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Adalberto Palma

FRB: Speech--Raskin, Community Banking Supervision 2012.01.06 - 2 views

  • Governor Sarah Bloom Raskin
  • Community Bank Examination and Supervision amid Economic Recovery
  • community banks continue to face numerous challenges
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  • challenges from an enhanced regulatory regime that has evolved in the wake of the crisis.
  • The ultimate focus of examination and supervision is the safety and soundness of the bank, as well as compliance with laws and an assessment of the bank's ability to withstand risks and shocks.
  • how the Federal Reserve's monetary policy aims to increase the availability of credit to foster economic growth, and how we are tailoring our examination and supervision of community banks to ensure that we are not inadvertently constraining lending. 
  • examination and supervision of community banks is a timely and important topic. Why do I say that? Because, as I will discuss shortly, lending by community banks plays an important role in the ongoing economic recovery, especially by providing credit to small businesses. And it is absolutely critical that examination and supervision do not produce outcomes that are barriers to small business expansion.
  • potential effects of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act).
  • Supervision and Examination of Large and Community Banks
  • good examiners will help them to be proactive and identify problems early, and because a strong and durable banking system is in everyone's best interest.
  • They are relatively diversified, but also tend to be more highly leveraged than smaller institutions, and often rely on more volatile wholesale funding. These organizations often are tightly interconnected, raising the prospect that the failure of one institution could rapidly destabilize the wider financial system, giving rise to the "too-big-to-fail" problem.7  
  • the examination and supervision of the lender should not hinder the ability of creditworthy businesses to access credit.
  • I am encouraged that community banks are faring better in the current environment.
  • While profitability remains below long-run historical norms, returns on equity and assets have reached their highest post-crisis levels.3
  • we must continue to think about how we can improve the examination and supervision of community banks. One issue that we constantly must evaluate is the appropriate balance in the allocation of responsibilities between banks and examiners.4
  • community bankers typically welcome effective and appropriate examination and supervision.
  • there are key differences between these two sets of institutions, and these differences have implications for our supervisory framework.
  • over at least the past decade indicates a trend toward greater concentration. Ninety-nine percent of banks in the United States are community banks, with most of these holding less than $1 billion in total assets. The remaining 1 percent of banks together hold more than 80 percent of the assets in the banking system, with much of this concentrated at a handful of the very largest banks. The four largest commercial banks, each of which has more than $1 trillion in consolidated assets, collectively hold just under half of all U.S. banking assets.6   
  • The largest commercial banks are characterized not only by their size, but also by their scope of operations and complexity.
  • we must always think about whether the allocation of responsibilities should be different depending on whether the supervision is of a community bank rather than a large bank,
  • The characteristics of the largest commercial banks stand in contrast with those of community banks.
  • community banks are not immune from taking on excessive risk. But there are reasons why risks at community banks are likely to be less dangerous to the financial system. First, community banks generally are less complex and more easily understood. Second, community banks tend to be more traditional in approach.
  • our supervision of these firms has become arguably much more intensive, which I believe is perfectly appropriate given the effect that problems at the largest firms had on the financial system and the broader economy. 
  • All of these characteristics have implications for how large and complex banks should be supervised, as compared with community banks. Notably, our supervision of large banks reflects the scope and complexity of their activities as well as their interactions with other firms and possible effects on financial markets, and incorporates systemic risk considerations that could arise from the failure of these banks.
  • In recognition of their systemic importance, the largest firms also are required to plan for their own orderly resolution in the event that they should fail. 
  • Because of their complexity and risk characteristics, these firms require intensive and continuous on-site supervision;
  • examiners also understand local market conditions to be able to put the bank's management and credit decisions in the proper context.
  • What does this have to do with community banks?
  • The community banking model is very different from that of the largest banks. Community banks are local by their very nature. They have deep roots in their communities.
  • This trait is particularly important when it comes to small business lending, where a local community bank may understand things about a prospective customer that cannot be captured in a more quantitative credit-scoring model that might be used by a larger institution.
  • these characteristics call for a very different model of examination and supervision than what is required for the largest banks.
  • Third, community banks are less interconnected, so when a community bank fails, the effects are less widespread. 
  • Strong lines of communication between examiners and community banks are vitally important.
  • Examiners need to listen carefully to management to understand their perspective where views may differ
  • We encourage our examiners to be responsive to questions from bankers and help banks understand new regulatory requirements, and they take this responsibility seriously.
  • the risk-management system of a healthy bank can be pictured as a series of concentric circles. The inner circles consist of the systems and functions that keep the bank healthy and allow it to meet the credit needs of its community while remaining financially sound and compliant with its legal and regulatory obligations. Moving outward, additional circles include processes and checks such as internal audit, executive management committees, risk-management and internal controls, and appropriate governance by the board of directors. The outermost circle is effective supervision. The critical element of this model is that problem identification is first and foremost the responsibility of the bank, while banking supervisors kick the tires of the bank's risk-management and internal control systems. The examiners are, in this sense, a last line of defense and do not substitute for a bank's own processes for risk identification and mitigation. They are not a guarantee of the bank's ultimate success or failure. 
  • this model of concentric circles generally holds true for banks of all sizes, the complexity of the largest institutions requires far more complex inner circles.
  • the outer circle that is necessary at a systemically important bank should be far more layered than what is needed at a small community bank. 
  • think about the effects these policies are likely to have on community banks and the areas they serve.
  • Federal Reserve are working to ensure that our supervisory program is properly tailored to the wide array of institutions
  • considering the effect that these policies might have on smaller institutions
  • we consider not only whether specific policies are appropriate for community banks, but also whether these policies could have the effect of reducing the availability of credit to sound borrowers.
  • Community Bank Supervision at the Federal Reserve
  • I hope my remarks will at least continue our conversation about how best to structure a regulatory and supervisory framework for the banking system that effectively supports the real economy and encourages sound and sustained lending to creditworthy borrowers. In order to sustain the economic recovery, we need strong, well-run community banks that operate in a framework of smart and effective supervision
Adalberto Palma

