THE GOVERNMENT will in the coming days borrow €3.5 billion from the euro zone bailout fund, about €200 million more than it first sought, following the completion of its inaugural bond issue.
Dublin initially asked for a €3.3 billion loan from the European Financial Stability Facility (EFSF). However, EFSF sources say “favourable” terms realised when it sold a €5 billion five-year bond last Tuesday mean it can now lend more than the sum the Government had asked for.
The bond issue was nine times oversubscribed, meaning investors signalled their willingness to put down a total of €44.5 billion.
The issue spread, fixed at mid-swap plus 6 basis points (0.06 percentage points), implied borrowing costs for EFSF of 2.89 per cent.
Ireland will pay interest of some 5.815 per cent for its loan thanks to the 2.925 per cent “surcharge” over the EFSF’s borrowing rate.
The inaugural loan to Ireland from the fund, which is controlled by the 17 euro countries, comes as EU leaders prepare to discuss a radical expansion of its remit at a summit in Brussels next Friday.
EU leaders will discuss the possibility of reducing this rate at the summit, but no final decision is expected until another summit late in March when EU leaders are expected to sign off on a range of EFSF reforms.
The EFSF’s rules means it must borrow more on the back of guarantees from euro zone countries than it lends on to bailout recipients.
This arises because it is obliged to maintain a large cash buffer to secure the triple-A credit rating over all its borrowings which enables it to issue bonds on the capital markets at preferential rates.
The protection of the cash buffer is required because only six of the euro zone countries are triple-A rated – Germany, France, Austria, Finland, the Netherlands and Luxembourg – and because the EFSF guarantees both the principal and the interest on the bailout loans it issues.
The EFSF sources said the “loan specific cash buffer” linked to the €5 billion bond was less than forecast when the Government requested the loan because the bond was raised at a low price. Japan’s finance ministry subscribed for more than €1 billion of that issue, with Asian investors generally taking up 38 per cent of the issue.
German investors are believed to have taken 12 per cent of the issue, Nordic investors 9 per cent, French investors 7 per cent, Benelux-based investors 6 per cent and north Americans 2 per cent.
It is believed central banks bought 43 per cent, fund managers 31 per cent, commercial banks 13 per cent and insurers 6 per cent. Pension funds took 3 per cent.
The EFSF’s next bond issue for Ireland will be in the second quarter of the year, and it plans to tap the markets again in the third quarter.
Subject to market conditions, the fund may issue a 10-year bond between €3 billion and €5 billion when next it issues a bond.
The market for 10-year money is smaller than the five-year market.
Source: http://www.irishtimes.com
Monday, January 31, 2011
Sunday, January 30, 2011
KEVIN WILHELM: Free tax prep service increasing financial stability
Season’s greetings! And by the word “season,” I mean tax season.
Filing taxes can be stressful and bewildering for any of us. The lure of rapid anticipation loans can be tempting, but individuals may end up losing some of their refund due to the interest rates. And the fees charged by many preparation sites are simply unmanageable for those already struggling with their finances. Fortunately for local residents, there is an answer.
As many of us are getting our own affairs in order and preparing to file, Middlesex United Way and the Middlesex Coalition for Children have been talking taxes for many, many months. The two organizations co-sponsor the local Volunteer Income Tax Assistance program, a free tax preparation service for people of low to moderate incomes.
VITA is helping United Way to achieve one of our Five Year Goals for the Common Good to increase the economic self-sufficiency of individuals and families. Put more plainly, it’s helping to get more money back into the hands of working people, increasing their financial stability so they can afford to meet all of their costs of living.
Last year, the two downtown Middletown VITA sites helped more than 250 Middlesex County residents save a total of $362,540. Of those served last year, there were an additional 113 dependents, mostly children, who were impacted by this program. This year our goal is to help 500 people through VITA.
Those who qualified for refunds and credits received an average of $1,898. In addition, people can save up to $150 in tax preparation fees. This is money they have earned and can now be put towards critical needs such as food, rent or mortgage, child care or transportation.
VITA volunteers are trained and certified by the IRS. They attend an intense four-session training and must pass a test. Most importantly, they ensure that individuals are filing for all of the tax credits for which they are eligible, such as the Earned Income Tax Credit and the Child and Dependent Care Tax Credit. Often, these credits go unclaimed simply because people are not aware of them.
If you or someone you know is earning less than $50,000 a year, contact United Way 2-1-1 to schedule an appointment at one of the local VITA sites located at Middlesex United Way and NEAT. Simply dial 2-1-1 from anywhere in Connecticut. Appointments must be made in advance and are available in the evenings and on Saturdays now through April 12.
If you qualify, I urge you to take advantage of this easy and free service.
Live United!
Kevin Wilhelm is the executive director of Middlesex United Way.
Source: http://middletownpress.com
Filing taxes can be stressful and bewildering for any of us. The lure of rapid anticipation loans can be tempting, but individuals may end up losing some of their refund due to the interest rates. And the fees charged by many preparation sites are simply unmanageable for those already struggling with their finances. Fortunately for local residents, there is an answer.
As many of us are getting our own affairs in order and preparing to file, Middlesex United Way and the Middlesex Coalition for Children have been talking taxes for many, many months. The two organizations co-sponsor the local Volunteer Income Tax Assistance program, a free tax preparation service for people of low to moderate incomes.
VITA is helping United Way to achieve one of our Five Year Goals for the Common Good to increase the economic self-sufficiency of individuals and families. Put more plainly, it’s helping to get more money back into the hands of working people, increasing their financial stability so they can afford to meet all of their costs of living.
Last year, the two downtown Middletown VITA sites helped more than 250 Middlesex County residents save a total of $362,540. Of those served last year, there were an additional 113 dependents, mostly children, who were impacted by this program. This year our goal is to help 500 people through VITA.
Those who qualified for refunds and credits received an average of $1,898. In addition, people can save up to $150 in tax preparation fees. This is money they have earned and can now be put towards critical needs such as food, rent or mortgage, child care or transportation.
VITA volunteers are trained and certified by the IRS. They attend an intense four-session training and must pass a test. Most importantly, they ensure that individuals are filing for all of the tax credits for which they are eligible, such as the Earned Income Tax Credit and the Child and Dependent Care Tax Credit. Often, these credits go unclaimed simply because people are not aware of them.
If you or someone you know is earning less than $50,000 a year, contact United Way 2-1-1 to schedule an appointment at one of the local VITA sites located at Middlesex United Way and NEAT. Simply dial 2-1-1 from anywhere in Connecticut. Appointments must be made in advance and are available in the evenings and on Saturdays now through April 12.
If you qualify, I urge you to take advantage of this easy and free service.
Live United!
Kevin Wilhelm is the executive director of Middlesex United Way.
Source: http://middletownpress.com
Thursday, January 27, 2011
ECB Wellink: Delaying Basel III Would Jeopardize Fincl Stability
New international capital standards, known as Basel III, are relevant for all countries and all banks across the globe, and any delay in their implementation could have serious consequences for global stability, Nout Wellink, a member of the European Central Bank's governing council, said Thursday.
Speaking at a meeting of the Financial Stability Institute in Cape Town, Africa, Wellink said "efforts to delay or weaken the agreements will jeopardize financial stability and the robustness of the recovery over the long term."
Wellink, who chairs the Basel Committee on Banking Supervision, also said that "each country must determine if it has banks of a size and complexity relative to its domestic economy that are too big to fail and should take appropriate measures."
Source: http://online.wsj.com
Speaking at a meeting of the Financial Stability Institute in Cape Town, Africa, Wellink said "efforts to delay or weaken the agreements will jeopardize financial stability and the robustness of the recovery over the long term."
Wellink, who chairs the Basel Committee on Banking Supervision, also said that "each country must determine if it has banks of a size and complexity relative to its domestic economy that are too big to fail and should take appropriate measures."
Source: http://online.wsj.com
Wednesday, January 26, 2011
Global financial stability still at risk, reforms needed: IMF
WASHINGTON, Jan. 25 (Xinhua) -- Global financial stability was still not assured and significant policy challenges remained to be addressed even nearly four years after the onset of the severe financial crisis, the International Monetary Fund (IMF) said on Tuesday.
"The interaction between banking and sovereign credit risks in the euro area remains a critical factor, and policies are needed to tackle fiscal and banking sector vulnerabilities," the IMF noted in its latest report released on Tuesday.
At the global level, regulatory reforms were still required to put the financial sector on a sounder footing, according to the report entitled Market Update of the Global Financial Stability Report (GFSR).
The Washington-based institution said that relatively favorable fundamentals in some emerging market countries were spurring capital inflows, which meant that policymakers in emerging markets needed to watch diligently for signs of asset price bubbles and excessive credit.
The IMF released its latest biannual GFSR in October 2010 prior to the IMF and its sibling agency the World Bank's annual meeting.
"Equity markets in advanced and emerging market countries have risen since the October 2010 GFSR. Commodity prices have taken off, with oil, food, metals and raw material prices all rising rapidly, " according to the Tuesday report.
The IMF believed that capital inflows were normally beneficial for recipient countries, but sustained capital inflows could strain the absorptive capacity of local financial systems.
Despite improvements in market conditions since the October 2010 GFSR, sovereign risks within the euro area had intensified and spilled over to more countries, the IMF warned.
"Overall, while progress has been made and most financial sectors are on the mend, risks to global financial stability remain. Problems in Greece, and now Ireland, have reignited questions about sovereign debt sustainability and banking sector health in a broader set of euro-area countries and possibly beyond. Without further progress in this field, global financial stability and sustainable growth will remain elusive," noted the report.
Source: http://news.xinhuanet.com
"The interaction between banking and sovereign credit risks in the euro area remains a critical factor, and policies are needed to tackle fiscal and banking sector vulnerabilities," the IMF noted in its latest report released on Tuesday.
At the global level, regulatory reforms were still required to put the financial sector on a sounder footing, according to the report entitled Market Update of the Global Financial Stability Report (GFSR).
The Washington-based institution said that relatively favorable fundamentals in some emerging market countries were spurring capital inflows, which meant that policymakers in emerging markets needed to watch diligently for signs of asset price bubbles and excessive credit.
The IMF released its latest biannual GFSR in October 2010 prior to the IMF and its sibling agency the World Bank's annual meeting.
"Equity markets in advanced and emerging market countries have risen since the October 2010 GFSR. Commodity prices have taken off, with oil, food, metals and raw material prices all rising rapidly, " according to the Tuesday report.
The IMF believed that capital inflows were normally beneficial for recipient countries, but sustained capital inflows could strain the absorptive capacity of local financial systems.
Despite improvements in market conditions since the October 2010 GFSR, sovereign risks within the euro area had intensified and spilled over to more countries, the IMF warned.
"Overall, while progress has been made and most financial sectors are on the mend, risks to global financial stability remain. Problems in Greece, and now Ireland, have reignited questions about sovereign debt sustainability and banking sector health in a broader set of euro-area countries and possibly beyond. Without further progress in this field, global financial stability and sustainable growth will remain elusive," noted the report.
Source: http://news.xinhuanet.com
Tuesday, January 25, 2011
Norway Crisis Commission Proposes New Financial Stability Fee
STOCKHOLM (Dow Jones)--A Norwegian finance ministry advisory panel Tuesday proposed a number of financial market regulatory measures, including a new financial stability fee, to improve consumer protection.
The new financial stability fee should be imposed on Norwegian financial institutions and be levied on their "liabilities excluding equity and secured deposits," it said.
"In addition, the commission recommends that Norwegian authorities examine the basis for, and possible consequences of, a financial activities tax, levied on financial institutions' profits and wage payments. This could be an effective way of taxing the added value generated by the financial sector," the panel said in a statement.
Norway's Finance Minister Sigbjorn Johnsen said he would, in response to the panel's recommendations, launch a detailed review of the need for changes in the taxation of financial institutions.
"The commission's argument that new fees and taxes can be used to supplement financial markets regulation is interesting," Johnsen said in a statement.
At 1110 GMT, shares in Norway's largest lender, DnB NOR, were down 3.6%, or NOK2.85, at NOK77.30, against a 0.6% drop in the broader Olso market.
The commission also advised the Norwegian authorities to expand Nordic cooperation on financial market regulation, including possibly the "imposition of stricter capital requirements than the EU minima and special requirements for systemically important financial institutions."
The Financial Crisis Commission was appointed in June 2009 to evaluate Norwegian financial markets and their regulation after the international financial crisis.
Source: http://online.wsj.com
The new financial stability fee should be imposed on Norwegian financial institutions and be levied on their "liabilities excluding equity and secured deposits," it said.
"In addition, the commission recommends that Norwegian authorities examine the basis for, and possible consequences of, a financial activities tax, levied on financial institutions' profits and wage payments. This could be an effective way of taxing the added value generated by the financial sector," the panel said in a statement.
Norway's Finance Minister Sigbjorn Johnsen said he would, in response to the panel's recommendations, launch a detailed review of the need for changes in the taxation of financial institutions.
"The commission's argument that new fees and taxes can be used to supplement financial markets regulation is interesting," Johnsen said in a statement.
