risk to the financial system.
And individual regulators - such as the Bank of England - are free to set even higher standards if they choose.
The Swiss announced much higher capital ratios for their two biggest banks earlier this month.
'Achilles heel'
Mr King said that the new Basel minimum capital ratios were inadequate to address the problem of banks that are too big too fail, such as Barclays, HSBC and RBS.
Such banks, he said, enjoy an implicit guarantee, which gives them an incentive to take on excessive risks.
He also said that the coalition government's proposal for a bank levy - which is expected to raise £2.5bn a year - would be nowhere near enough to cover the losses of a future financial crisis.
"The balance sheets of too many banks were an accident waiting to happen," he said, referring to the 2008 financial crisis.
"For all the clever innovation in the financial system, its Achilles heel was, and remains, simply the extraordinary - indeed absurd - levels of leverage represented by a heavy reliance on short-term debt," said Mr King.
"The broad answer to the problem is likely to be remarkably simple. Banks should be financed much more heavily by equity rather than short-term debt. Much, much more equity. Much, much less short-term debt."
He claimed a future crisis could only be averted by requiring capital levels that would "be seen by the industry as wildly excessive most of the time".
He expressed scepticism about the idea that banks could calibrate their borrowings depending on the riskiness of their investments.
"If only banks were playing in a casino, then we probably could calculate appropriate risk weights," he said. "Unfortunately, the world is more complicated."
Mr King gave his speech at the Buttonwood Gathering - a conference of economists in New York arranged by the Economist magazine.
Source: www.bbc.co.uk
He called the banks' reliance on short-term debt to meet funding needs in 2008 an "accident waiting to happen".
He said that, in future, banks must be forced to rely much more on equity to finance their risky activities.
His comments raise the prospect that big UK banks will be required to hold significantly more equity than new international rules require.
In order to do this, the banks might have to issue new shares, pay out less profits as dividends, or ration new lending more tightly.
Tighter rules
In September, the Basel international committee of bank regulators raised the minimum ratio of equity that banks must hold to absorb losses on loans and other risky investments from 2% to 7% of assets.
However, the committee said that even higher ratios were still to be agreed for the biggest banks whose failure would pose a risk to the financial system.
And individual regulators - such as the Bank of England - are free to set even higher standards if they choose.
The Swiss announced much higher capital ratios for their two biggest banks earlier this month.
'Achilles heel'
Mr King said that the new Basel minimum capital ratios were inadequate to address the problem of banks that are too big too fail, such as Barclays, HSBC and RBS.
Such banks, he said, enjoy an implicit guarantee, which gives them an incentive to take on excessive risks.
He also said that the coalition government's proposal for a bank levy - which is expected to raise £2.5bn a year - would be nowhere near enough to cover the losses of a future financial crisis.
"The balance sheets of too many banks were an accident waiting to happen," he said, referring to the 2008 financial crisis.
"For all the clever innovation in the financial system, its Achilles heel was, and remains, simply the extraordinary - indeed absurd - levels of leverage represented by a heavy reliance on short-term debt," said Mr King.
"The broad answer to the problem is likely to be remarkably simple. Banks should be financed much more heavily by equity rather than short-term debt. Much, much more equity. Much, much less short-term debt."
He claimed a future crisis could only be averted by requiring capital levels that would "be seen by the industry as wildly excessive most of the time".
He expressed scepticism about the idea that banks could calibrate their borrowings depending on the riskiness of their investments.
"If only banks were playing in a casino, then we probably could calculate appropriate risk weights," he said. "Unfortunately, the world is more complicated."
Mr King gave his speech at the Buttonwood Gathering - a conference of economists in New York arranged by the Economist magazine.
Source: www.bbc.co.uk
UK economy grows a faster-than-expected 0.8%
The UK's economy grew at 0.8% between July and September, official figures show, suggesting the economy is recovering faster than expected.
It follows 1.2% growth in the second quarter of the year, and is double the 0.4% expected by analysts.
Meanwhile rating agency Standard and Poor's upgraded its outlook for the UK's triple-A credit rating.
Chancellor George Osborne called both reports "a vote of confidence in the new government's economic policies".
The gross domestic product (GDP) figure released by the Office for National Statistics (ONS) is only a first estimate, and may be revised.
Analysts had expected a slowdown after weak retail sales and housing data.
Government relief
"This is the second major GDP growth surprise in a row and suggests that the UK economy is more resilient than many had feared," said James Knightley, economist at ING.
"The government will no doubt take this as a sign that the private sector can fill the gap created by public sector cuts, but with consumer confidence, hiring intentions surveys and housing activity data all softening we remain cautious."
But Chancellor George Osborne said that, along with the government's Spending Review announced last week, the ONS data should help underpin confidence in the UK economy.
"The ONS believe that the underlying growth in the third quarter was 'broadly similar' to the strong second quarter," he said.
"This gives me confidence that although global economic conditions remain choppy, a steady recovery is underway."