The Shrinking U.S. Banking Sector: On Balance, Who Benefits? - 0 views

  • There were 157 bank failures in the country last year, the most since 1992, according to the Federal Deposit Insurance Corporation (FDIC)
  • consolidation process is now under way.
  • 6,529 commercial banks and 1,128 savings institutions by the end of this year. That is a 4.4% decline from the previous year, and it leaves the country with nearly half as many institutions as it had 20 years ago
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  • wave of consolidation occurred in 1994
  • Kenneth H. Thomas
  • not all customers will benefit from greater consolidation
  • U.S. federal government rolled out various laws in 1784 to encourage multiple banks in individual states.
  • In 1933 alone, about 4,000 commercial banks and 1,700 savings and loans institutions failed.
  • "Many small banks feel that they are being pushed out of existence by new regulations,
  • swing of the pendulum last year, consolidation returned to 1994 levels. But in contrast to previous times, much of the consolidation has been due to failures
  • Loretta J. Mester
  • "In the short term, I think consolidation will pick up as weaker banks go through mergers and acquisitions, and stronger banks take time to get their capital shored up" in their pursuit of greater efficiency and economies of scale,
  • experts expect consolidation to continue, and predict that the trend will leave the banking system better off in the long run. "We don't really need as many banks as we used to,"
  • have less than $1 billion of assets, but account for 92% of all banks and savings institutions,
  • Dodd-Frank Wall Street Reform and Consumer Protection Act was a death knell
  • institutions that will likely be hardest hit by all this activity will be the community banks
  • Their plight hasn't been lost on the FDIC, which has launched various initiatives to give community banks some relief.
  • guidelines that lighten requirements for how these banks manage customers whose accounts are consistently overdrawn.
  • borrowers with low incomes or bad credit are significantly less likely to default on loans if they borrow from a local bank than if they receive a loan from a distant bank or mortgage company.
  • Todd A. Gormley,
  • "Smaller firms and local individuals trying to get loans from larger banks could be a subset of the population that is worse off because of consolidation,
  • concentration in geographic markets
  • are an important factor in the reciprocal relationship between lender and borrower
  • consolidation also leaves a handful of banks controlling the majority of certain types of products.
  • Four "mega banks" -- Wells Fargo, Bank of America, JPMorgan Chase and Citigroup -- now hold three-fifths of the home mortgage market, which limits consumers' choice of products and their ability to shop around for competitive pricing. "It's a textbook issue of a concentration of power," Guttentag says. "A limited number of firms control the market, and they will engage in implicit collusion."
  • community banks play an important role in local economies. They typically have close relationships with individual customers
  • some cities, states and regions have just one dominant bank.
  • Pittsburgh metropolitan area, PNC Bank has 47% of the deposit share, according to the FDIC. The second-largest bank in the area is Citizens Bank of Pennsylvania, which has 8.5% of the deposit share.
  • no limits on deposit shares in certain markets, 1994's Riegle-Neal Act imposes a 10% cap on nationwide deposits for a single bank.
  • Treasury Department is now looking into modifying the cap to include all consolidated liabilities.
  • consumers need not worry
  • Mester
  • While the total number of banks may be declining, the number of branches isn't.
  • In the last 10 years, the number of bank branches nationwide has increased 15%, although that expansion has primarily involved banks with $500 million or more in assets. The number of branches dropped slightly for the first time in a decade in 2010.
  • Guttentag
  • the number of banks will continue to shrink, but he doubts the U.S. will ever look like, say, Canada -- which has just 22 banks. Indeed, if consolidation continues as it has over the past 20 years at the average annual rate of 3.3%, it would take 60 years for the total number to fall below 1,000 banks and nearly 130 years to get below 100.
  • if the number of banks shrinks from 6,000 to 100, if those 100 are operating in all market segments and if consumers have many options, there is no reason for concern," Guttentag
Adalberto Palma