At 1110 GMT, shares in Norway's largest lender, DnB NOR, were down 3.6%, or NOK2.85, at NOK77.30, against a 0.6% drop in the broader Olso market.
The commission also advised the Norwegian authorities to expand Nordic cooperation on financial market regulation, including possibly the "imposition of stricter capital requirements than the EU minima and special requirements for systemically important financial institutions."
The Financial Crisis Commission was appointed in June 2009 to evaluate Norwegian financial markets and their regulation after the international financial crisis.
Source: http://online.wsj.com
Monday, January 24, 2011
Demand sky-high for EFSF debt
Europe’s bail-out fund is expected to be flooded with orders for the eurozone’s debut bond issue on Tuesday as investors around the globe rush to buy the debt in spite of the region’s crisis.
The European financial stability facility will raise the maximum allotted amount of €5bn in five-year bonds. On Monday investors had already placed initial bids of more than €20bn before order books opened early on Tuesday.
Order books were expected to open at 8am London time and some bankers said the books for the issue could fill up in less than an hour.
The landmark issue, which could pave the way to a common eurozone bond, is proving even more popular than a European Union deal, which priced this month and saw order books rise to €20bn.
One banker said: “Investors love these bonds because they offer the safety of a triple A credit, while at the same time they provide a bit of extra yield over German Bunds.”
A leading investor said: “We are buyers of this debt as it is a simple way to get exposure to the eurozone. It is also as safe as houses as it is backed by Germany and won’t ever default.”
The strong demand means the bond, which will mature in July 2016 and is being managed by Citigroup, HSBC and Société Générale, is likely to price at lower yields than the EU bond, which was sold at 70 basis points over German Bunds. This is much lower than Italian and Spanish debt.
The lower-than-expected yields have prompted some strategists to urge policymakers to consider lowering the cost of bail-out loans to countries that need them. These are currently charged at about 300bp over Bunds.
Strategists hope a successful auction will ease tensions further in the eurozone bond markets, which have seen an improvement in sentiment on hopes that the EFSF will be reformed and possibly increased in size to ensure enough money is available in the event of a deepening of the crisis.
The bond is likely to be bought mainly by European funds, though Asian and Middle Eastern investors are expected to buy about 30 per cent of the paper.
More than 400 sovereign and private funds dialled into a conference call with Klaus Regling, head of the EFSF, in advance of Tuesday’s issue, and many signalled that they would be buyers of the bond.
Japan says it wants to buy 20 per cent of the issue, while sovereign wealth funds and central banks in Russia, China and other parts of Asia are expected bid, according to people familiar with the deal.
This month, some bankers expressed worries that the bond could suffer because of the structure of the EFSF, which is guaranteed by member states and has €440bn at its disposal.
But these worries failed to be borne out and investors have not let political uncertainty in Ireland damp enthusiasm for the bond.
The European Commission has said as much as €34.1bn will be raised for Ireland in 2011, €14.9bn of it by Europe’s two financial aid funds.
Source: http://www.ft.com
The European financial stability facility will raise the maximum allotted amount of €5bn in five-year bonds. On Monday investors had already placed initial bids of more than €20bn before order books opened early on Tuesday.
Order books were expected to open at 8am London time and some bankers said the books for the issue could fill up in less than an hour.
The landmark issue, which could pave the way to a common eurozone bond, is proving even more popular than a European Union deal, which priced this month and saw order books rise to €20bn.
One banker said: “Investors love these bonds because they offer the safety of a triple A credit, while at the same time they provide a bit of extra yield over German Bunds.”
A leading investor said: “We are buyers of this debt as it is a simple way to get exposure to the eurozone. It is also as safe as houses as it is backed by Germany and won’t ever default.”
The strong demand means the bond, which will mature in July 2016 and is being managed by Citigroup, HSBC and Société Générale, is likely to price at lower yields than the EU bond, which was sold at 70 basis points over German Bunds. This is much lower than Italian and Spanish debt.
The lower-than-expected yields have prompted some strategists to urge policymakers to consider lowering the cost of bail-out loans to countries that need them. These are currently charged at about 300bp over Bunds.
Strategists hope a successful auction will ease tensions further in the eurozone bond markets, which have seen an improvement in sentiment on hopes that the EFSF will be reformed and possibly increased in size to ensure enough money is available in the event of a deepening of the crisis.
The bond is likely to be bought mainly by European funds, though Asian and Middle Eastern investors are expected to buy about 30 per cent of the paper.
More than 400 sovereign and private funds dialled into a conference call with Klaus Regling, head of the EFSF, in advance of Tuesday’s issue, and many signalled that they would be buyers of the bond.
Japan says it wants to buy 20 per cent of the issue, while sovereign wealth funds and central banks in Russia, China and other parts of Asia are expected bid, according to people familiar with the deal.
This month, some bankers expressed worries that the bond could suffer because of the structure of the EFSF, which is guaranteed by member states and has €440bn at its disposal.
But these worries failed to be borne out and investors have not let political uncertainty in Ireland damp enthusiasm for the bond.
The European Commission has said as much as €34.1bn will be raised for Ireland in 2011, €14.9bn of it by Europe’s two financial aid funds.
Source: http://www.ft.com
Friday, January 21, 2011
FM meets financial sector regulators to seek budget inputs
NEW DELHI: Finance Minister Pranab Mukherjee today discussed the economic situation with financial sector regulators, including Reserve Bank of India Governor and Sebi chief, and sought their inputs for the 2011-12 budget that will be unveiled on February 28.
This was the second meeting of the high-level Financial Stability and Development Council (FSDC) within a month. The first meeting was held on December 31, 2010.
"The RBI policy is scheduled on January 25. As a standard practice I have come to review the macroeconomic situation with the Finance Minister", RBI Governor S Subbarao told reporters after the meeting.
The Central Bank is scheduled to hold the quarterly review of its monetary policy later this month in which it is widely expected to raise the key rates by 25-50 basis points to tame inflation that has shot up to 8.43 per cent in December, from 7.48 a month ago.
Besides, Subbarao and officials of the Finance Ministry, the meeting was attended by Securities and Exchange Board of India (SEBI) chairman C B Bhave , Insurance Regulatory and Development Authority (IRDA) chief J Hari Narayan and Pension Fund Regulatory and Development Authority (PFRDA) chairman Yogesh Agarwal.
Mukherjee, sources said, also sought inputs of the regulators on the budget with a view to improving and strengthening the financial sector and pushing the economy on the double-digit growth path.
The proposal to set up FSDC to resolve the inter- regulatory issues was mooted by Mukherjee in his budget speech last year.
The high-level body is expected to deal with issues concerning financial stability, financial sector development, financial literacy, financial inclusion and macro-prudential supervision of the economy, including the functioning of large financial conglomerates.
Besides, the Council will also coordinate the country's international interface with financial sector bodies such as the Financial Action Task Force (FATF) and Financial Stability Board (FSB).
Source: http://economictimes.indiatimes.com
This was the second meeting of the high-level Financial Stability and Development Council (FSDC) within a month. The first meeting was held on December 31, 2010.
"The RBI policy is scheduled on January 25. As a standard practice I have come to review the macroeconomic situation with the Finance Minister", RBI Governor S Subbarao told reporters after the meeting.
The Central Bank is scheduled to hold the quarterly review of its monetary policy later this month in which it is widely expected to raise the key rates by 25-50 basis points to tame inflation that has shot up to 8.43 per cent in December, from 7.48 a month ago.
Besides, Subbarao and officials of the Finance Ministry, the meeting was attended by Securities and Exchange Board of India (SEBI) chairman C B Bhave , Insurance Regulatory and Development Authority (IRDA) chief J Hari Narayan and Pension Fund Regulatory and Development Authority (PFRDA) chairman Yogesh Agarwal.
Mukherjee, sources said, also sought inputs of the regulators on the budget with a view to improving and strengthening the financial sector and pushing the economy on the double-digit growth path.
The proposal to set up FSDC to resolve the inter- regulatory issues was mooted by Mukherjee in his budget speech last year.
The high-level body is expected to deal with issues concerning financial stability, financial sector development, financial literacy, financial inclusion and macro-prudential supervision of the economy, including the functioning of large financial conglomerates.
Besides, the Council will also coordinate the country's international interface with financial sector bodies such as the Financial Action Task Force (FATF) and Financial Stability Board (FSB).
Source: http://economictimes.indiatimes.com
Thursday, January 20, 2011
Upcoming TCH changes aim for ‘financial stability’
TAZEWELL, Va. — Carilion Tazewell Community Hospital will be undergoing big changes over the next 18 months as part of a transition to an expanded focus on outpatient services aimed at creating “financial stability” at the hospital, officials said Wednesday.
A handful of positions will be eliminated as part of the transition, including two non-clinical positions and cafeteria positions. The hospital also will establish a combined emergency department/hospitalist program; upgrade imaging services, including a new CT scanner, an electronic picture archiving and communication system and other enhancements; remodel a part of the hospital into a primary care clinic with room for mid-level providers and rotating specialists; and merge its intensive care unit and medical/surgical unit to reduce costs.
“This requires the community to support the hospital, and given the concern that was raised when rumors surfaced that the hospital might close, it is clear the community want to continue to support the hospital,” Eric Earnhart, a spokesman for Carilion Clinic, said. “We look forward to working with the community.”
The changes will be implemented over an 18 month period. During the time period, Carilion Clinic plans to invest approximately $2 million in facility and equipment upgrades to the hospital. A Carilion Clinic press release said the changes were the result of a detailed study by an independent consultant, and will enable the hospital to return to financial stability while reducing but not eliminating inpatient care.
Earnhart said Carilion Clinic will be looking at several options to replace the cafeteria, including the possibility of using local outside food vendors in the community. Earnhart said the existing cafeteria at TCH wouldn’t close “tomorrow.” However, he didn’t know long it would remain open. Vending machines also will be added to the hospital.
“No one is going to go hungry,” Earnhart said when asked about a continuation of meals for patients who spend the night, or several days, at the hospital. “We will make sure — however we transition this — that it will be something that will not impact the patients.”
The merger of the intensive care and medical/surgical units also is expected to save money. A study of hospital usage indicated that even the sickest patients admitted to CTCH typically do not require intensive care, which is more expensive to staff and to maintain, the press release said.
Earnhart said patients who are in critical condition will be transported to other medical facilities with intensive care units.
“Every community hospital in Virginia has similar challenges,” Melina Perdue, senior vice president for Regional Hospital Operations, said in a prepared statement. “We’re pleased with the outcome of this review because it affirms our belief that a hospital can be successful in Tazewell, even with the current economic challenges. We know how important CTCH is to this community. We’re excited about the things that will be happening here.”
“It’s difficult to lose any employee or service, but this is what it will take to keep our hospital open,” Carilion Tazewell Community Hospital Administrator Randal Swatzyna, added. “It is also very important for the people in the community to understand that this plan will only work if they support their local hospital, and support the providers who use local hospital services.”
Earnhart said the hospital cafeteria was underutilized in that it simply cost more money to operate than it generated. “We need to focus the resources we have on patient care, so that’s why we came to this conclusion,” Earnhart said. “Perhaps this is a business opportunity for a business (or businesses) in the Tazewell community. It is something we are willing to discuss with them.”
Earnhart said the addition of the hospitalist program also should help CTCH.
“Hospitalists are doctors trained in hospital medicine — they have a broad range of expertise,” Earnhart said. “We will have a hospitalist/emergency medicine physician working in Tazewell, who will be part of our system’s emergency medical team. As a hospitalist, he will be able to work with hospitalized patients as well as patients in the emergency department, raising the level of care in both places.”
Hospital officials also conducted a conference call Wednesday with two members of the Tazewell County Board of Supervisors — Southern District board member Mike Hymes and Northern District Supervisor Jim Campbell.
“At 1 p.m. today Supervisor Campbell and I completed a conference call with Mr. Randal Swatzyna, hospital administrator, and Katherine Dowdy chief of staff of the hospital,” Hymes said. “This conference call was requested by Mr. Swatzyna and was his effort to fulfill his commitment to communicate the hospitals plans to the Board of Supervisors once they were available. I was very happy to see the new plan and consider it a strong commitment to our community by Carilion. “
Hymes said he was pleased to learn that CTCH will remain open.
“Most of all it assures we will be maintaining many good paying jobs and employees at the hospital,” Hymes added. “Mr. Swatzyna has agreed to attend our next board meeting to answer any questions about the plan. It is unfortunate that all employees at the hospital will not be retained, but the two non-clinical position reductions though difficult are a great deal less devastating than what could have occurred had the hospital been closed.”
Hymes said citizens of the Southern District must continue to support the hospital in order for it remain operational.
“I consider this announcement great news for my district and Tazewell County,” Hymes added. “I urge all the residents of our community to show their commitment to TCH by utilizing all available services provided at the hospital and thus voting with their feet to support the hospital and the individuals who work there.”
County officials expressed concerns last year regarding the hospital’s future after rumors surfaced of a possible closure. During a meeting of the Board of Supervisors last year, Hymes urged all Tazewell area residents to contact Carillon Clinic, and to voice support for the continued operation of Tazewell Community. The board also took the unusual step of placing a list of Carilion Clinic officials and their phone numbers on the county’s website for citizens to contact.