However, shadow chancellor Alan Johnson claimed the data showed no such thing.
"There's no sign yet of the kind of momentum in the private sector that we need to actually create the 2.5 million jobs that the [Office of Budget Responsibility] is suggesting are necessary, to actually come out of this with increases in employment," he said.
But the government's planned cuts in its Spending Review got a stamp of approval from ratings agency Standard & Poor's, which raised its outlook for the UK's triple-A rating back to "stable" from "negative".
"In our opinion, the decisions reached by the United Kingdom coalition government in its 2010 Spending Review reduce risks to the government's implementation of its June 2010 fiscal consolidation programme," the company said in a statement.
Building momentum?
The construction sector continued to grow strongly at 4%, the data release from the ONS showed, although this was slower than the 9.5% recorded in the previous three months.
The building industry has been dealing with a backlog of work that had been postponed from the beginning of the year due to bad weather.
"It's basically all down to construction again and I think the implication is that that's not sustainable," said James Nixon, economist at Societe Generale.
"The underlying rate is obviously significantly less than these headline numbers would suggest."
The recovering construction industry contributed almost a third of the total GDP growth for the quarter.
However, the latest data suggests that the recovery may be becoming slightly broader-based.
Manufacturing slowed to 0.6% from 1.0% the previous quarter, but was still ahead of predictions.
Service industries also held steady at 0.6% growth, with the transport, storage and communications sub-sector returning to growth.
The pound jumped following the news, which lowered expectations that the Bank of England will engage in further quantitative easing in the near future.
The pound rose one cent against the dollar, to $1.585, immediately following the data release.
"Today's data ought to dispel any notion that the Bank of England will implement more quantitative easing in the near term," said Hetal Mehta, analyst at Daiwa Capital Markets.
Slowdown fears
Some economists had feared the UK economy was stalling on the back of spending cut threats.
"The timing of the VAT rise in the new year will help to bolster spending over the fourth quarter, but this is also likely to slow growth more noticeably through the winter and early next year," predicted Ian McCafferty, chief economic adviser to the CBI business group.
Recent surveys have suggested that confidence in the manufacturing and services sectors has dropped due to concerns surrounding the impact of the spending cuts.
Weaker-than-expected retail sales in September added to the concerns, with sales slipping 0.2%.
Meanwhile, the housing market has also started to suffer. Figures released by the British Bankers' Association on Monday showed that the downward trend in the number of mortgage approvals for house purchases had continued in September.
Source: www.bbc.co.uk
It follows 1.2% growth in the second quarter of the year, and is double the 0.4% expected by analysts.
Meanwhile rating agency Standard and Poor's upgraded its outlook for the UK's triple-A credit rating.
Chancellor George Osborne called both reports "a vote of confidence in the new government's economic policies".
The gross domestic product (GDP) figure released by the Office for National Statistics (ONS) is only a first estimate, and may be revised.
Analysts had expected a slowdown after weak retail sales and housing data.
Government relief
"This is the second major GDP growth surprise in a row and suggests that the UK economy is more resilient than many had feared," said James Knightley, economist at ING.
"The government will no doubt take this as a sign that the private sector can fill the gap created by public sector cuts, but with consumer confidence, hiring intentions surveys and housing activity data all softening we remain cautious."
But Chancellor George Osborne said that, along with the government's Spending Review announced last week, the ONS data should help underpin confidence in the UK economy.
"The ONS believe that the underlying growth in the third quarter was 'broadly similar' to the strong second quarter," he said.
"This gives me confidence that although global economic conditions remain choppy, a steady recovery is underway."
However, shadow chancellor Alan Johnson claimed the data showed no such thing.
"There's no sign yet of the kind of momentum in the private sector that we need to actually create the 2.5 million jobs that the [Office of Budget Responsibility] is suggesting are necessary, to actually come out of this with increases in employment," he said.
But the government's planned cuts in its Spending Review got a stamp of approval from ratings agency Standard & Poor's, which raised its outlook for the UK's triple-A rating back to "stable" from "negative".
"In our opinion, the decisions reached by the United Kingdom coalition government in its 2010 Spending Review reduce risks to the government's implementation of its June 2010 fiscal consolidation programme," the company said in a statement.
Building momentum?
The construction sector continued to grow strongly at 4%, the data release from the ONS showed, although this was slower than the 9.5% recorded in the previous three months.
The building industry has been dealing with a backlog of work that had been postponed from the beginning of the year due to bad weather.
"It's basically all down to construction again and I think the implication is that that's not sustainable," said James Nixon, economist at Societe Generale.
"The underlying rate is obviously significantly less than these headline numbers would suggest."
The recovering construction industry contributed almost a third of the total GDP growth for the quarter.
However, the latest data suggests that the recovery may be becoming slightly broader-based.
Manufacturing slowed to 0.6% from 1.0% the previous quarter, but was still ahead of predictions.
Service industries also held steady at 0.6% growth, with the transport, storage and communications sub-sector returning to growth.