Lex Defining G-SIBs and additional loss absorbency requts 2011.08.12 - 0 views

  • Cross-jurisdictional activity.
  • the greater the global reach of a bank, the more difficult it is to coordinate its resolution and the more widespread the effects of its failure.
  • Cross-jurisdictional claims
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  • Cross-jurisdictional liabilities.
  • take into account the liabilities of all offices of the relevant bank to entities outside the home market and include all liabilities to non-residents of its home jurisdiction.
  • international banks’ activities outside their home jurisdiction
  • Size.
  • bank’s distress or failure is more likely to damage the global economy or financial markets if its activities comprise a large share of global activity.
  • ts failure is therefore more likely to damage confidence in the global financial system
  • Interconnectedness
  • contagion in respect of other institutions depending on the network of contractual obligations in which it operates.
  • Intra-financial system assets.
  • Intra-financial system liabilities
  • Wholesale funding ratio.
  • Substitutability.
  • systemic impact of a bank’s distress or failure is expected to be negatively related to the substitutability of its services.
  • lack of realistic alternatives to a major business line
  • Assets under custody
  • disrupt the operation of financial market
  • Payments cleared and settled through payment systems
  • these institutions and customers may be unable to process payments immediately, affecting their liquidity.
  • Value of underwritten transactions in debt and equity markets
  • impede new securities issuance.
  • Complexity.
  • failure is likely to be greater, the more complex its business, structure, and operations are.
  • Notional value of OTC derivatives.
  • Level 3 assets.
  • Trading book value and “available for sale” value.
  • The BCBS provides some opportunity for individual supervisors of banks to make adjustments to a bank's G-SIB criteria determined by reference to the above criteria but states that it believes the bar for any such adjustment should be high, and it only expects such adjustments in exceptional cases.
  • continuing review of banks against the relevant indicators,
  • not proposing to develop a fixed list of G-SIBs. Banks could therefore migrate in and out of SIB status over time
  • G-SIBs, each bank will grouped into a category of systemic importance based on its score under the indicator based test specified above.
  • there will be 28 G-SIBs
  • Assessment Methodology
  • “indicator based measurement approach”
  • Each of these indicators is given a 20% weighting and, as specified below, most of the indicators are made up of two or more sub-indicators
  • Each indicator’s score is then aggregated.
  • Agency problem
  • Shareholder discipline.
  • Contingent capital holder discipline.
  • Market information.
  • Cost effectiveness.
  • Trigger failure.
  • Cost effectiveness.
  • Complexity.
  • Adverse signalling.
  • Negative shareholder incentives.
  • contingent capital should not be capable of meeting the additional loss absorbency requirement for G-SIBs
  • for consideration at the next G-20 meeting in November 2011, and it is expected they will be endorsed at such meeting.
  • 28 banks will initially be specified as G-SIBs
  • The effect on such banks will, however, be significant
  • the common equity requirement for the largest global banks increasing from the current 2% of risk weighted assets to 9.5% (and potentially 10.5%)
  • G-SIBs will have some time to plan for the new loss absorbency requirement. The BCBS is proposing that the requirement will be phased in at the same time as the new capital conservation and countercyclical buffers between 1 January 2016, becoming fully effective at the start of 2019
  • the minimum “cut-off score” in relation to which banks will be regarded as G-SIBs will be set by 1 January 2014, and national jurisdictions will be expected to incorporate the new rules into legislation by 1 January 2015.
  • new Basel III framework at the end of 2010, the BCBS mandated all banks to hold significantly more capital than is currently the case as well as introducing new leverage and liquidity ratios
  • The Basel III rules apply to all banks. In addition, the FSB and the BCBS have been considering additional rules to apply to the largest global banks to deal with concerns that such banks are regarded as too big to fail
  • Basel Committee on Banking Supervision (“BCBS”) and the Financial Stability Board (“FSB”) published two papers relating to entities regarded as globally systemic important financial institutions (“G-SIFIs”)
  • Additional Loss Absorbency Requirement
  • Background
  • y.   Cons
  • : Pros
Adalberto Palma