Earnhart said all hospital employees have been notified of the changes.
“We had meetings with the staff yesterday evening, and first thing this morning,” Earnhart said. “They went well. Everyone seems to be happy about the direction we are going.”
Source: http://bdtonline.com
A handful of positions will be eliminated as part of the transition, including two non-clinical positions and cafeteria positions. The hospital also will establish a combined emergency department/hospitalist program; upgrade imaging services, including a new CT scanner, an electronic picture archiving and communication system and other enhancements; remodel a part of the hospital into a primary care clinic with room for mid-level providers and rotating specialists; and merge its intensive care unit and medical/surgical unit to reduce costs.
“This requires the community to support the hospital, and given the concern that was raised when rumors surfaced that the hospital might close, it is clear the community want to continue to support the hospital,” Eric Earnhart, a spokesman for Carilion Clinic, said. “We look forward to working with the community.”
The changes will be implemented over an 18 month period. During the time period, Carilion Clinic plans to invest approximately $2 million in facility and equipment upgrades to the hospital. A Carilion Clinic press release said the changes were the result of a detailed study by an independent consultant, and will enable the hospital to return to financial stability while reducing but not eliminating inpatient care.
Earnhart said Carilion Clinic will be looking at several options to replace the cafeteria, including the possibility of using local outside food vendors in the community. Earnhart said the existing cafeteria at TCH wouldn’t close “tomorrow.” However, he didn’t know long it would remain open. Vending machines also will be added to the hospital.
“No one is going to go hungry,” Earnhart said when asked about a continuation of meals for patients who spend the night, or several days, at the hospital. “We will make sure — however we transition this — that it will be something that will not impact the patients.”
The merger of the intensive care and medical/surgical units also is expected to save money. A study of hospital usage indicated that even the sickest patients admitted to CTCH typically do not require intensive care, which is more expensive to staff and to maintain, the press release said.
Earnhart said patients who are in critical condition will be transported to other medical facilities with intensive care units.
“Every community hospital in Virginia has similar challenges,” Melina Perdue, senior vice president for Regional Hospital Operations, said in a prepared statement. “We’re pleased with the outcome of this review because it affirms our belief that a hospital can be successful in Tazewell, even with the current economic challenges. We know how important CTCH is to this community. We’re excited about the things that will be happening here.”
“It’s difficult to lose any employee or service, but this is what it will take to keep our hospital open,” Carilion Tazewell Community Hospital Administrator Randal Swatzyna, added. “It is also very important for the people in the community to understand that this plan will only work if they support their local hospital, and support the providers who use local hospital services.”
Earnhart said the hospital cafeteria was underutilized in that it simply cost more money to operate than it generated. “We need to focus the resources we have on patient care, so that’s why we came to this conclusion,” Earnhart said. “Perhaps this is a business opportunity for a business (or businesses) in the Tazewell community. It is something we are willing to discuss with them.”
Earnhart said the addition of the hospitalist program also should help CTCH.
“Hospitalists are doctors trained in hospital medicine — they have a broad range of expertise,” Earnhart said. “We will have a hospitalist/emergency medicine physician working in Tazewell, who will be part of our system’s emergency medical team. As a hospitalist, he will be able to work with hospitalized patients as well as patients in the emergency department, raising the level of care in both places.”
Hospital officials also conducted a conference call Wednesday with two members of the Tazewell County Board of Supervisors — Southern District board member Mike Hymes and Northern District Supervisor Jim Campbell.
“At 1 p.m. today Supervisor Campbell and I completed a conference call with Mr. Randal Swatzyna, hospital administrator, and Katherine Dowdy chief of staff of the hospital,” Hymes said. “This conference call was requested by Mr. Swatzyna and was his effort to fulfill his commitment to communicate the hospitals plans to the Board of Supervisors once they were available. I was very happy to see the new plan and consider it a strong commitment to our community by Carilion. “
Hymes said he was pleased to learn that CTCH will remain open.
“Most of all it assures we will be maintaining many good paying jobs and employees at the hospital,” Hymes added. “Mr. Swatzyna has agreed to attend our next board meeting to answer any questions about the plan. It is unfortunate that all employees at the hospital will not be retained, but the two non-clinical position reductions though difficult are a great deal less devastating than what could have occurred had the hospital been closed.”
Hymes said citizens of the Southern District must continue to support the hospital in order for it remain operational.
“I consider this announcement great news for my district and Tazewell County,” Hymes added. “I urge all the residents of our community to show their commitment to TCH by utilizing all available services provided at the hospital and thus voting with their feet to support the hospital and the individuals who work there.”
County officials expressed concerns last year regarding the hospital’s future after rumors surfaced of a possible closure. During a meeting of the Board of Supervisors last year, Hymes urged all Tazewell area residents to contact Carillon Clinic, and to voice support for the continued operation of Tazewell Community. The board also took the unusual step of placing a list of Carilion Clinic officials and their phone numbers on the county’s website for citizens to contact.
Earnhart said all hospital employees have been notified of the changes.
“We had meetings with the staff yesterday evening, and first thing this morning,” Earnhart said. “They went well. Everyone seems to be happy about the direction we are going.”
Source: http://bdtonline.com
Wednesday, January 19, 2011
New European Financial Stability Facility Bonds Expected to Yield 70 BPS Over German Bunds
New EFSF bonds are expected to be priced by investors with a yield 70 basis points above the German sovereign bond.
This is according to a research note by Citi's Peter Goves, as reported by Tracy Alloway in the Financial Times Alphaville.
Goves explains, in an excerpt:
"The EFSM makes available €60bn from the European Commission, drawn from the EU budget. A key difference between the forthcoming EFSF bond is that the EFSM is an EU-wide mechanism and can be drawn upon by any member state."
As Alloway points out, the price/yield on EFSF will serve as a sort of proxy for investor sentiment on the fiscal health of the overall Eurozone.
Interestingly, the EFSF is actually not a classical super-sovereign entity—but a special purpose vehicle, as Goves goes on to explain:
"The EFSF in contrast is a vehicle (a Luxembourg-registered company) backed by (eurozone) intergovernmental guarantees of €440bn. In order to achieve AAA status, the EA member states guarantee 120% of their allocation for each bond1. What matters from an interest rate strategy perspective is what discount over existing curves investor might require to buy the debt given the uncertainty of the precise mechanics of the EFSF and what its future might hold."
One of the interesting facets of the yield analysis is the breakdown structure of the guarantors.
For example, when calculating the yield as a spread over the bund—which is expected to price at +70 BPS—it's interesting to note that the Germans are providing over 27 percent of the capital commitment for the backstop.
Furthermore, all of the EZ member states have agreed to commitment guarantees—even the PIIGS nations.
So, in effect, all the member states simultaneously are both potential beneficiaries as well as guarantors.
It's enough to give you a touch of vertigo.
Source: http://www.cnbc.com
This is according to a research note by Citi's Peter Goves, as reported by Tracy Alloway in the Financial Times Alphaville.
Goves explains, in an excerpt:
"The EFSM makes available €60bn from the European Commission, drawn from the EU budget. A key difference between the forthcoming EFSF bond is that the EFSM is an EU-wide mechanism and can be drawn upon by any member state."
As Alloway points out, the price/yield on EFSF will serve as a sort of proxy for investor sentiment on the fiscal health of the overall Eurozone.
Interestingly, the EFSF is actually not a classical super-sovereign entity—but a special purpose vehicle, as Goves goes on to explain:
"The EFSF in contrast is a vehicle (a Luxembourg-registered company) backed by (eurozone) intergovernmental guarantees of €440bn. In order to achieve AAA status, the EA member states guarantee 120% of their allocation for each bond1. What matters from an interest rate strategy perspective is what discount over existing curves investor might require to buy the debt given the uncertainty of the precise mechanics of the EFSF and what its future might hold."
One of the interesting facets of the yield analysis is the breakdown structure of the guarantors.
For example, when calculating the yield as a spread over the bund—which is expected to price at +70 BPS—it's interesting to note that the Germans are providing over 27 percent of the capital commitment for the backstop.
Furthermore, all of the EZ member states have agreed to commitment guarantees—even the PIIGS nations.
So, in effect, all the member states simultaneously are both potential beneficiaries as well as guarantors.
It's enough to give you a touch of vertigo.
Source: http://www.cnbc.com
Tuesday, January 18, 2011
Bank review focuses on financial stability
For months now the government-appointed Commission on Banking has been quizzing the UK’s big banks, taking evidence about flaws in the structure of the market and staging a series of Question Time-style debates nationwide to garner public sentiment.
The mission, simplistically, is twofold: to make banking in Britain both safer and more competitive.
But as the process proceeded, a consensus view emerged that Sir John Vickers, the commission’s chairman, was focusing on high street competition – largely because it can be tackled unilaterally in the UK, regardless of the international context. The view is that he might well dodge the other, more complex agenda, realising globally active universal banks that combine high street and riskier investment banking in one group cannot be unpicked unless the rest of the world follows.
Not a bit of it. While the commission could well still recommend action to curb high street market shares – particularly relevant for Lloyds, which controls up to 30 per cent of some products, such as current accounts – financial stability seems very much to be back at the core of Sir John’s agenda.
As the evidence-gathering process has drawn to a close in recent weeks, commissioners have been asking banks and other interviewees about the likely impact of ring-fencing a bank’s subsidiaries.
By September, all will be made clear, when the commission publishes its final report to the government. But Sir John will give a sneak preview of his thinking in a speech at the London Business School on Saturday, prefiguring the direction of an interim “options paper” in April.
According to people familiar with the commission’s thinking, Sir John will use his speech to stress the various permutations of subsidiarisation.
The most extreme form would allow a group merely to share a brand. That would bar the sharing of funding structures, forcing an investment bank unit, for example, to fund itself independently of the group, rather than rely on high street bank deposits and cheap bond finance issued by its parent.
“To do that you would have to improve your capital position, get an independent credit rating, build a history as an independent issuer,” says James Chappell of Olivetree Securities, an independent London stockbroker. Analysts estimate this would inflate funding costs, and therefore the charges passed on to clients, by tens of billions of pounds across the sector.
A less radical scenario could allow interbank lending between ring-fenced subsidiaries but still create a firebreak between them which would protect the group as a whole in the event of a crisis.
Banks with an investment unit that outstrips its retail operations, such as Barclays, would be hardest hit. As Bob Diamond, Barclays’ chief executive, told MPs last week: “If you look at Barings, it applied such a model, and when the problems occurred with its Singapore subsidiary, that did not prevent its failure.”
Critics say even banks operating with a largely subsidiarised structure, such as HSBC, did not benefit in the financial crisis because cutting off a troubled subsidiary is politically and reputationally difficult.
“What you really need is an effective resolution regime,” says a senior consultant. “Only that allows you to untangle a bank when it has failed, without comeback for taxpayers.”
Source: http://www.ft.com
The mission, simplistically, is twofold: to make banking in Britain both safer and more competitive.
But as the process proceeded, a consensus view emerged that Sir John Vickers, the commission’s chairman, was focusing on high street competition – largely because it can be tackled unilaterally in the UK, regardless of the international context. The view is that he might well dodge the other, more complex agenda, realising globally active universal banks that combine high street and riskier investment banking in one group cannot be unpicked unless the rest of the world follows.
Not a bit of it. While the commission could well still recommend action to curb high street market shares – particularly relevant for Lloyds, which controls up to 30 per cent of some products, such as current accounts – financial stability seems very much to be back at the core of Sir John’s agenda.
As the evidence-gathering process has drawn to a close in recent weeks, commissioners have been asking banks and other interviewees about the likely impact of ring-fencing a bank’s subsidiaries.
By September, all will be made clear, when the commission publishes its final report to the government. But Sir John will give a sneak preview of his thinking in a speech at the London Business School on Saturday, prefiguring the direction of an interim “options paper” in April.
According to people familiar with the commission’s thinking, Sir John will use his speech to stress the various permutations of subsidiarisation.
The most extreme form would allow a group merely to share a brand. That would bar the sharing of funding structures, forcing an investment bank unit, for example, to fund itself independently of the group, rather than rely on high street bank deposits and cheap bond finance issued by its parent.
“To do that you would have to improve your capital position, get an independent credit rating, build a history as an independent issuer,” says James Chappell of Olivetree Securities, an independent London stockbroker. Analysts estimate this would inflate funding costs, and therefore the charges passed on to clients, by tens of billions of pounds across the sector.
A less radical scenario could allow interbank lending between ring-fenced subsidiaries but still create a firebreak between them which would protect the group as a whole in the event of a crisis.
Banks with an investment unit that outstrips its retail operations, such as Barclays, would be hardest hit. As Bob Diamond, Barclays’ chief executive, told MPs last week: “If you look at Barings, it applied such a model, and when the problems occurred with its Singapore subsidiary, that did not prevent its failure.”
Critics say even banks operating with a largely subsidiarised structure, such as HSBC, did not benefit in the financial crisis because cutting off a troubled subsidiary is politically and reputationally difficult.