The pound jumped following the news, which lowered expectations that the Bank of England will engage in further quantitative easing in the near future.
The pound rose one cent against the dollar, to $1.585, immediately following the data release.
"Today's data ought to dispel any notion that the Bank of England will implement more quantitative easing in the near term," said Hetal Mehta, analyst at Daiwa Capital Markets.
Slowdown fears
Some economists had feared the UK economy was stalling on the back of spending cut threats.
"The timing of the VAT rise in the new year will help to bolster spending over the fourth quarter, but this is also likely to slow growth more noticeably through the winter and early next year," predicted Ian McCafferty, chief economic adviser to the CBI business group.
Recent surveys have suggested that confidence in the manufacturing and services sectors has dropped due to concerns surrounding the impact of the spending cuts.
Weaker-than-expected retail sales in September added to the concerns, with sales slipping 0.2%.
Meanwhile, the housing market has also started to suffer. Figures released by the British Bankers' Association on Monday showed that the downward trend in the number of mortgage approvals for house purchases had continued in September.
Source: www.bbc.co.uk
Friday, October 15, 2010
Financial Regulatory Reforms to be Discussed at FSB Seoul Plenary
A plenary session of the Financial Stability Board, or FSB, will be held in Seoul next Wednesday to discuss financial regulatory reforms ahead of next month's G20 Seoul Summit.
Key agenda items on the table include strengthening supervision of global SIFI's or Systemically Important Financial Institutions and enhancing bank capital regulation.
The delegates will also discuss the establishment of an outreach program to encourage non-member countries to participate in the FSB.
The results of the meeting will then be reported to the G20 leaders at the Seoul summit, where the issues are expected to be resolved.
Key agenda items on the table include strengthening supervision of global SIFI's or Systemically Important Financial Institutions and enhancing bank capital regulation.
The delegates will also discuss the establishment of an outreach program to encourage non-member countries to participate in the FSB.
The results of the meeting will then be reported to the G20 leaders at the Seoul summit, where the issues are expected to be resolved.
Thursday, October 07, 2010
Financial Stability Set Back by Debt Woes: IMF
WASHINGTON (Reuters) - Sovereign debt risk in Europe and continued real estate woes in the United States have dealt a setback to global financial stability in the past six months, the International Monetary Fund said on Tuesday.
The IMF said risks to the financial sector could be reduced if legacy problem assets were cleaned up, if governments improved their fiscal positions and if more clarity were provided on global financial regulation.
"The global financial system is still in a period of significant uncertainty and remains the Achilles' heel of the economic recovery," the IMF said in its semi-annual Global Financial Stability Report.
"The recent turmoil in sovereign debt markets in Europe highlighted increased vulnerabilities of bank and sovereign balance sheets arising from the crisis," the fund said.
Jose Vinals, director of the IMF's Monetary and Capital Markets Department, said recent volatility in currency markets was not a major concern for global financial stability as long as the changes "move in the direction of medium-term fundamentals.
"The best way of protecting against any unintended consequences of foreign exchange rate changes on financial balance sheets is to have sound buffers to accommodate whatever changes happen," he added.
The IMF said it trimmed its estimate of total global bank write-downs related to the financial crisis between 2007 and 2010 to $2.2 trillion from its April estimate of $2.3 trillion, largely on a drop in securities losses. Banks have recognized more than three-quarters of these write-offs, leaving about $550 billion still to be taken.
However, the fund said banks had made less progress in dealing with near-term funding pressures -- nearly $4 trillion of bank debt needs to be refinanced in the next 24 months.
"Overall, bank balance sheets need to be further bolstered to ensure financial stability against funding shocks and to prevent adverse feedback loops with the real economy," the IMF said.
The forceful policy response to the European debt crisis in April and May of this year helped to offset market and liquidity risks to banks. But the sector's stability in the region remains vulnerable to potential market shocks, the IMF said.
U.S. REAL ESTATE WEIGHS
In the United States, concerns about household balance sheets and real estate markets amid persistently high unemployment are clouding the outlook for loan quality and bank capital needs.
"Although manageable from a financial stability perspective, a double dip in real estate could have a long lasting impact on the economic recovery," the IMF said.
U.S. banks have had to raise modest amounts of capital, but this largely reflects the shifting of much of the mortgage risks and losses onto Fannie Mae and Freddie Mac, the IMF said. Capital challenges for these government-controlled entities could reactivate a negative global feedback loop between the financial system and the economy.
The fund said it conducted its own "stress test" on the top 40 U.S. banking companies and found that in an adverse scenario where real estate prices fell significantly, these banks would require $13 billion in additional capital to maintain a 4 percent Tier 1 common capital ratio.
"Mid-size banks are particularly vulnerable because it may be more difficult for them to raise capital," the IMF said.
Vinals said the IMF was not immediately concerned with the risk of asset bubbles in emerging market economies but acknowledged there were "hot spots" that needed monitoring.