George Osborne unveils new Financial Services Bill 2012.01.28 - 0 views

  • The Chancellor, George Osborne presented the new Financial Services Bil
  • to create a clear structure of who is in charge in the event of another credit crunch or financial crisis.
  • Bank of England at the centre of the regulatory structure
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  • Chancellor to take control and veto decisions made by the Bank of England
  • previous regulatory structure
  • not having clear lines of accountability
  • FSA will be abolished
  • creation of three new bodies to regulate financial services
  • Financial Policy Committee (FPC) will work within the Bank of England
  • responsibility for regulation and monitoring risks to the financial sector to the economy.
  • oversee and instruct two new financial watchdogs.
  • Prudential Regulation Authority
  • Financial Conduct Authority
  • PRA will supervise the safety and soundness of individual financial firms
  • FCA will focus on consumer protection and ensuring employees who work in financial services comply with the rules.
  • "The Consumer Panel welcomes the intention to transfer responsibility for consumer credit regulation to the FCA
  • George Osborne said: "The Financial Services Bill will overhaul the failed system of financial regulation which allowed such dangerous levels of leverage to emerge.
  • "Everyone was so focused on ticking off a regulatory checklist that nobody felt it was their responsibility to use their judgment. "We are putting in place clear lines of accountability, and restoring that crucial element of judgment."
  • ack of clarity over who was accountable for what created the conditions whereby the Royal Bank of Scotland (RBS) was able to complete its takeover of Dutch bank ABN Amro which led to RBS requiring a £45 billion bailout from the UK taxpayer
  • British Bankers' Association
  • “Good financial supervision is not just about structure - decisions taken made by bankers and regulators matter too.
  • an important milestone in rebuilding trust in the financial services sector. There are still many issues to work though and we will continue working with government so the new structures, as they emerge,
  • the Bank of England will be in charge of regulation in “normal” times but the Chancellor will have the power to take over in a crisis if taxpayers’ money is at risk.
  • Director of Financial Services at Consumer Focus
  • This is a once in a generation opportunity to reform our financial regulation and it is vital we get it right. Consumers have been losing out for too long.
  • The Financial Services Bill must be passed by parliament before it becomes law.
Adalberto Palma

FT Europe's bank recapitalisation plan must change 2011.10.17 - 1 views

  • sign off on a programme to give banks a deadline of six to nine months to boost capital ratios privately
  • accept some form of state capital.
  • The recapitalisation plan itself must be made tougher
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  • three-pronged reform agenda
  • capital plan
  • capital holes
  • it would be somewhere between €100bn ($137bn) and €200bn.
  • the plan needs to change
  • forced to meet the planned 9 per cent core tier one capital ratio in such a short time
  • determined not to raise fresh money – either from shareholders, because equity prices are so disastrously low, or from the state, because of an understandable fear of being stigmatised as a bailed-out bank that is weaker than its rivals
  • they would shrink their balance sheets, reducing the risk-weighted assets (or lending commitments) that form the denominator of their capital ratios, rather than boosting the capital that forms the numerator.
  • shrinkage of available bank credit across Europe
  • protesting about the lack of funding.
  • politicians and small business
  • the banks are bluffing
  • There is a strong reason to call their bluff
  • second prong
  • that will not be enough
  • normalise banks’ access to liquid funds in the bond markets.
  • Dexia,
  • often not insufficient capital that kills a bank (Dexia’s ratios were top-notch) but a lack of liquidity
  • short-term funding and long-term lending commitments proved fatal.
  • International regulators
  • come up with a new measure
  • the net stable funding ratio
  • will limit profitability and the banks have protested. But it should happen.
  • there needs to be a quick fix, too
  • there has been no issuance of bank bonds
  • Only with a temporary guarantee from a European Union vehicle can bond markets be reopened.
  • policymakers need to tackle the root cause of the problems in the periphery – namely, their budgetary mismanagement.
  • Silvio Berlusconi
  • must be ousted by the Italian people
  • entirely within the gift of those preparing for the weekend summit.
  • first two reforms
  • brave political calls, laying policymakers open to accusations of handing money to bankers again
  • the lesser of two evils
  • accompanied by an enforceable regime of business lending commitments
  • normal rules of capitalism have already been suspended. We should stop pretending otherwise and make the necessary intervention quickly and decisively
Adalberto Palma

AB Kansas City Fed Chief Esther George Takes Simpler-Is-Better Approach 2012.03.07 - 0 views

