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Contents contributed and discussions participated by Kostya Golovan

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TEXT-S&P: U.S. shadow banking supervisory framework is emerging | Reuters - 2 views

www.reuters.com/...idUSWNA695620120510
shared by Kostya Golovan on 17 May 12 - No Cached
  • Shadow banking encompasses a wide variety and complex set of financial entities and products that may still present an important systemic risk, but it hasn't yet filled the void traditional banking has left
  • The term "shadow banking" first became prevalent in the aftermath of the financial crisis, and it lacks a universally consistent definition.
  • Shadow banking encompasses not only special-purpose vehicles that are beyond the Federal Reserve's supervision
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  • but also specific instruments such as swaps, repurchase agreements, and asset securitizations.
  • However, the term can oversimplify investment vehicles and products that are complex and interact very differently with the formal banking system.
  • "Investors seem to be asking two key questions about shadow banking,
  • The first is to what extent shadow banking might replace traditional banking in the U.S. financial sector.
  • The second question is whether banking regulators will effectively and quickly implement a supervisory framework that can contain systemic risk by eliminating regulatory arbitrage and providing greater transparency.
  • will continue to operate outside the reach of regulators once the economic recovery firms up.
  • Shadow banking mimics traditional banking, though it doesn't have the protection, implicit or explicit, of a government guarantee that is available to depository institutions.
  • regulators are attempting to establish better oversight over the shadow banking sector to lower the possibility of future interventions, to reduce contagion to the formal banking sector, and to eliminate reliance on government support,
  • In fact, many of the proposed regulatory reforms aim to increase investors' risk sensitivity and better align incentives among investors, originators, and intermediaries."
  • Kostya Golovan on 18 May 12
     
    Shadow banking is explained in this article and it is put into question whether shadow banking has the ability to replace the traditional banking system. The question of regulations regarding shadow banking is also asked and whether such regulations can be quickly and efficiently implemented. Shadow banking mimics traditional banking but it lacks the protection of a government guarantee that is available to depository institutions.
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Bank of Canada fears weak growth in global economy - The Globe and Mail - 1 views

www.theglobeandmail.com/...article2435853
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  • rich countries like the United States and much of Europe do too little to attack their budget and trade deficits, or if emerging giants in Asia refuse to relax capital controls or allow their currencies to appreciate more quickly.
  • Essentially, global economic output would be 8 per cent -- or $6-trillion (U.S.) -- less by 2015 if a range of G20 commitments reinforced late last year at a summit in Cannes, France, are not implemented.
  • China’s GDP would be 12 per cent smaller
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  • “Fiscal consolidation in the United States and Europe, flexible exchange rates and structural policies to stimulate domestic demand in the emerging-market economies of Asia,
  • Delays, meanwhile, could have “severe negative consequences,” leading to “a significantly weaker global economy” and a less stable global financial system.
  • world economic activity would be 7 per cent lower in 2015.
  • The clear message here is both sides of this delicate dance not only need to do their part but, just as crucial, they need to co-ordinate their efforts.
  • A lot of this will sound familiar to anyone who follows global economics from the point of view of the Bank of Canada. Governor Mark Carney also chairs the Financial Stability Board, a G20-linked body tasked with making international finance less of a threat to the wider economy, so he has spoken on these issues many times and outlined the potential benefits of adopting stricter banking rules. But the message about global co-ordination is still ti
  • mely.
  • Chinese imports barely grew in April, causing the country's trade surplus to balloon to $18.4-billion (U.S.) from $5.3-billion the previous month, indicating that consumers and businesses in the faster-growing emerging markets are still not ready to pick up
  • China, until recently, had made strides in narrowing its current-account surplus (which reflects the country’s over-reliance on exports as opposed to domestic spending).
  • U.S. trade deficit that grew 14 per cent in March
  • The U.S. itself is now a more balanced economy that relies less on debt-fuelled spending.
  • But it is smaller and weaker than it was at its pre-crisis peak, and will probably never regain that past form. So its ability to drive global growth is limited
  • work together and get this right, or both will suffer.
  • Kostya Golovan on 18 May 12
     
    The Bank of Canada predictions for the future are grim. If the range of commitments made last year in Cannes, France are not fulfilled, the worldwide economy will shrink by 8%, or $6 trillion dollars, by 2015. China's imports barely grew in April pushing the countries trade surplus to $18.5 billion, from $5.3 billion. China is over-dependent on the consumers outside of its borders while its domestic consumption is extremely low.
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Banking regulations cost more than they deliver | Mail Online - 2 views