“What you really need is an effective resolution regime,” says a senior consultant. “Only that allows you to untangle a bank when it has failed, without comeback for taxpayers.”
Source: http://www.ft.com
Monday, January 17, 2011
Eurozone not in financial crisis, says French minister
France's economy minister Christine Lagarde denied the eurozone was in crisis.
She said only certain countries in the single currency bloc were in financial trouble, and that European governments were looking at an increase in the EU's bailout fund.
“This crisis is not a crisis of the eurozone, it is a crisis in a certain number of states,” she said.
“The increase in the European Financial Stability Facility is one option which we are looking at, of course.”
Worries about whether the EFSF is large enough focus on estimates that only about €250 billion of the €440 billion fund is effectively available to eurozone countries because of a complex loan guarantee system.
Analysts say that will not be enough to rescue both Spain and Portugal if they bow to debt market pressure and seek aid, although German finance minister Wolfgang Schaeuble said yesterday that the debate about boosting the size of the rescue fund was not realistic.
Lagarde also cut her 2010 growth estimate for the French economy to 1.5% from 1.6% last month, but said she was not worried about inflation despite December consumer price figures being higher than expected.
“Our growth outlook is good. We will finish the year (2010) with at least 1.5%. According to the last estimates of the Bank of France, the fourth quarter should come in at 0.6%,” Lagarde said.
Source: London everning standard
www.thisislondon.co.uk
She said only certain countries in the single currency bloc were in financial trouble, and that European governments were looking at an increase in the EU's bailout fund.
“This crisis is not a crisis of the eurozone, it is a crisis in a certain number of states,” she said.
“The increase in the European Financial Stability Facility is one option which we are looking at, of course.”
Worries about whether the EFSF is large enough focus on estimates that only about €250 billion of the €440 billion fund is effectively available to eurozone countries because of a complex loan guarantee system.
Analysts say that will not be enough to rescue both Spain and Portugal if they bow to debt market pressure and seek aid, although German finance minister Wolfgang Schaeuble said yesterday that the debate about boosting the size of the rescue fund was not realistic.
Lagarde also cut her 2010 growth estimate for the French economy to 1.5% from 1.6% last month, but said she was not worried about inflation despite December consumer price figures being higher than expected.
“Our growth outlook is good. We will finish the year (2010) with at least 1.5%. According to the last estimates of the Bank of France, the fourth quarter should come in at 0.6%,” Lagarde said.
Source: London everning standard
www.thisislondon.co.uk
Friday, January 14, 2011
Downside of bailout is a State less creditworthy
IT CAN seem churlish to be too critical of Ireland’s economic rescue. Shut off from the bond markets, the Government would otherwise have been forced to default and cut the primary deficit to zero once reserves were exhausted.
Yet the rescue is not working by one key measure. The provision of official liquidity support is, if anything, making Ireland less creditworthy. Yields on 10-year bonds have stayed stubbornly above 8 per cent, indicating markets continue to price in a high probability of an Irish default.
Ireland continues to be viewed as un-creditworthy despite reasonably good news on growth and a demonstration of political capacity to push through harsh budgetary adjustments since the rescue was announced. Now Portugal, and even Belgium, has entered the markets’ sights. Rather than the recent rise in bond yields indicating the need for a rescue, it sometimes seems as if fear of a rescue is driving up yields. The relatively successful bond issues by Portugal, Spain and Italy this week will provide only temporary respite.
Of course, one explanation for the failure to restore creditworthiness is that the markets consider the targeted countries as fundamentally insolvent. There is reason to suspect, however, that part of the failure stems from design flaws in the rescue mechanisms themselves – flaws that go beyond the 5.8 per cent interest rate and the prohibition against imposing losses on unguaranteed senior bank bondholders that were (rightly) the focus of early criticism.
The proposals floated this week to increase the size of the bailout funds will be of limited use unless these structural problems are fixed.
The acid test for successful liquidity support is that it allows a fundamentally solvent country to regain market access. Clearly, the official funders want to protect themselves – hence demands for “preferred” (or senior) creditor status and burden sharing. These protections though are often at odds with convincing private investors to commit new money.
The way the (non-IMF) part of the rescue works at present is that European countries provide guarantees to the European Financial Stability Mechanism (EFSM) and the European Financial Stability Facility (EFSF). This allows these official funds to borrow from the markets with a triple-A credit rating. The money is then lent to rescued states based on terms negotiated in the bailout agreements. Risk to the guarantors is reduced by the funds’ implicit or explicit preferred status.
This preferred status is to be made explicit for the European Stability Mechanism (ESM), which will provide a permanent replacement for the EFSF in 2013. But even where it is not explicit (as with the EFSF ), the guarantors can be confident from experience that a borrowing country will prioritise official creditors.
The rescue then changes the seniority structure of the outstanding debt and devalues the claims of non-official creditors. By channelling their support through official entities, assisting governments minimise their risk. However an unfortunate side-effect is becoming clear – the rescued countries are seen as an even riskier bet by market investors. They enter a sort of rescue trap.
As the IMF has traditionally enjoyed de facto preferred creditor status, non-official creditors find themselves bumped even further to the back of the repayment queue by IMF involvement; and possibly even further back again as the ECB increasingly becomes the owner of outstanding bonds through the secondary market.
The threat of “burden-sharing” on post-2013 bond issues is another obstacle to restoring creditworthiness. Details are murky, but the basic proposal is that the ESM will only provide support to states deemed insolvent if haircuts are imposed on existing investors.
Today’s potential investors worry that Ireland will find it difficult to roll over maturing debt. They may also worry that they will be snagged directly if these burden- sharing arrangements are brought forward as the idea gains acceptance or the crisis deepens.
The crowding out of non-official creditors is most pronounced for longer-term debt. Shorter- term investors can be more confident they will get their money back before burden-sharing is imposed. But an increased reliance on short-term borrowing brings its own problem – a heavy rollover burden and consequent persistent vulnerability to market sentiment.
In retooling the rescue mechanisms, the focus must be on making it attractive for longer-term private investors to put in new money. The challenge will be to ensure that the mechanisms are consistent with market discipline, without which there will be limited support from Germany and other stronger euro zone members.
A possible alternative has been proposed by Brussels-based economist Daniel Gros: provide limited explicit guarantees directly on market borrowing. The guarantees would leave some risk with the investor, but would put a floor under their losses.
Crucially, direct guarantees to market investors avoid the risk-increasing effect of having (preferred) official creditors in the debt structure. The beneficiary would pay a fee for the guarantee and they would face increased policy conditionality. This would dissuade countries from relying on them unnecessarily.
The possibility of providing limited explicit guarantees would also make it easier to credibly remove the almost unlimited implicit guarantees that now exist, thereby facilitating market discipline over the longer run.
A variant of the guarantee idea is the E-bond proposal of Jean-Claude Juncker and Giulio Tremonti. They recommend allowing European countries to issue collectively guaranteed bonds with a value up to 40 per cent of GDP. Market discipline is preserved under the proposal by governments’ continuing need to issue non-guaranteed debt in addition to the E-bonds. But provided these two forms of debt rank equally in the debt structure, this form of support should allow a solvent country to regain market access.
A rescue that makes the rescued permanently dependent on the rescuers is not in anyone’s interest.xref As European policymakers revisit the mechanisms in the coming weeks, it important they address a critical question: How does the rescue affect market incentives to provide new money to the rescued country?
Source: http://www.irishtimes.com
Yet the rescue is not working by one key measure. The provision of official liquidity support is, if anything, making Ireland less creditworthy. Yields on 10-year bonds have stayed stubbornly above 8 per cent, indicating markets continue to price in a high probability of an Irish default.
Ireland continues to be viewed as un-creditworthy despite reasonably good news on growth and a demonstration of political capacity to push through harsh budgetary adjustments since the rescue was announced. Now Portugal, and even Belgium, has entered the markets’ sights. Rather than the recent rise in bond yields indicating the need for a rescue, it sometimes seems as if fear of a rescue is driving up yields. The relatively successful bond issues by Portugal, Spain and Italy this week will provide only temporary respite.
Of course, one explanation for the failure to restore creditworthiness is that the markets consider the targeted countries as fundamentally insolvent. There is reason to suspect, however, that part of the failure stems from design flaws in the rescue mechanisms themselves – flaws that go beyond the 5.8 per cent interest rate and the prohibition against imposing losses on unguaranteed senior bank bondholders that were (rightly) the focus of early criticism.
The proposals floated this week to increase the size of the bailout funds will be of limited use unless these structural problems are fixed.
The acid test for successful liquidity support is that it allows a fundamentally solvent country to regain market access. Clearly, the official funders want to protect themselves – hence demands for “preferred” (or senior) creditor status and burden sharing. These protections though are often at odds with convincing private investors to commit new money.
The way the (non-IMF) part of the rescue works at present is that European countries provide guarantees to the European Financial Stability Mechanism (EFSM) and the European Financial Stability Facility (EFSF). This allows these official funds to borrow from the markets with a triple-A credit rating. The money is then lent to rescued states based on terms negotiated in the bailout agreements. Risk to the guarantors is reduced by the funds’ implicit or explicit preferred status.
This preferred status is to be made explicit for the European Stability Mechanism (ESM), which will provide a permanent replacement for the EFSF in 2013. But even where it is not explicit (as with the EFSF ), the guarantors can be confident from experience that a borrowing country will prioritise official creditors.
The rescue then changes the seniority structure of the outstanding debt and devalues the claims of non-official creditors. By channelling their support through official entities, assisting governments minimise their risk. However an unfortunate side-effect is becoming clear – the rescued countries are seen as an even riskier bet by market investors. They enter a sort of rescue trap.
As the IMF has traditionally enjoyed de facto preferred creditor status, non-official creditors find themselves bumped even further to the back of the repayment queue by IMF involvement; and possibly even further back again as the ECB increasingly becomes the owner of outstanding bonds through the secondary market.
The threat of “burden-sharing” on post-2013 bond issues is another obstacle to restoring creditworthiness. Details are murky, but the basic proposal is that the ESM will only provide support to states deemed insolvent if haircuts are imposed on existing investors.
Today’s potential investors worry that Ireland will find it difficult to roll over maturing debt. They may also worry that they will be snagged directly if these burden- sharing arrangements are brought forward as the idea gains acceptance or the crisis deepens.
The crowding out of non-official creditors is most pronounced for longer-term debt. Shorter- term investors can be more confident they will get their money back before burden-sharing is imposed. But an increased reliance on short-term borrowing brings its own problem – a heavy rollover burden and consequent persistent vulnerability to market sentiment.
In retooling the rescue mechanisms, the focus must be on making it attractive for longer-term private investors to put in new money. The challenge will be to ensure that the mechanisms are consistent with market discipline, without which there will be limited support from Germany and other stronger euro zone members.
A possible alternative has been proposed by Brussels-based economist Daniel Gros: provide limited explicit guarantees directly on market borrowing. The guarantees would leave some risk with the investor, but would put a floor under their losses.
Crucially, direct guarantees to market investors avoid the risk-increasing effect of having (preferred) official creditors in the debt structure. The beneficiary would pay a fee for the guarantee and they would face increased policy conditionality. This would dissuade countries from relying on them unnecessarily.
The possibility of providing limited explicit guarantees would also make it easier to credibly remove the almost unlimited implicit guarantees that now exist, thereby facilitating market discipline over the longer run.
A variant of the guarantee idea is the E-bond proposal of Jean-Claude Juncker and Giulio Tremonti. They recommend allowing European countries to issue collectively guaranteed bonds with a value up to 40 per cent of GDP. Market discipline is preserved under the proposal by governments’ continuing need to issue non-guaranteed debt in addition to the E-bonds. But provided these two forms of debt rank equally in the debt structure, this form of support should allow a solvent country to regain market access.
A rescue that makes the rescued permanently dependent on the rescuers is not in anyone’s interest.xref As European policymakers revisit the mechanisms in the coming weeks, it important they address a critical question: How does the rescue affect market incentives to provide new money to the rescued country?
Source: http://www.irishtimes.com
Thursday, January 13, 2011
Threats to financial stability
The Reserve Bank of India (RBI) Financial Stability Report (December 2010) is an excellent document which provides a veritable tome of information and analysis for formulating policies.
Buoyed by strong domestic demand, India's GDP has rebounded. The Report stresses that inflation in India has some structural basis, particularly in the case of food inflation. Official statements have claimed that the inflation rate would come down, but this has been belied by the latest food inflation rate zooming to 18.5 per cent. Stressed liquidity conditions have resulted in some hardening of interest rates.
HAZARDS OF ACCOMMODATION
The stressed liquidity conditions are attributed to rising currency in circulation and faster growth of advances relative to deposits. With virtually unlimited access under the Liquidity Adjustment Facility (LAF), at extremely low and fixed rates of interest, there is a vicious circle of each injection of liquidity by RBI resulting in a surge in credit. The signals from RBI through Open Market Operations (OMO) purchases and the reduction of the statutory liquidity ratio (SLR), together with the LAF, inevitably lead to permissive credit expansion and self-perpetuating liquidity stress.