  • Esther George
  • president and chief executive of the Federal Reserve Bank of Kansas City
  • funding advantage that has come from growing consolidation in the industry
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  • didn't the Dodd-Frank Act of 2010 end "too big to fail," and won't its "living wills" provision nudge our largest banks to become smaller and simpler?
  • "I can be hopeful. I am an optimist at heart, but I don't see any evidence of that."
  • his plans to protect commercial banking from riskier forms of finance
  • realizes regulatory tactics and strategies must evolve as banks balloon in size and scope, George insists boots-on-the-ground supervision is crucial. She worries complex approaches are overshadowing common-sense judgments.
  • Stress testing is a "useful tool to gauge potential losses from different economic scenarios. It is no substitute for supervisory judgment and examination," she said.
  • helps calibrate capital,
  • "but to really know a bank's condition, you have to go in and examine those credits."
  • While the central bank has taken many steps in recent years to open its monetary policy decisions to more scrutiny by outsiders, its regulatory policy making has grown more opaque. Gone are the days when Fed governors debated policy decisions in open meetings. George would reverse that trend.
  • we have to apply the transparency pledge to everything we do
  • Part of what we have succumbed to is a sense of urgency. Things are moving fast."
  • time to "ponder the unintended consequences."
  • These rules have big import
  • her philosophy on regulation.
  • concern I have
  • You can make any rule as complicated or as simple as you want. The more complicated you make it, and I learned this watching Basel II get crafted, I don't think you ensure any chance of success."
  • I would like to see us go back to a time when examiners were required to use judgment. You gave them simple, clear rules and they had to make judgments."
  • I have watched over the years. It is an accumulation of compliance, and community banks do not have the scale to spread those costs, so they bear them disproportionately."
  • I worry about the burden on small banks,
  • Consumer compliance issues seem to cause the most friction among bankers and their examiners, she said.
  • due to prescriptive rules that tell the examiner that you don't get to apply judgment here. If it meets this, this and this test, then it's a problem. That's the frustration of bankers."
  • Forbearance drags things out,
  • I think about it pretty simplistically. Anytime you have an asset, a loan, that gets into trouble, somebody has to take the loss. The sooner you take the losses," the better.
  • George belongs to a growing cohort of folks who question some of the conventional wisdom growing up around community banks, namely that a massive wave of consolidation is coming and the average size must increase.
  • I don't think there has to be a wave of consolidation."
  • I don't think they all have to be $1 billion" in assets
  • worried about credit risk at community bank
  • both margin pressure and competition from larger banks that can use lower funding costs to undercut smaller rivals.
  • is they [banks] need more yield so they will go out for more risk," she said. "And when they do that in a low interest rate environment it can look OK. But those borrowers start looking worse when rates start ticking up.
  • it's all going to affect a lot of people.
  • I hear bankers saying
  • I am going to have to start making some credits that I wouldn't normally make because I have to generate earnings.'
  • community banks also are telling her about losing business to large banks.
  • but that big bank is coming in and pricing a loan in a way that I cannot and would not."
  • They say I am trying to compete with the big bank in my market
  • Community banks that survive will be the ones that hold the line on risk but continue to adapt, she said
  • community banks are core to the payments system and core to lending in these markets. I don't see that model being outdated. It's always got to be tweaked, but I worry the thing that is going to drag them down is regulation. That seems like something we could address and should address."
Adalberto Palma

FT Osborne to set out bank reform plans 2011.11.15 - 0 views

  • in mid-December detailed plans to shake up Britain’s banking sector,
  • implementing the main proposals of Sir John Vickers’ Independent Commission on Banking – by the “backstop” year of 2019, although some changes would come into effect before then.
  • changes must be enshrined in legislation before the election
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  • the Treasury fear the banks have a supportive ear in Downing Street in the shape of Jeremy Heywood, No 10 permanent secretary and a former Morgan Stanley managing director,
  • The separation of high street banking and riskier investment banking operations is the centrepiece of the Vickers package.
  • Mr Osborne was giving evidence to MPs about the future shape of Britain’s financial architecture and specifically on the draft financial services bill, which will put the Bank of England in charge of spotting future crises.
  • had regulators focused on the big picture rather than box ticking they might have prevented the disastrous merger of Royal Bank of Scotland with ABN Amro.
  • There was no shortage of laws – there was a lack of judgment,
  • the creation of a Financial Policy Committee at the Bank to spot danger building in the system was breaking new ground; he also conceded that the regulators had to strike a trade-off between risk and economic growth. “We don’t want the financial stability of the graveyard,”
  • the government is considering calls for new governance safeguards at the Bank even as it gets new powers.
  • recommended replacing the Court of the Bank with a stronger supervisory body that could review interest rates and other decisions after the fact.
Adalberto Palma