Brazil said on Tuesday it would increase its tax on foreign bond purchases to curb a rapid rise in its currency and to protect exporters amid a surge of private capital into the country.
Vinals said the earlier tax imposed by Brazil on equity investments to slow the flow of capital had diverted investments from stocks into bonds but did little to tackle the overall flows.
"I think the jury is still out. We just have to see what happens to assess the effectiveness of these new measures," he added.
(Additional reporting by Lesley Wroughton and Emily Kaiser in Washington; Editing by Neil Stempleman and Padraic Cassidy)
By David Lawder
Source: ABS News
www.abcnews.go.com
The IMF said risks to the financial sector could be reduced if legacy problem assets were cleaned up, if governments improved their fiscal positions and if more clarity were provided on global financial regulation.
"The global financial system is still in a period of significant uncertainty and remains the Achilles' heel of the economic recovery," the IMF said in its semi-annual Global Financial Stability Report.
"The recent turmoil in sovereign debt markets in Europe highlighted increased vulnerabilities of bank and sovereign balance sheets arising from the crisis," the fund said.
Jose Vinals, director of the IMF's Monetary and Capital Markets Department, said recent volatility in currency markets was not a major concern for global financial stability as long as the changes "move in the direction of medium-term fundamentals.
"The best way of protecting against any unintended consequences of foreign exchange rate changes on financial balance sheets is to have sound buffers to accommodate whatever changes happen," he added.
The IMF said it trimmed its estimate of total global bank write-downs related to the financial crisis between 2007 and 2010 to $2.2 trillion from its April estimate of $2.3 trillion, largely on a drop in securities losses. Banks have recognized more than three-quarters of these write-offs, leaving about $550 billion still to be taken.
However, the fund said banks had made less progress in dealing with near-term funding pressures -- nearly $4 trillion of bank debt needs to be refinanced in the next 24 months.
"Overall, bank balance sheets need to be further bolstered to ensure financial stability against funding shocks and to prevent adverse feedback loops with the real economy," the IMF said.
The forceful policy response to the European debt crisis in April and May of this year helped to offset market and liquidity risks to banks. But the sector's stability in the region remains vulnerable to potential market shocks, the IMF said.
U.S. REAL ESTATE WEIGHS
In the United States, concerns about household balance sheets and real estate markets amid persistently high unemployment are clouding the outlook for loan quality and bank capital needs.
"Although manageable from a financial stability perspective, a double dip in real estate could have a long lasting impact on the economic recovery," the IMF said.
U.S. banks have had to raise modest amounts of capital, but this largely reflects the shifting of much of the mortgage risks and losses onto Fannie Mae and Freddie Mac, the IMF said. Capital challenges for these government-controlled entities could reactivate a negative global feedback loop between the financial system and the economy.
The fund said it conducted its own "stress test" on the top 40 U.S. banking companies and found that in an adverse scenario where real estate prices fell significantly, these banks would require $13 billion in additional capital to maintain a 4 percent Tier 1 common capital ratio.
"Mid-size banks are particularly vulnerable because it may be more difficult for them to raise capital," the IMF said.
Vinals said the IMF was not immediately concerned with the risk of asset bubbles in emerging market economies but acknowledged there were "hot spots" that needed monitoring.
Brazil said on Tuesday it would increase its tax on foreign bond purchases to curb a rapid rise in its currency and to protect exporters amid a surge of private capital into the country.
Vinals said the earlier tax imposed by Brazil on equity investments to slow the flow of capital had diverted investments from stocks into bonds but did little to tackle the overall flows.
"I think the jury is still out. We just have to see what happens to assess the effectiveness of these new measures," he added.
(Additional reporting by Lesley Wroughton and Emily Kaiser in Washington; Editing by Neil Stempleman and Padraic Cassidy)
By David Lawder
Source: ABS News
www.abcnews.go.com
Wednesday, October 06, 2010
Global Financial Stability Report
A Report by the Monetary and Capital Markets Department on Market Developments and Issues
October 2010: The global financial system is still in a period of significant uncertainty and remains the Achilles' heel of the economic recovery. Although the ongoing recovery is expected to result in a gradual strengthening of balance sheets, progress toward financial stability has experienced a setback since the April 2010 GFSR. The current report highlights how risks have changed over the last six months, traces the sources and channels of financial distress with an emphasis on sovereign risk, and provides a discussion of policy proposals under consideration to mend the global financial system.
April 2010: Risks to global financial stability have eased as the economic recovery has gained steam. But policies are needed to reduce sovereign vulnerabilities, ensure a smooth deleveraging process, and complete the regulatory agenda. The report examines systemic risk and the redesign of financial regulation; the role of central counterparties in making over-the-counter derivatives safer; and the effects of the expansion of global liquidity on receiving economies.