There is the moral hazard of accommodation by the central bank. The low interest rate regime leads banks to ignore underlying credit weaknesses of borrowers and fresh credit is granted on the optimistic assumption that the low interest rate regime would continue. There is the question of credit quality of the banks' loan portfolio and the health of balance sheets, especially when there is a possibility of hardening of interest rates. The danger is that the central bank has conveyed to banks that there would be baby steps in any tightening. When inflation spins out of control — as it indeed has at the present time — there can be a jolt to the financial markets and an inevitable dislocation in credit.
The RBI needs to give an unequivocal message to banks, in the inimitable style of the late Dr I.G. Patel who would say, “do not lend the money you do not have”. Banks need to be disabused of the view that the present accommodative policy is there to stay indefinitely.
There is a major flaw in the present operation of the LAF. The LAF “auction” is a misnomer, as there is unlimited access at a fixed rate. Since it is the avowed objective of the RBI to move towards a market determined system, the RBI should determine the daily injection it is willing to allow and let the market determine the rate. Of course, there should be a lender of last resort facility at a punitive rate which would ensure that individual banks do not take recourse to imprudent expansion. The Working Group examining these matters should expedite its report forthwith.
BoP CONCERNS
The widening balance of payments current account deficit (CAD) and increased capital inflows are a cause for concern. The policy of non-intervention in the forex market, resulting in an appreciation of the rupee, goes against fundamentals. There is the vulnerability of significantly larger portfolio investment as compared with direct investment.
The net international liabilities have risen from $86 billion in June 2009 to $185 billion in June 2010. The external debt to foreign exchange reserves is now close to 100 per cent — the highest for seven years — and the short-term debt to reserves is 21 per cent. After many years, annual imports now far exceed the forex reserves. Surely all this should be flashing the red light.
The RBI, not without justification, stresses the resilience of the Indian financial system, but with increased integration with the global economy, an external shock of large capital outflows and or a sudden spurt in prices of crude petroleum and other sensitive commodity imports could dislocate the system.
PRECEPT AND PRACTICE
The Report refers to the dilemma of deposit insurance. India was the second country after the US to set up a deposit insurance system. The growth of deposit insurance in India has been stunted as it is treated as a fiefdom of the powerful banking operations/supervision wing of the Bank and hence it is bereft of any supervisory powers. Either the RBI top management should give this serious attention or face the consequences of deposit insurance being separated from RBI and be given independent regulatory/supervisory powers. The RBI should not ignore this wake-up call. The Financial Stability Report provides a competent analysis of the state of the financial sector. It is no fault of the Report if the precept (i.e. analysis) is not reflected in practice (i.e. policy). This great divide has to be bridged. After prolonged baby steps the RBI has no option but to step up the accelerator on measures on January 25, 2011.
Source: http://www.thehindubusinessline.com
Buoyed by strong domestic demand, India's GDP has rebounded. The Report stresses that inflation in India has some structural basis, particularly in the case of food inflation. Official statements have claimed that the inflation rate would come down, but this has been belied by the latest food inflation rate zooming to 18.5 per cent. Stressed liquidity conditions have resulted in some hardening of interest rates.
HAZARDS OF ACCOMMODATION
The stressed liquidity conditions are attributed to rising currency in circulation and faster growth of advances relative to deposits. With virtually unlimited access under the Liquidity Adjustment Facility (LAF), at extremely low and fixed rates of interest, there is a vicious circle of each injection of liquidity by RBI resulting in a surge in credit. The signals from RBI through Open Market Operations (OMO) purchases and the reduction of the statutory liquidity ratio (SLR), together with the LAF, inevitably lead to permissive credit expansion and self-perpetuating liquidity stress.
There is the moral hazard of accommodation by the central bank. The low interest rate regime leads banks to ignore underlying credit weaknesses of borrowers and fresh credit is granted on the optimistic assumption that the low interest rate regime would continue. There is the question of credit quality of the banks' loan portfolio and the health of balance sheets, especially when there is a possibility of hardening of interest rates. The danger is that the central bank has conveyed to banks that there would be baby steps in any tightening. When inflation spins out of control — as it indeed has at the present time — there can be a jolt to the financial markets and an inevitable dislocation in credit.
The RBI needs to give an unequivocal message to banks, in the inimitable style of the late Dr I.G. Patel who would say, “do not lend the money you do not have”. Banks need to be disabused of the view that the present accommodative policy is there to stay indefinitely.
There is a major flaw in the present operation of the LAF. The LAF “auction” is a misnomer, as there is unlimited access at a fixed rate. Since it is the avowed objective of the RBI to move towards a market determined system, the RBI should determine the daily injection it is willing to allow and let the market determine the rate. Of course, there should be a lender of last resort facility at a punitive rate which would ensure that individual banks do not take recourse to imprudent expansion. The Working Group examining these matters should expedite its report forthwith.
BoP CONCERNS
The widening balance of payments current account deficit (CAD) and increased capital inflows are a cause for concern. The policy of non-intervention in the forex market, resulting in an appreciation of the rupee, goes against fundamentals. There is the vulnerability of significantly larger portfolio investment as compared with direct investment.
The net international liabilities have risen from $86 billion in June 2009 to $185 billion in June 2010. The external debt to foreign exchange reserves is now close to 100 per cent — the highest for seven years — and the short-term debt to reserves is 21 per cent. After many years, annual imports now far exceed the forex reserves. Surely all this should be flashing the red light.
The RBI, not without justification, stresses the resilience of the Indian financial system, but with increased integration with the global economy, an external shock of large capital outflows and or a sudden spurt in prices of crude petroleum and other sensitive commodity imports could dislocate the system.
PRECEPT AND PRACTICE
The Report refers to the dilemma of deposit insurance. India was the second country after the US to set up a deposit insurance system. The growth of deposit insurance in India has been stunted as it is treated as a fiefdom of the powerful banking operations/supervision wing of the Bank and hence it is bereft of any supervisory powers. Either the RBI top management should give this serious attention or face the consequences of deposit insurance being separated from RBI and be given independent regulatory/supervisory powers. The RBI should not ignore this wake-up call. The Financial Stability Report provides a competent analysis of the state of the financial sector. It is no fault of the Report if the precept (i.e. analysis) is not reflected in practice (i.e. policy). This great divide has to be bridged. After prolonged baby steps the RBI has no option but to step up the accelerator on measures on January 25, 2011.
Source: http://www.thehindubusinessline.com
Wednesday, January 12, 2011
Europe split over debt crisis fund
BRUSSELS: A divided Europe wrestled Wednesday over how to tackle a debt drama threatening to take down Portugal as Germany and France rejected a plea for a rapid boost to a eurozone crisis fund.
Commission President Jose Manuel Barroso called for an increase in the size of the 440-billion-euro European Financial Stability Facility (EFSF) to reassure nervous markets the stability of the eurozone "is not in question."
"We believe that the financing capacity must be reinforced, the scope of activities of the EFSF should be widened," Barroso said.
"And in fact I see no reason why we should not take a decision on these matters at the latest by the next" European summit on February 4, he told a news conference on the launch of a new economic governance programme.
Barroso made the surprise plea after an unannounced meeting Tuesday with IMF chief Dominique Strauss-Kahn in Brussels, and a phone call with European Central Bank President Jean-Claude Trichet, who both share his views on the fund, an EU official told AFP on condition of anonymity.
But Berlin and Paris immediately hit the brakes, saying there was no need to expand the fund.
"The German government finds at the moment that it makes no sense, and first and foremost that it is unnecessary, to talk about expanding the rescue mechanism," government spokesman Steffen Seibert told reporters.
French government spokesman Francois Baroin said the fund was "sufficiently big to meet requests" and that it would not be on the agenda at a meeting of EU finance ministers next week.
The temporary fund was created last May to provide cover for countries in financial distress after Greece became the first eurozone country to be rescued from the threat of bankruptcy, followed by Ireland in November.
But analysts have repeatedly warned that the war-chest needs to be bigger to calm nervous markets concerned the debt crisis could spread to even larger economies such as Spain, Italy or Belgium.
Belgium, itself hit by higher borrowing costs due to a marathon political crisis, has called for the fund to be given "unlimited" resources.
Talk of boosting the EFSF came amid growing fears that Portugal might need a bailout, which the country has resisted.
In a test of Portugal's ability to remain financially independent, the country managed to raise 1.25 billion euros at a bond issue Wednesday which attracted strong demand.
European economic affairs commissioner Olli Rehn said talks were underway with EU states on the possibility of increasing the EFSF, which expires in 2013, and a mooted, permanent successor -- the European Stability Mechanism.
"We must ensure that the financial support mechanisms that were put in place last May are fit for the purpose," Rehn said.
He said discussions with member states about increasing the fund were "currently going on" and that "progress is being made."
The bailout facility's total capacity on paper is 750 billion euros (one trillion dollars) when contributions from the entire EU and the International Monetary Fund are added.
But the EFSF's effective funds are considerably less its 440 billion euros.
Its lending capacity is estimated at 250 billion euros as the EFSF in fact borrows money on the markets and in order to secure a top rating and low interest rates it must keep part of funds raised in reserve.
Europeans are weighing the possibility of bringing the EFSF's effective capacity up to 440 billion euros, which would mean a significant increase in the fund and guarantees from eurozone states, media reports said.
Another idea being invoked is to allow the fund to buy the public debt of troubled economies to ease the burden on the European Central Bank, which has been buying sovereign bonds to keep the rates of countries like Portugal low.
Source: Economic times
http://economictimes.indiatimes.com
Commission President Jose Manuel Barroso called for an increase in the size of the 440-billion-euro European Financial Stability Facility (EFSF) to reassure nervous markets the stability of the eurozone "is not in question."
"We believe that the financing capacity must be reinforced, the scope of activities of the EFSF should be widened," Barroso said.
"And in fact I see no reason why we should not take a decision on these matters at the latest by the next" European summit on February 4, he told a news conference on the launch of a new economic governance programme.
Barroso made the surprise plea after an unannounced meeting Tuesday with IMF chief Dominique Strauss-Kahn in Brussels, and a phone call with European Central Bank President Jean-Claude Trichet, who both share his views on the fund, an EU official told AFP on condition of anonymity.
But Berlin and Paris immediately hit the brakes, saying there was no need to expand the fund.
"The German government finds at the moment that it makes no sense, and first and foremost that it is unnecessary, to talk about expanding the rescue mechanism," government spokesman Steffen Seibert told reporters.
French government spokesman Francois Baroin said the fund was "sufficiently big to meet requests" and that it would not be on the agenda at a meeting of EU finance ministers next week.
The temporary fund was created last May to provide cover for countries in financial distress after Greece became the first eurozone country to be rescued from the threat of bankruptcy, followed by Ireland in November.
But analysts have repeatedly warned that the war-chest needs to be bigger to calm nervous markets concerned the debt crisis could spread to even larger economies such as Spain, Italy or Belgium.
Belgium, itself hit by higher borrowing costs due to a marathon political crisis, has called for the fund to be given "unlimited" resources.
Talk of boosting the EFSF came amid growing fears that Portugal might need a bailout, which the country has resisted.
In a test of Portugal's ability to remain financially independent, the country managed to raise 1.25 billion euros at a bond issue Wednesday which attracted strong demand.
European economic affairs commissioner Olli Rehn said talks were underway with EU states on the possibility of increasing the EFSF, which expires in 2013, and a mooted, permanent successor -- the European Stability Mechanism.
"We must ensure that the financial support mechanisms that were put in place last May are fit for the purpose," Rehn said.
He said discussions with member states about increasing the fund were "currently going on" and that "progress is being made."
The bailout facility's total capacity on paper is 750 billion euros (one trillion dollars) when contributions from the entire EU and the International Monetary Fund are added.
But the EFSF's effective funds are considerably less its 440 billion euros.
Its lending capacity is estimated at 250 billion euros as the EFSF in fact borrows money on the markets and in order to secure a top rating and low interest rates it must keep part of funds raised in reserve.
Europeans are weighing the possibility of bringing the EFSF's effective capacity up to 440 billion euros, which would mean a significant increase in the fund and guarantees from eurozone states, media reports said.
Another idea being invoked is to allow the fund to buy the public debt of troubled economies to ease the burden on the European Central Bank, which has been buying sovereign bonds to keep the rates of countries like Portugal low.
Source: Economic times
http://economictimes.indiatimes.com
Tuesday, January 11, 2011
Second Financial Stability Report — Weak spots in the system
The Second Financial Stability Report released by the Reserve Bank of India (RBI) is reassuring on many grounds. As the Governor says in his foreword: “India's financial sector has by and large remained resilient save for some strains in the money market on account of tight liquidity. Banks continue to be well capitalised and the asset quality at the aggregate level does not cause serious concerns. The Reserve Bank will continue to monitor and address sectoral exposures as in the past.”
But the nature of the task ahead is not underestimated. The RBI Governor says: “Pursuit of financial stability is a continuing endeavour — much like the Greek mythological character Sisyphus, who has been likened to central bankers in a recent bestseller ‘Lords of Finance'.