FT Davos What future for economics? 2012.01.26 - 0 views

  • “The Future of Economics”
  • Massachusetts Institute of Technology
  • Joe Stiglitz
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  • Robert Shiller
  • Columbia
  • Peter Diamond
  • Santa Fe Institute
  • Brian Arthur
  • sceptics of the efficiency of markets in all circumstances
  • Three of the participants
  • being a study of complex human behaviour, in which the world is created by human understand and motivations, economics is hard
  • orthodox economics had, in the years leading up to the crisis, become more a cult than a science
  • talking to political scientists and even sociologists. They also recommended looking at the causes of inequality, the economics of happiness, the role of institutions, the importance of culture, and the effects of power.
  • the sociology of the profession
  • militates against such heterodoxy
  • human beings are not rational calculating machines
  • time matters in economic processes
  • economics suffers from physics envy. It seeks to be an exact science, which is impossible.
  • the world is not computable
  • There cannot be just one general model of the economy or just one approach to economics
  • in theory it is right and proper to abstract in order to focus on a specific phenomenon. In addressing policy, this is irresponsible.
  • even though economists get much wrong, they still have much to offer to non-economists who tend to assume that economic problems are far more simple than they actually are.
  • great danger that in rejected the most simplistic pro-market mantras, economists and policymakers will embrace even more dangerous and naïve statism.
Adalberto Palma

CD President Obama Joins the Cult of Economics Deniers 2011.08.15 - 0 views

  • Obama is no longer paying attention to economists and economics in designing economic policy.
  • do what his campaign people tell him
  • Obama intends to focus on reducing government spending and cutting programs like social security and Medicare.
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  • stimulus spending, as prescribed by mainstream economic theory, to create jobs and promote growth."
  • Obama intends to ignore the path for getting the economy back to full employment that most economists advocate.
  • interest rates did fall, it is difficult to believe that it would have much impact on either investment or consumption
  • theory as to how budget cuts could boost growth
  • lower deficits in the present and/or near future will reduce fears that government spending will be crowding out private economic activity. This would lead to lower interest rates. Lower interest rates will provide a boost to investment and consumption. Also, lower interest rates in the United States will make dollar assets less attractive to investors. This will cause the dollar to decline against other currencies, improving our trade balance.
  • no part of this story makes sense in the current economic environment. US interest rates are already at ridiculously low levels,
  • vast amounts of excess capacity.
  • doesn't matter at the White House any more.
  • Consumers remain heavily indebted due to the collapse of house prices.
  • The dollar continues to be a safe haven in uncertain times.
  • keep the dollar from falling too much against their currencies no matter how low interest rates fall.
  • unlikely that cutbacks in government spending will do much to lower the dollar and reduce the trade deficit.
  • Obama is apparently not listening to economists anymore, so he wouldn't care, in any case.
  • politicians who think that biology has no place in teaching the origins of species, we now have politicians who think that economics has no place in designing economic policy.
  • tens of millions of lives stand to be ruined.
  • Keynes's basic insights have been supported by a vast amount of economic research over the last seven decades. And we have solid evidence showing (pdf) that the limited stimulus pushed through by Obama in 2009 worked pretty much as predicted in generating growth and jobs.
  • policy will be determined by people with no knowledge of economics whatsoever.
  • evidence,
Adalberto Palma

NY TimesThe Fed's Rescue Missed Main Street 2011.08.26 - 0 views

  • funneling hundreds of billions of dollars to large and teetering banks during the credit crisis was necessary to save the financial system
  • fresh and disturbing details about the crisis-era bailouts.
  • Freedom of Information Act
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  • provided a stunning $1.2 trillion to large global financial institutions
  • The money has been repaid
  • sketchy collateral
  • surprisingly sketchy collatera
  • Royal Bank of Scotland received $84.5 billion, and Dexia, a Belgian lender, borrowed $58.5 billion from the Fed at its peak
  • provided this much assistance to the biggest institutions for so long, and then to have done in effect nothing for the homeowner, nothing for credit card relief.”
  • financial regulators are captured by the companies they oversee,
  • espouses the principle that all men and women are equal under the law,” Mr. Kane said. “During the housing bubble and the economic meltdown that the bursting bubble brought about, the interests of domestic and foreign financial institutions were much better represented than the interests of society as a whole.”
  • THIS inequity must be eliminated
  • regulators who have a duty to protect taxpayers should require these institutions to provide them with true and comprehensive reports about their financial positions and the potential risks they involve.
  • The banks really feel entitled to hide their deteriorating positions until they require life support.
  • Mr. Todd also questioned the Fed’s decision to accept stock as collateral backing a loan to a bank. “If you make a loan in an emergency secured by equities, how is that different in substance from the Fed walking into the New York Stock Exchange and buying across the board tomorrow?”
  • if we do nothing to protect taxpayers from the symbiotic relationship between the industry and their federal minders, we are in for many more episodes like the one we are still digging out of.
  • EVALUATING bailout programs like the Troubled Asset Relief Program and the facilities extended by the Fed against “the senseless standard of doing nothing at all,” Mr. Kane testified, government officials tell taxpayers that these actions were “necessary to save us from worldwide depression and made money for the taxpayer.” Both contentions are false, he said.
  • “Thanks to the vastly subsidized terms these programs offered, most institutions were eventually able to repay the formal obligations they incurred.” But taxpayers were inadequately compensated for the help they provided,
  • Government officials rewarded imprudent institutions with stupefying amounts of free money
Adalberto Palma