October 2009: This GFSR chronicles the evolution of the path toward reestablishing sound credit intermediation and the near-term risks that could interrupt its restoration, including the rising burden of sovereign financing. The report addresses how to restart securitization markets and the pitfalls if done improperly. The effectiveness of unconventional public sector interventions and the principles for disengagement are discussed. The report also discusses the design of medium-term policies that aim to reshape the financial system to make it more resilient and stable.
April 2009: The global financial system remains under severe stress as the crisis broadens to include households, corporations, and the banking sectors in both advanced and emerging market countries. In normal times, the Global Financial Stability Report aims to prevent crises by highlighting policies that may mitigate systemic risks, thereby contributing to financial stability and sustained economic growth. In the current crisis, the report traces the sources and channels of financial distress and provides policy advice on mitigating its effects on economic activity, stemming contagion, and mending the global financial system.
October 2008: With financial markets worldwide facing growing turmoil, internationally coherent and decisive policy measures will be required to restore confidence in the global financial system. The process of restoring an orderly system will be challenging, as a significant deleveraging is both necessary and inevitable. It is against this challenging and still evolving backdrop that the October 2008 Global Financial Stability Report frames recent events to suggest potential policy measures that could help address the current circumstances.
April 2008: The events of the past six months have demonstrated the fragility of the global financial system and raised fundamental questions about the effectiveness of the response by private and public sector institutions. The report assesses the vulnerabilities that the system is facing and offers tentative conclusions and policy lessons. The report reflects information available up to March 21, 2008.
September 2007: Since the April 2007 Global Financial Stability Report (GFSR), global financial stability has endured an important test. Credit and market risks have risen and markets have become more volatile. Markets are recognizing the extent to which credit discipline has deteriorated in recent years — most notably in the U.S. nonprime mortgage and leveraged loan markets, but also in other related credit markets.
April 2007: This particular issue draws, in part, on a series of discussions with commercial and investment banks, securities firms, asset management companies, hedge funds, insurance companies, pension funds, stock and futures exchanges, credit rating agencies, and academic researchers, as well as regulatory and other public authorities in major financial centers and countries. Contributions from Craig Martin and Kevin Roth (Association for Financial Professionals) in the conducting of a survey are gratefully acknowledged. The report reflects information available up to February 6, 2007.
September 2006: This particular issue draws, in part, on a series of discussions with commercial and investment banks, securities firms, asset management companies, hedge funds, insurance companies, pension funds, stock and futures exchanges, credit rating agencies, and academic researchers, as well as regulatory and other public authorities in major financial centers and countries. The report reflects information available up to July 14, 2006.
April 2006: This particular issue draws, in part, on a series of informal discussions with commercial and investment banks, securities firms, asset management companies, hedge funds, insurance companies, pension funds, stock and futures exchanges, and credit rating agencies, as well as regulatory authorities and academic researchers in many major financial centers and countries. The report reflects information available up to February 10, 2006
September 2005: This particular issue draws, in part, on a series of informal discussions with commercial and investment banks, securities firms, asset management companies, hedge funds, insurance companies, pension funds, stock and futures exchanges, and credit rating agencies, as well as regulatory authorities and academic researchers in many financial centers and countries. The report reflects information available up to July 22, 2005.
April 2005: This particular issue draws, in part, on a series of informal discussions with commercial and investment banks, securities firms, asset management companies, hedge funds, insurance companies, pension funds, stock and futures exchanges, and credit rating agencies, as well as regulatory authorities and academic researchers in many financial centers and countries. The report reflects information available up to February 16, 2005.
September 2004: This issue draws, in part, on a series of informal discussions with commercial and investment banks, securities firms, asset management companies, hedge funds, insurance companies, pension funds, stock and futures exchanges, and credit rating agencies in Canada, Colombia, France, Germany, Hong Kong SAR, Italy, Japan, Mexico, the Netherlands, Poland, Singapore, Switzerland, the United Kingdom, and the United States. The report reflects information available up to July 30, 2004
April 2004: This issue draws, in part, on a series of informal discussions with commercial and investment banks, securities firms, asset management companies, insurance companies, pension funds, stock and futures exchanges, and credit rating agencies in Brazil, Chile, China, Colombia, France, Germany, Hong Kong SAR, Hungary, Japan, Korea, Mexico, Poland, Russia, Singapore, South Africa, Thailand, the United Kingdom, and the United States. The report reflects mostly information available up to March 8, 2004
September 2003: This issue draws, in part, on a series of informal discussions with commercial and investment banks, securities firms, asset management companies, insurance companies, pension funds, stock and futures exchanges, and credit rating agencies in Brazil, Chile, China, Hong Kong SAR, Hungary, Poland, Russia, Singapore, South Africa, and Thailand, as well as the major financial centers. The report reflects mostly information available up to August 4.
March 2003: This issue of the Global Financial Stability Report marks the beginning of a new semiannual frequency for the publication. This issue draws, in part, on a series of informal discussions with commercial and investment banks, securities firms, asset management companies, insurance companies, pension funds, stock and futures exchanges, and credit rating agencies in Brazil, Chile, China, Hong Kong SAR, Hungary, Japan, Poland, Russia, Singapore, Thailand, the United Kingdom, and the United States. The report reflects mostly information available up to February 28, 2003.