Sisyphus was condemned by the Gods to roll a huge boulder up a steep hill, only to watch it roll down again and having to repeat the task. The challenge for central bankers is still bigger – they have to manage multiple boulders at a time.”
The analogy is somewhat disconcerting. Sisyphus never succeeded in his efforts. Is it appropriate to use the expression? In a sense, “yes”.
NBFCs MAKE MERRY
Right from the Tulip Bubble, the world has seen innumerable financial crises, followed by regulatory measures which did not prevent new ones from developing. Is it an unending and hopeless battle? Financial stability has to be seen in the context of the larger picture of economic stability. Individuals and institutions seem to find new ways of circumventing every regulatory or prudential measure introduced by the authorities.
Take the instance of non-banking financial companies (NBFCs). For several decades efforts have been made to discipline them.
Yet, we are told that setting up an NBFC is a more attractive option as an entry point, as the stipulation of net owned funds of Rs 2 crore is low compared with that for banks (Rs 300 crore). There are no restrictions on their activities in the capital market, leading to enhanced market risk, and there are avenues for regulatory arbitrage which they can exploit.
Were these limitations waiting to be discovered by the Second Financial Stability Report before action could be taken, even though they were fairly obvious for so many years?
OFFSHORE BANKING UNITS
No one can fault the report for its comprehensiveness and analytical rigour. Still there are a few points that need to be highlighted. In the first place, there is no reference to the Offshore Banking Units (OBUs) that were set up a few years ago. Interestingly, even the Annual Report and the Report on Trend and Progress of Banking in India brought by the RBI are silent on this subject.
It seems as if OBUs don't exist. In the context of the recycling of unaccounted wealth from India to other countries and back, the importance of monitoring the transactions in OBUs can hardly be overemphasised. OBUs are offshore only in a conceptual sense. They are very much onshore in India.
Despite the advances in communication technology that has rendered distance meaningless, for a scamster it is more convenient to carry on his activities through OBUs in the country than those abroad, especially where collusion with the bank staff at a personal level is needed. The investigative agencies that go to tax havens and offshore financial centres like the Isle of Man to ferret out unaccounted transactions do not seem to be aware of OBUs in India. It is time that the RBI prepares and publishes a status report on OBUs in the country.
EXTERNAL ACCOUNT
On the external side, the Report notes the disturbing features as revealed by the proportion of short-term debt to total external debt, and the predominance of reversible inflows of capital. The comfort drawn from the absorptive capacity for foreign inflows through the expansion of current account deficit is misplaced. One can say that if there is a spurt in foreign direct investment, which is not the case now. Portfolio investment is predominant among capital flows. It serves no purpose except introducing volatility in the stock markets. When in the secondary market, portfolio investment does not add to capital formation, but results only in change of ownership of stocks.
The Report says: “…the comfortable capital adequacy position of the banks in India vis-à-vis Basel II norms means that the Basel III requirements, once fully calibrated, are not likely to be very much higher than the current position.”
As Samuleson said, the fractional reserve system is a fair weather system. Many financial institutions with strong prudential standards failed in the past due to imprudent banking practices. There is nothing to save the system from collapse if it loses public confidence. Eternal vigilance is the price that the central bank has to pay for maintaining economic stability.
Source: www.thehindubusinessline.com
But the nature of the task ahead is not underestimated. The RBI Governor says: “Pursuit of financial stability is a continuing endeavour — much like the Greek mythological character Sisyphus, who has been likened to central bankers in a recent bestseller ‘Lords of Finance'.
Sisyphus was condemned by the Gods to roll a huge boulder up a steep hill, only to watch it roll down again and having to repeat the task. The challenge for central bankers is still bigger – they have to manage multiple boulders at a time.”
The analogy is somewhat disconcerting. Sisyphus never succeeded in his efforts. Is it appropriate to use the expression? In a sense, “yes”.
NBFCs MAKE MERRY
Right from the Tulip Bubble, the world has seen innumerable financial crises, followed by regulatory measures which did not prevent new ones from developing. Is it an unending and hopeless battle? Financial stability has to be seen in the context of the larger picture of economic stability. Individuals and institutions seem to find new ways of circumventing every regulatory or prudential measure introduced by the authorities.
Take the instance of non-banking financial companies (NBFCs). For several decades efforts have been made to discipline them.
Yet, we are told that setting up an NBFC is a more attractive option as an entry point, as the stipulation of net owned funds of Rs 2 crore is low compared with that for banks (Rs 300 crore). There are no restrictions on their activities in the capital market, leading to enhanced market risk, and there are avenues for regulatory arbitrage which they can exploit.
Were these limitations waiting to be discovered by the Second Financial Stability Report before action could be taken, even though they were fairly obvious for so many years?
OFFSHORE BANKING UNITS
No one can fault the report for its comprehensiveness and analytical rigour. Still there are a few points that need to be highlighted. In the first place, there is no reference to the Offshore Banking Units (OBUs) that were set up a few years ago. Interestingly, even the Annual Report and the Report on Trend and Progress of Banking in India brought by the RBI are silent on this subject.
It seems as if OBUs don't exist. In the context of the recycling of unaccounted wealth from India to other countries and back, the importance of monitoring the transactions in OBUs can hardly be overemphasised. OBUs are offshore only in a conceptual sense. They are very much onshore in India.
Despite the advances in communication technology that has rendered distance meaningless, for a scamster it is more convenient to carry on his activities through OBUs in the country than those abroad, especially where collusion with the bank staff at a personal level is needed. The investigative agencies that go to tax havens and offshore financial centres like the Isle of Man to ferret out unaccounted transactions do not seem to be aware of OBUs in India. It is time that the RBI prepares and publishes a status report on OBUs in the country.
EXTERNAL ACCOUNT
On the external side, the Report notes the disturbing features as revealed by the proportion of short-term debt to total external debt, and the predominance of reversible inflows of capital. The comfort drawn from the absorptive capacity for foreign inflows through the expansion of current account deficit is misplaced. One can say that if there is a spurt in foreign direct investment, which is not the case now. Portfolio investment is predominant among capital flows. It serves no purpose except introducing volatility in the stock markets. When in the secondary market, portfolio investment does not add to capital formation, but results only in change of ownership of stocks.
The Report says: “…the comfortable capital adequacy position of the banks in India vis-à-vis Basel II norms means that the Basel III requirements, once fully calibrated, are not likely to be very much higher than the current position.”
As Samuleson said, the fractional reserve system is a fair weather system. Many financial institutions with strong prudential standards failed in the past due to imprudent banking practices. There is nothing to save the system from collapse if it loses public confidence. Eternal vigilance is the price that the central bank has to pay for maintaining economic stability.
Source: www.thehindubusinessline.com
Monday, January 10, 2011
Europe-wide pensions authority goes live
EUROPE - The European Insurance and Occupational Pensions Authority (EIOPA) held its first meeting today, confirming the membership of its newly elected Management Board.
europeancommission-large-gif
The inaugural meeting of EIOPA's Board of Supervisors marked the formal establishment of EIOPA as the first of three new European Supervisory Authorities (ESAs) set up by the European Commission in 2009 as a result of reforms to financial supervision in the EU.
It will act as an independent advisory body to the European Parliament, the Council of the European Union and the European Commission. Its core objectives are to support the stability of the financial system, transparency of markets and financial products as well as the protection of insurance policyholders, pension scheme members and beneficiaries.
The Management Board comprises eight members, including six representatives of national supervisory authorities of European member states, one representative of the European Commission and the chairman of EIOPA.
The Authority revealed the six representatives of the national supervisory authorities elected by the Board of Supervisors as: Peter Braumüller, Financial Market Authority, Austria; Matthew Elderfield, Central Bank of Ireland, Ireland; Damian Jaworski, KNF - Polish Financial Supervision Authority, Poland; Flavia Mazzarella, Italian Insurance Supervisory Authority, Italy; Jan Parner, Danish Financial Supervisory Authority, Denmark and Hector Sants, Financial Services Authority, UK. The representative of the European Commission will be confirmed in due course.
It also confirmed the appointment of Victor Rod, Director of the Commissariat aux Assurances, Luxembourg, as acting chairman.
EIOPA acting secretary general Carlos Montalvo said: "EIOPA will coordinate its work with the European national regulators intensively. At the same time, our new powers will provide much needed assistance if emergency situations in the areas of insurance or occupational pensions arise. As we carry out our tasks, the prime consideration of EIOPA will be consumer protection and stability of financial markets."
Petra Roth, Mayor of the City of Frankfurt/Main, where EIOPA will be based, added: "Establishing a common set of European regulatory rules for insurance and occupational pensions is a crucial task in order to promote insurance business in Europe and build up consumer confidence."
Source: www.globalpensions.com
europeancommission-large-gif
The inaugural meeting of EIOPA's Board of Supervisors marked the formal establishment of EIOPA as the first of three new European Supervisory Authorities (ESAs) set up by the European Commission in 2009 as a result of reforms to financial supervision in the EU.
It will act as an independent advisory body to the European Parliament, the Council of the European Union and the European Commission. Its core objectives are to support the stability of the financial system, transparency of markets and financial products as well as the protection of insurance policyholders, pension scheme members and beneficiaries.
The Management Board comprises eight members, including six representatives of national supervisory authorities of European member states, one representative of the European Commission and the chairman of EIOPA.
The Authority revealed the six representatives of the national supervisory authorities elected by the Board of Supervisors as: Peter Braumüller, Financial Market Authority, Austria; Matthew Elderfield, Central Bank of Ireland, Ireland; Damian Jaworski, KNF - Polish Financial Supervision Authority, Poland; Flavia Mazzarella, Italian Insurance Supervisory Authority, Italy; Jan Parner, Danish Financial Supervisory Authority, Denmark and Hector Sants, Financial Services Authority, UK. The representative of the European Commission will be confirmed in due course.
It also confirmed the appointment of Victor Rod, Director of the Commissariat aux Assurances, Luxembourg, as acting chairman.
EIOPA acting secretary general Carlos Montalvo said: "EIOPA will coordinate its work with the European national regulators intensively. At the same time, our new powers will provide much needed assistance if emergency situations in the areas of insurance or occupational pensions arise. As we carry out our tasks, the prime consideration of EIOPA will be consumer protection and stability of financial markets."
Petra Roth, Mayor of the City of Frankfurt/Main, where EIOPA will be based, added: "Establishing a common set of European regulatory rules for insurance and occupational pensions is a crucial task in order to promote insurance business in Europe and build up consumer confidence."
Source: www.globalpensions.com
Sunday, January 09, 2011
BOE’s Haldane Says Simplicity Needed in Bank Regulation System
Andrew Haldane, the Bank of England’s executive director for financial stability, said regulators need to simplify regulation of the global banking system to include a greater reliance on market forces.
“We have a complex banking system, but it is a fatal error to argue that, as a consequence of that, we must have a complex regulatory apparatus to deal with it,” Haldane said today during a panel discussion at the Allied Social Science Associations’ annual meeting in Denver. “You don’t fight fire with fire, but rather seek robustness from simplicity.”
An international committee of regulators is attempting to overhaul bank capital and liquidity requirements because existing rules, known as Basel II, failed to protect lenders from insolvency during the financial crisis. The main elements of the overhaul were approved by leaders of the Group of 20 countries last year.
“There is ample scope to simplify,” Haldane said. One way would be to allow the “pillar of market discipline to bear a greater amount of the strain,” partly by “hardwiring it” into the capital structure of banks.
The Basel Committee on Banking Supervision, which includes regulators from Brazil, China, India, Germany, the U.K. and the U.S., agreed to increase the amount of capital banks need to hold. The change won’t go into full effect for years.
Other measures that regulators had hoped would prevent future crises, such as liquidity standards, a capital surcharge on the biggest lenders and a global resolution mechanism for failing firms, were postponed, allowing banks to escape the toughest rules that would force them to change the way they do business.
Haldane said at a conference last year that bank regulators want to stop lenders from making “miracle” returns that were an “illusion” created by taking on too much risk. He also said in a paper released last month that “colossal” global imbalances may swell and increase pressure on the world’s financial system.
Source: www.bloomberg.com
“We have a complex banking system, but it is a fatal error to argue that, as a consequence of that, we must have a complex regulatory apparatus to deal with it,” Haldane said today during a panel discussion at the Allied Social Science Associations’ annual meeting in Denver. “You don’t fight fire with fire, but rather seek robustness from simplicity.”
An international committee of regulators is attempting to overhaul bank capital and liquidity requirements because existing rules, known as Basel II, failed to protect lenders from insolvency during the financial crisis. The main elements of the overhaul were approved by leaders of the Group of 20 countries last year.
“There is ample scope to simplify,” Haldane said. One way would be to allow the “pillar of market discipline to bear a greater amount of the strain,” partly by “hardwiring it” into the capital structure of banks.
The Basel Committee on Banking Supervision, which includes regulators from Brazil, China, India, Germany, the U.K. and the U.S., agreed to increase the amount of capital banks need to hold. The change won’t go into full effect for years.
Other measures that regulators had hoped would prevent future crises, such as liquidity standards, a capital surcharge on the biggest lenders and a global resolution mechanism for failing firms, were postponed, allowing banks to escape the toughest rules that would force them to change the way they do business.