FT Banks need to compete in good behavior 2010.09.09 - 0 views

  • “This awful summer? We’ve only ourselves to blame ...” S
  • Banks need to compete on good behaviour
  • opportunity to right this.
  • ...19 more annotations...
  • few now expect anything better from our banks.
  • Barclays
  • Much has been written about culture and values in banking.
  • our banks have become degenerate any less off beam?
  • Bankers and politicians
  • roups held in equally low esteem by the public.
  • could lead to a rule-based industry and codified moral rectitude.
  • António Horta-Osório, Lloyds’ chief executive, last week called for an end to the sales culture in banking that has driven so many scandals.
  • Sir John Vickers gave clear recommendations on the industry’s structure,
  • Anthony Saltz,
  • ead a review of the bank’s “values, principles and standards of operation”.
  • Bank boards and executive teams elsewhere know they must respond to such calls.
  • hold bank boards accountable as custodians of a healthy culture.
  • he word culture, when applied to banks, is almost always connected to pay – as in “bonus culture” or “culture of greed”
  • but by good human behaviour and it will be rooted in the legitimate expectations of a bank’s clients, shareholders, regulators and employees – not to mention the needs of society
  • the strongest source of competitive advantage in future will be how people behave when no one is looking. Organisations made up of talented people with the right values will be most likely to outperform.
  • reasons for hope
  • The Vickers commission achieved
  • political consensus.
Adalberto Palma

FT UK banks eye £6bn cost of reforms 2011.09.12 - 0 views

  • Britain’s banks will face an annual bill of as much as £6bn ($9.5bn) to comply with the reforms of the Vickers Commission,
  • the central recommendation
  • will be that banks’ core operations
  • ...4 more annotations...
  • must be ringfenced from the rest of their businesses.
  • n a crucial concession to the wide spread of business models among the banks, the commission will not dictate where each institution must place the ringfence, instead allowing lenders and their customers a degree of choice, according to people who have seen the report
  • result of higher funding charges for the banks’ operations that are left outside the more highly capitalised ringfenced entity.
  • The efforts to restructure Britain’s biggest banks have wide public support, according to the results of the latest Financial Times/Harris survey.
Adalberto Palma

FT Tripped up by globalisation 2011.08 - 0 views

  • A failure of economic strategy and leadership lies behind the near simultaneous collapse of market confidence
  • Europe and America have been unable to cope with the realities of global capital markets and competition from Asia
  • both regions are being whipsawed by globalisation.
  • ...25 more annotations...
  • Jobs for low-skilled workers in manufacturing
  • lost to international competition
  • The path to recovery now lies
  • in upgraded skills, increased exports and public investments in infrastructure and low-carbon energy.
  • US and Europe have veered
  • consumption-oriented stimulus packages and austerity without a vision for investment.
  • good social policy does not mean running big deficits.
  • globalisation has not only hit the unskilled hard but has also proved a bonanza for the global super-rich
  • able to convince their home governments to cut tax rates on profits and high incomes
  • expand investments in human and infrastructure capital
  • First
  • through better skills and technologie
  • Second
  • Third
  • balance budgets in the medium term, in no small part through tax increases on high personal incomes and international corporate profits that are shielded by loopholes and overseas tax havens
  • projects will not add to net financial liabilities if they are repaid through future revenues.
  • Export-led growth is the other under-explored channel of recovery
  • cut wasteful spending, for instance in misguided military engagements
  • through better financial policies.
  • last missing piece for any recovery
  • clarity of purpose from the political class
  • Europe’s fate has been decided by German state elections and small Finnish parties
  • US has similarly devolved into a mélange of sector, class, and regional interests.
  • Obama is the incredibly shrinking leader
  • There is no growth strategy, only the hope that scared and debt-burdened consumers will return to buying houses they don’t need and can’t afford. Sadly, these global economic currents will continue to claim jobs and drain capital until there is a revival of bold, concerted leadership. In the meantime, the markets will gyrate in pangs of uncertainty.
Adalberto Palma