December 2002: This is the fourth issue of the Global Financial Stability Report, a quarterly publication launched in March 2002 to provide a regular assessment of global financial markets and to identify potential systemic weaknesses that could lead to crises. This report reflects mostly information available up to November 4, 2002.
June 2002: This is the second issue of the Global Financial Stability Report. This particular issue draws, in part, on a series of informal discussions with commerical investment banks, securities firms, asset management companies, insurance companies, pension funds, stock and futures exchanges, and credit rating agencies in China, Germany, Hong Kong SAR, Hungary, Italy, Japan, Poland, Singapore, Switzerland, Thailand, the United Kingdom, and the United States. The report reflects mostly information available up to May 10, 2002.
September 2002: This is the third issue of the Global Financial Stability Report, a quarterly publication launched in March 2002 to provide a regular assessment of global financial markets and to identify potential systemic weaknesses that could lead to crises. By calling attention to potential fault lines in the global financial system, the report seeks to play a role in preventing crises before they erupt, thereby contributing to global financial stability and to the prospertity of the IMF's member countries.
March 2002: Reviews recent developments in global financial markets and explores the potential market impact of financial imbalances and continued credit quality deterioration. It also focuses on the expansion of credit risk transfer mechanisms -- such as credit derivatives and collateralized debt obligations -- as a means for distributing credit risks. The report concludes with two essays: one on Early Warning System models and another on alternative funding instruments for emerging market countries.
Source: International Monitary Fund
www.imf.org
October 2010: The global financial system is still in a period of significant uncertainty and remains the Achilles' heel of the economic recovery. Although the ongoing recovery is expected to result in a gradual strengthening of balance sheets, progress toward financial stability has experienced a setback since the April 2010 GFSR. The current report highlights how risks have changed over the last six months, traces the sources and channels of financial distress with an emphasis on sovereign risk, and provides a discussion of policy proposals under consideration to mend the global financial system.
April 2010: Risks to global financial stability have eased as the economic recovery has gained steam. But policies are needed to reduce sovereign vulnerabilities, ensure a smooth deleveraging process, and complete the regulatory agenda. The report examines systemic risk and the redesign of financial regulation; the role of central counterparties in making over-the-counter derivatives safer; and the effects of the expansion of global liquidity on receiving economies.
October 2009: This GFSR chronicles the evolution of the path toward reestablishing sound credit intermediation and the near-term risks that could interrupt its restoration, including the rising burden of sovereign financing. The report addresses how to restart securitization markets and the pitfalls if done improperly. The effectiveness of unconventional public sector interventions and the principles for disengagement are discussed. The report also discusses the design of medium-term policies that aim to reshape the financial system to make it more resilient and stable.
April 2009: The global financial system remains under severe stress as the crisis broadens to include households, corporations, and the banking sectors in both advanced and emerging market countries. In normal times, the Global Financial Stability Report aims to prevent crises by highlighting policies that may mitigate systemic risks, thereby contributing to financial stability and sustained economic growth. In the current crisis, the report traces the sources and channels of financial distress and provides policy advice on mitigating its effects on economic activity, stemming contagion, and mending the global financial system.
October 2008: With financial markets worldwide facing growing turmoil, internationally coherent and decisive policy measures will be required to restore confidence in the global financial system. The process of restoring an orderly system will be challenging, as a significant deleveraging is both necessary and inevitable. It is against this challenging and still evolving backdrop that the October 2008 Global Financial Stability Report frames recent events to suggest potential policy measures that could help address the current circumstances.
April 2008: The events of the past six months have demonstrated the fragility of the global financial system and raised fundamental questions about the effectiveness of the response by private and public sector institutions. The report assesses the vulnerabilities that the system is facing and offers tentative conclusions and policy lessons. The report reflects information available up to March 21, 2008.
September 2007: Since the April 2007 Global Financial Stability Report (GFSR), global financial stability has endured an important test. Credit and market risks have risen and markets have become more volatile. Markets are recognizing the extent to which credit discipline has deteriorated in recent years — most notably in the U.S. nonprime mortgage and leveraged loan markets, but also in other related credit markets.
April 2007: This particular issue draws, in part, on a series of discussions with commercial and investment banks, securities firms, asset management companies, hedge funds, insurance companies, pension funds, stock and futures exchanges, credit rating agencies, and academic researchers, as well as regulatory and other public authorities in major financial centers and countries. Contributions from Craig Martin and Kevin Roth (Association for Financial Professionals) in the conducting of a survey are gratefully acknowledged. The report reflects information available up to February 6, 2007.
September 2006: This particular issue draws, in part, on a series of discussions with commercial and investment banks, securities firms, asset management companies, hedge funds, insurance companies, pension funds, stock and futures exchanges, credit rating agencies, and academic researchers, as well as regulatory and other public authorities in major financial centers and countries. The report reflects information available up to July 14, 2006.