www.dailymail.co.uk/...-regulations-cost-deliver.html
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  • One should never underestimate the depths to which politicians will go to seek popularity
  • It must be the evil capitalists, they suggested, and not Labour's appalling spending record that was to blame for Britain's struggling response to the recession.
  • worrying tendency to meet recession with excessive regulatory response to banks, in order to justify taxpayer-funded bailouts.
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  • Where banks are concerned, regulatory responses are often commercially restricting, difficult to comply with, and ineffective in lowering commercial risk.
  • Not unjustified, of course - if you believe in bank bailouts.
  • This is often done by shifting business towards high-risk products in the battle for survival.
  • Apart from restricting credit through profit loss on regulatory compliance, it may also result in the shift of risk to general credit transactions, as banks seek to recoup profits lost from overregulated areas such as hedging products.
  • On the back of the J.P. Morgan's billion dollar losses, there is now a temptation in the EU to pass a measure similar to the Volcker rule in the U.S Dodds-Franck Act.
  • The Volcker rule, in the U.S., prevents banks from using additional profits on deposits for a high-risk bet strategy
  • Banks have made it clear that this sort of regulation is difficult to comply with, as bet-style transactions and a pure hedge are very difficult to distinguish
  • These seek to distinguish between retail and other banking operations, and to increase reserves in banks to protect the taxpayer.
  • One might observe that the inflationary costs of low interest rates to encourage lending, and over-regulation that effectively reduces it (and also comes with public-sector administrative costs) are not exactly compatible on principle.
  • Long-term growth will also suffer, and with it, jobs - especially as we are in a recession.
  • It would be better for banks to crash and burn where they deserve to, and for governments not to get involved in second-guessing market risk, through unworkable regulation, for political gain.
  • Further, politicians ought to realise that the best way to protect the taxpayer is not to get involved in bailouts at all.
  • Kostya Golovan on 18 May 12
     
    The banks are apparently being over-blamed in the causation of the worldwide economic crisis by politicians. They are using the hype of the economic crisis in their favor and assigning all the blame to the banks which is in turn now leading to increases in regulations over the banking industry. Over-regulation will hurt the banking industry by reducing the number of option and easy with which they can utilize their money.
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Regulators clash over 'shadow banking' behind ETFs - Citywire - 0 views

www.citywire.co.uk/...a589740
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  • Regulators are in direct conflict over how exchange traded funds (ETFs) take in ‘short-term money’ and promise instant liquidity, but can invest in long-term and less liquid assets.
  • offering immediate liquidity but are potentially raising short-term money to fund longer-term investments.
  • This concern began when regulators started worrying about money market funds…it's just deposit taking but called something different. It's taking short-term money but investing in longer-term securities.
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  • the macro regulators think this liquidity transformation, as a type of ‘shadow banking’, needs regulation.
  • whole point of these vehicles is shorter-term liquidity and that investors should have more immediate access to money.
  • Ucits rules do stipulate funds must invest in liquid assets.
  • However, Gleeson and other industry experts pointed out that
  • A manager will be sanctioned if they use assets that do not have liquidity.
  • Shadow banking is positive. The danger is we regulate to the point this becomes unprofitable
  • Kostya Golovan on 18 May 12
     
    This article looks at how exchange traded funds (ETFs) take short term cash, very liquid capital, and use the funds to make long term investments. It is all well and good until the fact that ETFs are marketed as vehicles offering immediate liquidity is considered. The liquidity of ETFs is dependent on the underlying assets in which the money is invested. Therefore, regulations might be set forward ensuring that ETFs invest only in liquid assets.
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RBC in the running for Bank of America wealth units - The Globe and Mail - 0 views

www.theglobeandmail.com/...page1
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  • | NATHAN DENETTE/THE CANADIAN PRESS
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    RBC in the running for Bank of America wealth units

    TARA PERKINS AND REUTERS

    Globe and Mail Update
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    Canada’s largest bank, Royal Bank of Canada (RY-T

  • Canada’s largest bank, Royal Bank of Canada (RY-T51.90-1.13-2.13%), is among the financial institutions looking to pick up parts of Bank of America’s wealth management business
  • In 2010 it paid $1.6-billion for U.K.-based Blue Bay Asset Management.
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  • Aside from Europe, executives have recently said that RBC has also been looking to buy operations in Asia. The assets that Bank of America is looking to sell include businesses in both those regions, as well as the Middle East and Latin America.
  • they require less capital to back them up.
  • ING Group sold its private banking assets in Europe and Asia in 2010 to Julius Baer and Singapore’s Oversea-Chinese Banking Corp, respectively, for a total of about $1.9-billion.
  • The units manage about $90-billion of an estimated $2-trillion that the wealth division oversees at the second-largest U.S. bank by total assets.
  • Consolidation in the wealth management industry has been a major theme in the banking sector since the 2008 financial crisis
  • Bank of America is selling because it is shrinking the company
  • Bank of America has lagged peers in recovering from the financial crisis, largely because of huge losses and lawsuits tied to its 2008 acquisition of subprime mortgage lender Countrywide Financial.
  • Canada’s largest bank, which will release second-quarter results on May 24, has been growing its wealth management business and made acquisitions that included British fund manager BlueBay Asset Management for $1.5-billion about two years ago.
  • RBC, which has said it wants to expand its wealth operations organically and with small- and medium-sized acquisitions
  • companies generally prefer to sell the entire group in one go
  • My view is that they are going to sell it as a whole and therefore the number of banks that actually can do it will be more limited
  • Kostya Golovan on 18 May 12
     
    RBC, Canada's largest bank, has for years been looking to expand its global wealth management outreach and is now eager to pick up part of Bank of America's wealth management operation which is going on sale. The prospects of such an en devour are great given the predicted growth in number of millionaires in Asia. RBC has for years been interested in such an expansion and is now very interested in acquiring the wealth unit of Bank of America
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