FT Regulators poised to soften new bank rules 2011.09.05 - 0 views

  • ease new rules that would require banks to hold more liquid assets
  • complaints from banks
  • would force them to sharply curtail lending to consumers
  • ...14 more annotations...
  • the ratio does not formally take effect until 2015,
  • JPMorgan estimates that 28 European banks faced a total liquidity shortfall
  • number of members on the Basel Committee
  • the liquidity coverage ratio is the most “painful” piece of regulation to hit the sector, and will cost European banks nearly 12 per cent of their 2012 earnings on average
  • expected 5 per cent hit from tougher global requirements on bank capital, and a 3 per cent reduction from the Dodd-Frank financial reform measures in the US.
  • Only seven of the 28 banks tested met the enhanced standards,
  • “Regulatory focus is rapidly shifting from capital at risk to liquidity risk in our view,”
  • want to soften key technical definitions in the ratio
  • effect of reducing how much liquidity banks have to hold, and would allow them to count more corporate and covered bonds toward the total
  • The committee staff,
  • gathering data on the potential impact of the ratio, and a subgroup is working on the definitions ahead of a full committee meeting this month
  • US and continental European
  • regulators are expected to push for changes that would ease the impact on their banks,
  • support the status quo
Adalberto Palma

FT Shadow banking surpasses pre-crisis level 2011.10.27 - 0 views

  • shadow banking system,
  • lightly regulated entities that compete with banks to provide credit, is bigger than it was before the financial crisis
  • constitutes more than a quarter of the entire financial system and is about half the size of traditional banks.
  • ...8 more annotations...
  • has been seen as a key source of the 2008 crisis because it fostered a rapid rise in debt and tremendous asset price inflation
  • a major threat to long term stability
  • worldwide effort to monitor shadow banking so that regulators will be able to rein it in future.
  • including money market funds, securitisation, securities lending and short-term secured lending known as “repo” as well as other shadow banking entities. They are looking at how regular banks interact with their shadow counterparts.
  • The US has the largest shadow banking sector at $24,000bn
  • direct lending to companies and other means, are the single largest part of the shadow banking sector, with 29 per cent of the assets, and structured finance vehicles come second with 9 per cent.
  • regulators will focus their efforts on entities that use lots of borrowing, those that take in short-term money but lend it for longer periods – a process known as maturity transformation – and those that might destabilise markets by selling lots of hard to value assets quickly.
  • important to address systemic risks – such as maturity transformation and leverage – arising from the shadow banking sector and its interaction with the regular banking system,
Adalberto Palma

FT Mexico: Lack of tax incentives discourages giving 2011.12.01 - 0 views

  • Ricardo Salinas Pliego, one of the country’s wealthiest businessmen, has joined forces with the state government of Chiapas to build urban communities to provide basic services to people who once lived in rural areas. But in a recent interview with the FT, Mr Salinas Pliego admitted that philanthropy in Mexico was not easy. “In the rest of the world, rich people will give a donation and businessmen give to charities,” he said. “But in Mexico, the execution capacity of what we call the social sector is missing. I find it much more effective to set up the actual social organisation and then fund it with my money.”
anonymous

¿Valen la pena las acciones de Bank of America y del Citi? - 0 views

  •  
    Dos de los grandes bancos de los EE.UU. están vendiendo activos para desprenderse de la deuda y consolidar su capital. Bank of America es el más afectado. Por qué el mercado de la vivienda podría cambiarlo todo.
anonymous

Los resultados y el empleo alzan a Wall Street por tercer día - 0 views

  •  
    Según el analista de Infosel, indicadores económicos como la inflación y el empleo, junto con los positivos balances de Bank of America y Morgan Stanley apoyaron las compras en este penúltimo día de operaciones de la semana.
Adalberto Palma

Newsline Fed Governor Duke: Avoid one-size-fits-all approach to regulation 2012.01.16 - 0 views

  • Legislation such as the Dodd-Frank Act is intended to protect consumers while imposing strict regulations on financial institutions
  • smaller community banks have to sort through and adhere to the regulations that, Duke said, often don't apply to them.
  • the new regulations are directed at the largest institutions, whose failure would pose the greatest risk to the financial system,
  • ...4 more annotations...
  • ndustry analysts have questioned whether the overall weight of regulation poses a threat to the future of the community bank model."
  • regulations hinder smaller banks by reducing their ability to provide efficient, flexible financial services to their customers and communities.
  • must avoid a one-size-fits-all approach to supervision,
  • the Federal Reserve System is working to include a statement at the beginning of every rule and regulation that specifies which banks will be affected.
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