April 2006: This particular issue draws, in part, on a series of informal discussions with commercial and investment banks, securities firms, asset management companies, hedge funds, insurance companies, pension funds, stock and futures exchanges, and credit rating agencies, as well as regulatory authorities and academic researchers in many major financial centers and countries. The report reflects information available up to February 10, 2006
September 2005: This particular issue draws, in part, on a series of informal discussions with commercial and investment banks, securities firms, asset management companies, hedge funds, insurance companies, pension funds, stock and futures exchanges, and credit rating agencies, as well as regulatory authorities and academic researchers in many financial centers and countries. The report reflects information available up to July 22, 2005.
April 2005: This particular issue draws, in part, on a series of informal discussions with commercial and investment banks, securities firms, asset management companies, hedge funds, insurance companies, pension funds, stock and futures exchanges, and credit rating agencies, as well as regulatory authorities and academic researchers in many financial centers and countries. The report reflects information available up to February 16, 2005.
September 2004: This issue draws, in part, on a series of informal discussions with commercial and investment banks, securities firms, asset management companies, hedge funds, insurance companies, pension funds, stock and futures exchanges, and credit rating agencies in Canada, Colombia, France, Germany, Hong Kong SAR, Italy, Japan, Mexico, the Netherlands, Poland, Singapore, Switzerland, the United Kingdom, and the United States. The report reflects information available up to July 30, 2004
April 2004: This issue draws, in part, on a series of informal discussions with commercial and investment banks, securities firms, asset management companies, insurance companies, pension funds, stock and futures exchanges, and credit rating agencies in Brazil, Chile, China, Colombia, France, Germany, Hong Kong SAR, Hungary, Japan, Korea, Mexico, Poland, Russia, Singapore, South Africa, Thailand, the United Kingdom, and the United States. The report reflects mostly information available up to March 8, 2004
September 2003: This issue draws, in part, on a series of informal discussions with commercial and investment banks, securities firms, asset management companies, insurance companies, pension funds, stock and futures exchanges, and credit rating agencies in Brazil, Chile, China, Hong Kong SAR, Hungary, Poland, Russia, Singapore, South Africa, and Thailand, as well as the major financial centers. The report reflects mostly information available up to August 4.
March 2003: This issue of the Global Financial Stability Report marks the beginning of a new semiannual frequency for the publication. This issue draws, in part, on a series of informal discussions with commercial and investment banks, securities firms, asset management companies, insurance companies, pension funds, stock and futures exchanges, and credit rating agencies in Brazil, Chile, China, Hong Kong SAR, Hungary, Japan, Poland, Russia, Singapore, Thailand, the United Kingdom, and the United States. The report reflects mostly information available up to February 28, 2003.
December 2002: This is the fourth issue of the Global Financial Stability Report, a quarterly publication launched in March 2002 to provide a regular assessment of global financial markets and to identify potential systemic weaknesses that could lead to crises. This report reflects mostly information available up to November 4, 2002.
June 2002: This is the second issue of the Global Financial Stability Report. This particular issue draws, in part, on a series of informal discussions with commerical investment banks, securities firms, asset management companies, insurance companies, pension funds, stock and futures exchanges, and credit rating agencies in China, Germany, Hong Kong SAR, Hungary, Italy, Japan, Poland, Singapore, Switzerland, Thailand, the United Kingdom, and the United States. The report reflects mostly information available up to May 10, 2002.
September 2002: This is the third issue of the Global Financial Stability Report, a quarterly publication launched in March 2002 to provide a regular assessment of global financial markets and to identify potential systemic weaknesses that could lead to crises. By calling attention to potential fault lines in the global financial system, the report seeks to play a role in preventing crises before they erupt, thereby contributing to global financial stability and to the prospertity of the IMF's member countries.
March 2002: Reviews recent developments in global financial markets and explores the potential market impact of financial imbalances and continued credit quality deterioration. It also focuses on the expansion of credit risk transfer mechanisms -- such as credit derivatives and collateralized debt obligations -- as a means for distributing credit risks. The report concludes with two essays: one on Early Warning System models and another on alternative funding instruments for emerging market countries.
Source: International Monitary Fund
www.imf.org
Wednesday, April 21, 2010
IMF proposes two big new bank taxes to fund bail-outs
Banks and other financial institutions face paying two new taxes to fund future bail-outs, the BBC has learned.
Business editor Robert Peston said the global proposals by the International Monetary Fund (IMF) were "more radical" than most had anticipated.
All institutions would pay a bank levy - initially at a flat-rate - and also face a further tax on profits and pay.
The measures are designed to make banks pay for the costs of future financial and economic rescue packages.
The IMF documents were made available to governments of the G20 group of nations on Tuesday afternoon and seen by the BBC soon afterwards. The plans will be discussed by finance ministers this weekend.
