US Federal Regulators (FTC) - are stepping up their scrutiny of the US arms of Europe's largest banks, amid mounting concerns that the eurozone debt crisis could spill into the American banking system. The Federal Reserve Bank of New York, which oversees the US operations of many large European banks, has been asking for more information about their ability to fund themselves, the Wall Street Journal reported. It wants to know whether they have reliable access to the funds needed to operate on a day-to-day basis in the US, and is pushing them to turn their US businesses into self-financed organisations that are better insulated from potential problems with their parent companies. Officials at the New York Fed are "very concerned" about European banks facing funding difficulties in the US, a senior executive at a major European bank who has attended talks with officials told the Journal. The New York Fed has also been co-ordinating with New York's superintendent of financial services, Benjamin M Lawsky, to monitor European banks' funding positions, amid fears that those in trouble could siphon money out of their US arms. According to Federal Reserve data, foreign banks, many of which have big trading operations in the US, have seen their funding positions there fluctuate wildly in recent months.
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Thursday, August 18, 2011
US Federal Regulators (FTC) - are stepping up their scrutiny of the US arms of Europe's largest banks, amid mounting concerns that the eurozone debt crisis could spill into the American banking system. The Federal Reserve Bank of New York, which oversees the US operations of many large European banks, has been asking for more information about their ability to fund themselves, the Wall Street Journal reported. It wants to know whether they have reliable access to the funds needed to operate on a day-to-day basis in the US, and is pushing them to turn their US businesses into self-financed organisations that are better insulated from potential problems with their parent companies. Officials at the New York Fed are "very concerned" about European banks facing funding difficulties in the US, a senior executive at a major European bank who has attended talks with officials told the Journal. The New York Fed has also been co-ordinating with New York's superintendent of financial services, Benjamin M Lawsky, to monitor European banks' funding positions, amid fears that those in trouble could siphon money out of their US arms. According to Federal Reserve data, foreign banks, many of which have big trading operations in the US, have seen their funding positions there fluctuate wildly in recent months.
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Global stock markets crashed and gold soared to a new record high on Thursday, amid growing fears that the world is sliding into a double-dip recession.
Dire manufacturing figures from the US prompted a sell-off on Wall Street, where the Dow Jones plunged more than 500 points at one stage. It later traded down 445 points at 10965, a fall of nearly 4%.
The FTSE index in London plummeted 220 points, or 4.1%, to 5110 with all 100 stocks on the index down – banking and mining stocks were among the biggest fallers, led by Barclays, Lloyds Banking Group and Royal Bank of Scotland.
Germany's Dax fell 6.3% and France's Cac lost 5.7%, while markets in highly indebted Spain, Italy and Portugal dropped by 5.8%, 6.1% and 4.8% respectively. In Asia, Japan's Nikkei closed down 1.25% while Hong Kong's Hang Seng tumbled 1.2% and the Shanghai Composite ended the day 1.6% lower.
The yield on UK 10-year government bonds, known as gilts, tumbled to 2.34% – the lowest since 1897 – and gold jumped 2.1% to hit a fresh record high of $1,825.99 an ounce as investors fought shy of equities. Expectations that the world economy will need less oil pushed Brent crude down towards $108 a barrel, after reaching a two-week high on Wednesday. The euro fell 1% against the Swiss franc, regarded as a safe haven.
Dominic Rossi, global chief investment officer, equities, at Fidelity International, believes volatility is here to stay.
"We can certainly argue that equities are cheap. Apart from the depths of 2008, there aren't many periods in the course of the last 20 years where you could argue that equities were as lowly valued as they are today. However, I think we need to recognise that while equities are cheap, they are cheap for a reason and they may stay cheap for a while longer. I'm not expecting equity markets to go back to the highs we saw earlier this year soon and frankly wouldn't be surprised if over the course of the next few months we see some further pressure, with the lows of a couple of weeks ago being re-tested."
He added: "We have to think about the impact that three bear markets have had on investor psychology. Back in 1999 equities were a cult. Here we are 13 years later where equities have been offering jam tomorrow and not delivering. When you go through that kind of bear market the requirements of investors change and I think there is going to be a growing demand from equity investors for jam today, rather than jam tomorrow. That means going forward there is going to be a greater demand for income from equities than there has been over the last 15 or 20 years."
Concerned that the eurozone debt crisis could be spreading to the US banking sector, regulators in New York have stepped up their scrutiny of the US arms of Europe's largest banks. The news was compounded by a cocktail of bad economic data from the US. The Philadelphia Federal Reserve factory index, which measures manufacturing activity in the surrounding region, fell to its lowest level since March 2009. Further pressure came from worse-than-expected new jobless claims in the US last week, while inflation was faster than anticipated in July.
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