Haldane said at a conference last year that bank regulators want to stop lenders from making “miracle” returns that were an “illusion” created by taking on too much risk. He also said in a paper released last month that “colossal” global imbalances may swell and increase pressure on the world’s financial system.
Source: www.bloomberg.com
Thursday, January 06, 2011
Irish Bailout: European Commission Launches 5 Billion Euro Bond Issue To Finance Irish Bailout
The European Commission, on behalf of the European Union, issued bonds worth 5 Billion under the European Financial Stability Mechanism (EFSM) to finance the first tranche of the EU/IMF financial support agreed for Ireland last December.
Under the EFSM the EU can borrow up to €60 bn to on-lend to any EU Member State, whereas under the Balance of Payments (“BoP”) facility, support is available only to Member States which have not yet adopted the EUR. Aaaa/AAA/AAA by Moody's, S&P and Fitch.
He resulting interest rate of the loan to Ireland will be 5.51% composed of the cost of borrowing for the EU at 2.59% plus a margin of 2.925% as decided by the Council on 7 December 2010. This margin goes back to the EU Budget and is distributed to the EU 27 MS at the end of each financial year. The Commission does not charge any fees or keep any margin for its own use. The funds will be disbursed to Ireland on 12 January (five business days settlement).
According to EU sources, the investor interest on the bond were very strong and it was oversubscribed by more than 3 times within an hour of the bonds being issued.
In the context of the EFSM and based on the existing financial support programme to Ireland, the EU's funding program in 2011 could reach up to €17.6 bn raised through benchmark transactions. There will also be up to €1.5 bn under the BoP facility to finance commitments to Romania.
Source: www.egovmonitor.com
Under the EFSM the EU can borrow up to €60 bn to on-lend to any EU Member State, whereas under the Balance of Payments (“BoP”) facility, support is available only to Member States which have not yet adopted the EUR. Aaaa/AAA/AAA by Moody's, S&P and Fitch.
He resulting interest rate of the loan to Ireland will be 5.51% composed of the cost of borrowing for the EU at 2.59% plus a margin of 2.925% as decided by the Council on 7 December 2010. This margin goes back to the EU Budget and is distributed to the EU 27 MS at the end of each financial year. The Commission does not charge any fees or keep any margin for its own use. The funds will be disbursed to Ireland on 12 January (five business days settlement).
According to EU sources, the investor interest on the bond were very strong and it was oversubscribed by more than 3 times within an hour of the bonds being issued.
In the context of the EFSM and based on the existing financial support programme to Ireland, the EU's funding program in 2011 could reach up to €17.6 bn raised through benchmark transactions. There will also be up to €1.5 bn under the BoP facility to finance commitments to Romania.
Source: www.egovmonitor.com
Wednesday, January 05, 2011
First bonds for Irish bail-out issued
First bonds for Irish bail-out issued.
The EU has made a landmark issue of its first bail-out bonds, but a Portuguese bond auction showed that the euro zone debt crisis rumbles on despite a fresh pledge of support from China.
The European Financial Stability Mechanism (EFSM), which is under the auspices of the European Commission, raised €5 billion in its first placement of bonds to raise funds for Ireland's bail-out package.
The EU created the €60 billion EFSM and the larger €440 billion European Financial Stability Fund (EFSF) last year to fund bail-outs by tapping markets. The EFSF is expected to begin issuing bonds later this month.
The EFSF, whose bonds are guaranteed by stronger euro zone members, represents a groundbreaking shift in philosophy opening a precedent of structural rescue support for struggling members.
The yield, or return on investment, on the EFSM bonds was 2.5%, according to HSBC bank. This is above that paid by euro zone countries with solid finances but considerably lower than the 7.78% yield on Irish five-year bonds.
The EFSM bond placement is part of the €67.5 billion of aid Ireland is to receive under its EU-IMF bailout agreed in November last year. The two funds plan to raise up to €49 billion for Ireland in 2011 and 2012.
The EU established the EFSF last year at the height of the crisis over Greece, but the joint bond mechanism is set to continue under permanent rescue facilities which EU members are set to finalise this year.
Some euro zone members, lead by Eurogroup chief Jean-Claude Juncker and Italian Finance Minister Giulio Tremonti, have called for the practice of issuing joint bonds to be expanded to allow struggling members to tap lower financing rates before the market forces them to take a bail-out. German Chancellor Angela Merkel has led opposition to the proposal.
Germany successfully placed its first bond issue of 2011 today, reaffirming its safe haven status after several sales fell short late last year amid heightened tension on sovereign debt markets owing to problems in Ireland.
The Bundesbank said it took in €3.9 billion in exchange for benchmark 10-year Bunds at an average rate or yield of 2.87% after receiving bids worth a total of €6.29 billion.
But an auction by Portugal showed that investor concerns about European debt and deficit levels is far from over, as Lisbon was forced to pay sharply higher yields in its first foray onto the bond market this year.
Portugal raised €500m with a placement of six-month treasury bills, but the yield rose to a new record of 3.686% against 2.045% in the previous auction, according to data from Portugal's IGCP state debt management agency.
The jump in Portuguese yields came despite Vice Premier Li Keqiang's pledging to help Europe in its sovereign debt struggle during.
Li opened a three-nation tour of Europe on Tuesday by promising to use China's world record foreign reserves to buy more Spanish debt when he met Spanish Finance Minister Elena Salgado.
Swiss central bank excludes Irish bonds
The Swiss National Bank has stopped accepting Irish government bonds as collateral in its money market operations.
The SNB excluded euro-denominated Irish government bonds on December 21, a list of changes to eligible collateral for the SNB's liquidity-providing money market operations showed.
Analysts said that although the move could affect sentiment towards Irish bonds, it would not have a direct impact as Ireland is being funded by the EU/IMF package. The yield on Irish bonds was little changed.
Analysts said that the attitude of the European Central Bank was much more important, and the ECB had made it clear it would continue to accept Irish bonds.
For Switzerland, however, Irish government bonds 'did not meet the quality criteria anymore', SNB spokesman Werner Abegg said.
According to the bank's website it had stopped accepting government bonds from Greece in April, one month before that country was forced to seek outside help to manage its finances.
Ireland agreed to a bail-out in November.
SNB guidelines for collateral require that securities in foreign currency have a minimum rating of AA-/Aa3. Securities issued by sovereign countries and central banks can be exempted from this requirement, as occurred in the case of Ireland, whose top sovereign rating was already below that ceiling.
Though outside the European Union, Switzerland has been hit by fallout from the European debt crisis with waning confidence in the euro sending the Swiss franc to record highs, hitting the country's exporters.
The SNB has highlighted in the past that, unlike the European Central Bank, it has not cut its minimum standards for collateral during the financial crisis.
Ireland's credit status took a big hit from ratings agencies late last year. Moody's slashed its rating by five notches to Baa1 - three notches above junk status - from Aa2 and warned further downgrades could follow if Ireland was unable to stabilise its debt.
Source: www.rte.ie
The EU has made a landmark issue of its first bail-out bonds, but a Portuguese bond auction showed that the euro zone debt crisis rumbles on despite a fresh pledge of support from China.
The European Financial Stability Mechanism (EFSM), which is under the auspices of the European Commission, raised €5 billion in its first placement of bonds to raise funds for Ireland's bail-out package.
The EU created the €60 billion EFSM and the larger €440 billion European Financial Stability Fund (EFSF) last year to fund bail-outs by tapping markets. The EFSF is expected to begin issuing bonds later this month.
The EFSF, whose bonds are guaranteed by stronger euro zone members, represents a groundbreaking shift in philosophy opening a precedent of structural rescue support for struggling members.
The yield, or return on investment, on the EFSM bonds was 2.5%, according to HSBC bank. This is above that paid by euro zone countries with solid finances but considerably lower than the 7.78% yield on Irish five-year bonds.
The EFSM bond placement is part of the €67.5 billion of aid Ireland is to receive under its EU-IMF bailout agreed in November last year. The two funds plan to raise up to €49 billion for Ireland in 2011 and 2012.
The EU established the EFSF last year at the height of the crisis over Greece, but the joint bond mechanism is set to continue under permanent rescue facilities which EU members are set to finalise this year.
Some euro zone members, lead by Eurogroup chief Jean-Claude Juncker and Italian Finance Minister Giulio Tremonti, have called for the practice of issuing joint bonds to be expanded to allow struggling members to tap lower financing rates before the market forces them to take a bail-out. German Chancellor Angela Merkel has led opposition to the proposal.
Germany successfully placed its first bond issue of 2011 today, reaffirming its safe haven status after several sales fell short late last year amid heightened tension on sovereign debt markets owing to problems in Ireland.
The Bundesbank said it took in €3.9 billion in exchange for benchmark 10-year Bunds at an average rate or yield of 2.87% after receiving bids worth a total of €6.29 billion.
But an auction by Portugal showed that investor concerns about European debt and deficit levels is far from over, as Lisbon was forced to pay sharply higher yields in its first foray onto the bond market this year.
Portugal raised €500m with a placement of six-month treasury bills, but the yield rose to a new record of 3.686% against 2.045% in the previous auction, according to data from Portugal's IGCP state debt management agency.
The jump in Portuguese yields came despite Vice Premier Li Keqiang's pledging to help Europe in its sovereign debt struggle during.
Li opened a three-nation tour of Europe on Tuesday by promising to use China's world record foreign reserves to buy more Spanish debt when he met Spanish Finance Minister Elena Salgado.
Swiss central bank excludes Irish bonds
The Swiss National Bank has stopped accepting Irish government bonds as collateral in its money market operations.
The SNB excluded euro-denominated Irish government bonds on December 21, a list of changes to eligible collateral for the SNB's liquidity-providing money market operations showed.
Analysts said that although the move could affect sentiment towards Irish bonds, it would not have a direct impact as Ireland is being funded by the EU/IMF package. The yield on Irish bonds was little changed.
Analysts said that the attitude of the European Central Bank was much more important, and the ECB had made it clear it would continue to accept Irish bonds.
For Switzerland, however, Irish government bonds 'did not meet the quality criteria anymore', SNB spokesman Werner Abegg said.
According to the bank's website it had stopped accepting government bonds from Greece in April, one month before that country was forced to seek outside help to manage its finances.
Ireland agreed to a bail-out in November.
SNB guidelines for collateral require that securities in foreign currency have a minimum rating of AA-/Aa3. Securities issued by sovereign countries and central banks can be exempted from this requirement, as occurred in the case of Ireland, whose top sovereign rating was already below that ceiling.
Though outside the European Union, Switzerland has been hit by fallout from the European debt crisis with waning confidence in the euro sending the Swiss franc to record highs, hitting the country's exporters.
The SNB has highlighted in the past that, unlike the European Central Bank, it has not cut its minimum standards for collateral during the financial crisis.
Ireland's credit status took a big hit from ratings agencies late last year. Moody's slashed its rating by five notches to Baa1 - three notches above junk status - from Aa2 and warned further downgrades could follow if Ireland was unable to stabilise its debt.
Source: www.rte.ie
Tuesday, January 04, 2011
Seven area bank companies have missed more than $16 million in TARP payments
Seven area banking companies owe a combined $16.6 million in missed quarterly payments under the government’s Troubled Asset Relief Program, and the U.S. Treasury now attends board meetings of two of them.
“Observers” from the Treasury’s Office of Financial Stability have begun to attend — but not participate in — the board meetings of Dickinson Financial Corp., which recently sold Bank Midwest to a Boston group, and Blue Valley Ban Corp., which owns the Bank of Blue Valley.
“We had an observer from the Treasury attend our December meeting, and it’s purely voluntary,” said John Cox, general counsel of Dickinson Financial, which still operates Academy Bank and Armed Forces Bank in the area. “They use the observation process to determine if, when and how they will exercise their rights to appoint directors.”
The Treasury invested billions of dollars in banking companies in response to the financial crisis. Terms of the investment allow the agency to appoint up to two board members if a banking company misses six dividend or interest payments.
Dickinson has missed six payments and Blue Valley Ban Corp. seven, according to a Dec. 10 report from the Treasury, which has not appointed board members at either company.
Bob Regnier, Blue Valley chief executive, said a Treasury observer attended the November and December board meetings.
A Treasury fact sheet said using observers was much less expensive than recruiting qualified directors and allowed the agency to immediately assess the situation.
Regulators generally have prohibited banking companies with heightened levels of problem loans or the need to retain capital from making their payments under the Treasury’s TARP.
Missing the payments isn’t a default but can allow the Treasury to seek membership on the banking company’s board. The recent Treasury report showed it had observers attending 18 banking companies’ board meetings.
Area companies that have missed fewer than five TARP payments include the parent firms of Blue Ridge Bank and Trust based in Independence; Citizens Bank and Trust based in Chillicothe, Mo.; First Community Bank based in Lee’s Summit; Excel Bank based in Sedalia, Mo.; and Bank of the Prairie based in Olathe.