"The proposals are likely to horrify banks, especially the proposed tax on pay," our business editor said.
"They will also be politically explosive both domestically and internationally."
Insurers, hedge funds and other financial institutions must also pay the taxes, the IMF argues, despite them being less implicated in the recent crisis.
If they were not included, activities currently carried out by banks would be reclassified as, for example, insurance or hedge-fund services to escape the levies.
While the general levy, or "financial stability contribution", would initially be at a flat rate, this would eventually be refined so that riskier businesses paid more.
British chancellor Alistair Darling said the IMF's proposals were "important" and should be welcomed.
"The recognition that banks should make a contribution to the society in which they operate is right," he said.
Global impact
IMF REPORT
International Monetary Fund interim report for the G20 [1.5MB]
Most computers will open this document automatically, but you may need Adobe Reader
Download the reader here
It was agreed at the G20 summit in London last year that financial institutions and not tax-payers should pay for future bank rescue packages.
Since then several proposals have been put forward by various governments including the so-called "Tobin Tax" on financial transactions. Some nations, including Canada, oppose any new bank taxes.
However no country has yet introduced taxes to pay for future bailouts - arguing that unless the rules were brought in on a coordinated basis, institutions would simply "cherry pick" where they operated, moving to jurisdictions with less tough financial regulation.
The body which represents banks in the UK, the British Bankers' Association said it was concerned about any move which would place the UK industry "at a competitive disadvantage internationally".
"We also need to see all the detail of what is proposed - and how any new levy and tax would apply - to determine the effect it would have", it said.
Party claims
In the light of the UK's looming general election, the IMF proposals were likely to be used for some political point-scoring, our business editor said.
"Labour is bound to claim that the IMF is implicitly criticising the Tories' plan to impose a new tax on banks irrespective of what other countries do - because the IMF paper says that 'international co-operation would be beneficial'.
"I would also start to question my sanity if Gordon Brown doesn't claim credit for putting pressure on the IMF to launch its review of possible bank taxes."
But he added that the Conservatives would say that their bank tax proposals resembled the financial stability contribution.
And the Liberal Democrats would claim that their proposed tax on banks' profits was similar to the second tranche of the IMF proposal.
Sourсe: BBC
www.bbc.co.uk
Business editor Robert Peston said the global proposals by the International Monetary Fund (IMF) were "more radical" than most had anticipated.
All institutions would pay a bank levy - initially at a flat-rate - and also face a further tax on profits and pay.
The measures are designed to make banks pay for the costs of future financial and economic rescue packages.
The IMF documents were made available to governments of the G20 group of nations on Tuesday afternoon and seen by the BBC soon afterwards. The plans will be discussed by finance ministers this weekend.
"The proposals are likely to horrify banks, especially the proposed tax on pay," our business editor said.
"They will also be politically explosive both domestically and internationally."
Insurers, hedge funds and other financial institutions must also pay the taxes, the IMF argues, despite them being less implicated in the recent crisis.
If they were not included, activities currently carried out by banks would be reclassified as, for example, insurance or hedge-fund services to escape the levies.
While the general levy, or "financial stability contribution", would initially be at a flat rate, this would eventually be refined so that riskier businesses paid more.
British chancellor Alistair Darling said the IMF's proposals were "important" and should be welcomed.
"The recognition that banks should make a contribution to the society in which they operate is right," he said.
Global impact
IMF REPORT
International Monetary Fund interim report for the G20 [1.5MB]
Most computers will open this document automatically, but you may need Adobe Reader
Download the reader here
It was agreed at the G20 summit in London last year that financial institutions and not tax-payers should pay for future bank rescue packages.
Since then several proposals have been put forward by various governments including the so-called "Tobin Tax" on financial transactions. Some nations, including Canada, oppose any new bank taxes.
However no country has yet introduced taxes to pay for future bailouts - arguing that unless the rules were brought in on a coordinated basis, institutions would simply "cherry pick" where they operated, moving to jurisdictions with less tough financial regulation.
The body which represents banks in the UK, the British Bankers' Association said it was concerned about any move which would place the UK industry "at a competitive disadvantage internationally".
"We also need to see all the detail of what is proposed - and how any new levy and tax would apply - to determine the effect it would have", it said.
Party claims
In the light of the UK's looming general election, the IMF proposals were likely to be used for some political point-scoring, our business editor said.
"Labour is bound to claim that the IMF is implicitly criticising the Tories' plan to impose a new tax on banks irrespective of what other countries do - because the IMF paper says that 'international co-operation would be beneficial'.
"I would also start to question my sanity if Gordon Brown doesn't claim credit for putting pressure on the IMF to launch its review of possible bank taxes."
But he added that the Conservatives would say that their bank tax proposals resembled the financial stability contribution.
And the Liberal Democrats would claim that their proposed tax on banks' profits was similar to the second tranche of the IMF proposal.
Sourсe: BBC
www.bbc.co.uk
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