Source: www.kansascity.com
“Observers” from the Treasury’s Office of Financial Stability have begun to attend — but not participate in — the board meetings of Dickinson Financial Corp., which recently sold Bank Midwest to a Boston group, and Blue Valley Ban Corp., which owns the Bank of Blue Valley.
“We had an observer from the Treasury attend our December meeting, and it’s purely voluntary,” said John Cox, general counsel of Dickinson Financial, which still operates Academy Bank and Armed Forces Bank in the area. “They use the observation process to determine if, when and how they will exercise their rights to appoint directors.”
The Treasury invested billions of dollars in banking companies in response to the financial crisis. Terms of the investment allow the agency to appoint up to two board members if a banking company misses six dividend or interest payments.
Dickinson has missed six payments and Blue Valley Ban Corp. seven, according to a Dec. 10 report from the Treasury, which has not appointed board members at either company.
Bob Regnier, Blue Valley chief executive, said a Treasury observer attended the November and December board meetings.
A Treasury fact sheet said using observers was much less expensive than recruiting qualified directors and allowed the agency to immediately assess the situation.
Regulators generally have prohibited banking companies with heightened levels of problem loans or the need to retain capital from making their payments under the Treasury’s TARP.
Missing the payments isn’t a default but can allow the Treasury to seek membership on the banking company’s board. The recent Treasury report showed it had observers attending 18 banking companies’ board meetings.
Area companies that have missed fewer than five TARP payments include the parent firms of Blue Ridge Bank and Trust based in Independence; Citizens Bank and Trust based in Chillicothe, Mo.; First Community Bank based in Lee’s Summit; Excel Bank based in Sedalia, Mo.; and Bank of the Prairie based in Olathe.
Source: www.kansascity.com
Monday, January 03, 2011
2011: A Year of European Potential
Brussels - In 2011 Europe has to be smart, great and ambitious to achieve quick recovery from the crisis, fiscal discipline and international competitiveness, whereas all the Eurozone countries focus on safeguarding the stability of the common currency. The recent financial and economic crisis has clearly indicated a number of inadequacies of the current legal and political framework, which are currently being tackled by the EU. Hence, 2011 is expected to be a year of challenges for the European Union in developing a new framework that will improve financial supervision, enhance economic governance and establish a permanent crisis mechanism. In parallel, the challenges imposed by the ageing population, climate change and the lack of innovative funding instruments remain at the forefront of European, as well as international discussions.
2011 marks the beginning of the new European framework for financial supervision. The measures include a European Systemic Risk Board to oversee the health of Europe's economy, while other supervisory bodies will overlook banking, financial markets, insurance and pensions. It is expected that the new framework, adapted to the level of financial market integration, will enhance financial stability in the European Union and, consequently, contain potential risks to the real economy and public finances.
The system will safeguard the interests of consumers, investors, and other users and stakeholders of financial services, or at least prevent the magnitude of the effects of a potential crisis. Eventually, it aims to make EU financial markets more competitive and foster integration, while supporting their sustainable development. It is clear that in the future there will be no place for fragmented, national responses, with a lesser effect to the globalized markets, but rather a single and clear answer to external risks. In addition, the recent economic crisis has indicated that national policies have to be better coordinated to avoid similar crises in the future. 2011 will be a decisive year regarding the exact form of the new economic governance package, as well as its effectiveness. This new legislative framework is expected to deliver increased fiscal discipline, broader economic surveillance, deeper coordination and stronger institutions. It is worth mentioning that budgetary consolidation alone cannot ensure neither sovereign debt sustainability nor the correction of the observed imbalances.
There are fears that expenditure cuts and higher corporate taxes may discourage investment, reduce demand and raise unemployment. Moreover, the tough sanctions proposed may exacerbate the situation of already heavily indebted countries and thus the degree of automaticity is being debated. Europe needs a strategy that will allow growth acceleration both in the core and the periphery. Hence, European leaders are confronted with the challenge of achieving fiscal discipline without hampering growth.
2011 will also be a year of decision for the establishment of a permanent mechanism which will replace the temporary European Financial Stability Facility and aim at preventing, managing and resolving future crises, although it will probably not be implemented before mid-2013.
The purpose of such a mechanism is to safeguard financial stability in the euro area and its implementation requires a limited Treaty change. It has to be stressed that this proposal encompasses two new features; the potential participation of private creditors in the financial assistance programs and the possibility of debt restructuring or "controlled default".
The implementation of such proposals has to take into serious consideration the development agenda and the social and economic specificities of Member States which are facing fiscal problems and above all the European solidarity and cohesion.
In this direction, the internal market's advantages should be fully exploited for it to achieve its potential. The extent of economic and political integration lies behind the efforts of EU leaders in supporting the common currency. It is the right time to push market integration to new levels targeting the significant persistent imbalances across Member States as a well-functioning Single Market is the only way to ensure long-term growth for jobs. In this context, opening up market access for European - particularly small and medium sized - businesses, modernizing public procurement administration rules, reforming tax systems and regulating cross-border debt recovery are all necessary steps that have to be taken. Structural reforms, such as liberalizing the services sector, can promote productivity, innovation and investment as well as attract valuable human resources. Furthermore, it is essential that European institutions and national governments put increased efforts into designing and implementing an ambitious agenda for economic, social and territorial cohesion that supports a well-balanced development of regions and localities. 2011 also calls for greater emphasis on the "knowledge triangle" of education, research and innovation which can speed up recovery and employment in a time of globalization and growing international competition. Combining high growth rates with poverty reduction is the major challenge in achieving "inclusive growth".
The consolidation efforts by Member States put further pressure on public expenditure during an era of population ageing and rising cost of healthcare provision and social protection. Hence, delivering adequate and sustainable pensions for European citizens is a critical issue. In conclusion, dealing with the economic crisis and building the momentum of recovery, sustainable development and jobs requires well thought-out solutions at both national and European level in addition to building an area of freedom, justice and security, launching negotiations for a modern appropriate EU budget and pulling EU's weight on the global stage. Unilateral approaches seem not be sufficient in overcoming the difficulties countries are facing in establishing sound public finances and growth, finding innovative sources of funding the national and European projects and facing the strong international challenges.
2011 is expected to be a promising year for European citizens and states, and making the best use of the opportunities ahead will allow Europe to broaden its horizons and move towards new directions.
Source: www.neurope.eu
2011 marks the beginning of the new European framework for financial supervision. The measures include a European Systemic Risk Board to oversee the health of Europe's economy, while other supervisory bodies will overlook banking, financial markets, insurance and pensions. It is expected that the new framework, adapted to the level of financial market integration, will enhance financial stability in the European Union and, consequently, contain potential risks to the real economy and public finances.
The system will safeguard the interests of consumers, investors, and other users and stakeholders of financial services, or at least prevent the magnitude of the effects of a potential crisis. Eventually, it aims to make EU financial markets more competitive and foster integration, while supporting their sustainable development. It is clear that in the future there will be no place for fragmented, national responses, with a lesser effect to the globalized markets, but rather a single and clear answer to external risks. In addition, the recent economic crisis has indicated that national policies have to be better coordinated to avoid similar crises in the future. 2011 will be a decisive year regarding the exact form of the new economic governance package, as well as its effectiveness. This new legislative framework is expected to deliver increased fiscal discipline, broader economic surveillance, deeper coordination and stronger institutions. It is worth mentioning that budgetary consolidation alone cannot ensure neither sovereign debt sustainability nor the correction of the observed imbalances.
There are fears that expenditure cuts and higher corporate taxes may discourage investment, reduce demand and raise unemployment. Moreover, the tough sanctions proposed may exacerbate the situation of already heavily indebted countries and thus the degree of automaticity is being debated. Europe needs a strategy that will allow growth acceleration both in the core and the periphery. Hence, European leaders are confronted with the challenge of achieving fiscal discipline without hampering growth.
2011 will also be a year of decision for the establishment of a permanent mechanism which will replace the temporary European Financial Stability Facility and aim at preventing, managing and resolving future crises, although it will probably not be implemented before mid-2013.
The purpose of such a mechanism is to safeguard financial stability in the euro area and its implementation requires a limited Treaty change. It has to be stressed that this proposal encompasses two new features; the potential participation of private creditors in the financial assistance programs and the possibility of debt restructuring or "controlled default".
The implementation of such proposals has to take into serious consideration the development agenda and the social and economic specificities of Member States which are facing fiscal problems and above all the European solidarity and cohesion.
In this direction, the internal market's advantages should be fully exploited for it to achieve its potential. The extent of economic and political integration lies behind the efforts of EU leaders in supporting the common currency. It is the right time to push market integration to new levels targeting the significant persistent imbalances across Member States as a well-functioning Single Market is the only way to ensure long-term growth for jobs. In this context, opening up market access for European - particularly small and medium sized - businesses, modernizing public procurement administration rules, reforming tax systems and regulating cross-border debt recovery are all necessary steps that have to be taken. Structural reforms, such as liberalizing the services sector, can promote productivity, innovation and investment as well as attract valuable human resources. Furthermore, it is essential that European institutions and national governments put increased efforts into designing and implementing an ambitious agenda for economic, social and territorial cohesion that supports a well-balanced development of regions and localities. 2011 also calls for greater emphasis on the "knowledge triangle" of education, research and innovation which can speed up recovery and employment in a time of globalization and growing international competition. Combining high growth rates with poverty reduction is the major challenge in achieving "inclusive growth".
The consolidation efforts by Member States put further pressure on public expenditure during an era of population ageing and rising cost of healthcare provision and social protection. Hence, delivering adequate and sustainable pensions for European citizens is a critical issue. In conclusion, dealing with the economic crisis and building the momentum of recovery, sustainable development and jobs requires well thought-out solutions at both national and European level in addition to building an area of freedom, justice and security, launching negotiations for a modern appropriate EU budget and pulling EU's weight on the global stage. Unilateral approaches seem not be sufficient in overcoming the difficulties countries are facing in establishing sound public finances and growth, finding innovative sources of funding the national and European projects and facing the strong international challenges.
2011 is expected to be a promising year for European citizens and states, and making the best use of the opportunities ahead will allow Europe to broaden its horizons and move towards new directions.
Source: www.neurope.eu
Saturday, January 01, 2011
Stock-taking at first meet
New Delhi, Dec. 31: The first meeting of the newly set up Financial Stability and Development Council, dubbed India’s super-regulator, discussed the currency wars in the global economy.
Sources said the meeting of the top financial sector regulators, chaired by finance minister Pranab Mukherjee, took stock of the competitive devaluation of currencies that was affecting global financial flows and trade.
The rupee is currently trading at 44.7 to the dollar, up 4.1 per cent year-on-year. It had touched a low of Rs 52.06 to the dollar some 18 months back. The appreciation of the Indian currency has hit its export competitiveness, hitting infotech and textile firms.
Officials said India would not join the “currency war” being waged in forex trading rooms across the globe. However, they added that the government and the RBI would certainly try to protect export markets by checking excessive volatility in the rupee value vis-a-vis the major currencies.
A finance ministry statement on the meeting said, “It was felt that currency issues, as is being played out, could have implications for India. The effort to keep the value of currencies artificially low could have an adverse impact on the competitiveness of Indian companies both within and outside the country. If nations adopted protectionist measures, it could have serious implications for the world economy as a whole.”
“We had a very positive and constructive meeting,” Mukherjee told reporters after the hour-long meeting.
Finance ministry officials said, “The meeting assessed the signs of economic recovery in the West and came to the conclusion that 2011 could see improvement in the world economy. The US could see better growth in 2011. The EU could also see positive growth though the sovereign debt crisis and woes of some nations are a matter of concern.”
Officials said besides the global economic recovery process, the prevailing economic situation in India was discussed, including concerns over high domestic inflation and widening current account deficit.
Source: www.telegraphindia.com
Sources said the meeting of the top financial sector regulators, chaired by finance minister Pranab Mukherjee, took stock of the competitive devaluation of currencies that was affecting global financial flows and trade.
The rupee is currently trading at 44.7 to the dollar, up 4.1 per cent year-on-year. It had touched a low of Rs 52.06 to the dollar some 18 months back. The appreciation of the Indian currency has hit its export competitiveness, hitting infotech and textile firms.
Officials said India would not join the “currency war” being waged in forex trading rooms across the globe. However, they added that the government and the RBI would certainly try to protect export markets by checking excessive volatility in the rupee value vis-a-vis the major currencies.
A finance ministry statement on the meeting said, “It was felt that currency issues, as is being played out, could have implications for India. The effort to keep the value of currencies artificially low could have an adverse impact on the competitiveness of Indian companies both within and outside the country. If nations adopted protectionist measures, it could have serious implications for the world economy as a whole.”
“We had a very positive and constructive meeting,” Mukherjee told reporters after the hour-long meeting.
Finance ministry officials said, “The meeting assessed the signs of economic recovery in the West and came to the conclusion that 2011 could see improvement in the world economy. The US could see better growth in 2011. The EU could also see positive growth though the sovereign debt crisis and woes of some nations are a matter of concern.”
Officials said besides the global economic recovery process, the prevailing economic situation in India was discussed, including concerns over high domestic inflation and widening current account deficit.
Source: www.telegraphindia.com
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