Showing posts with label stocks. Show all posts
Showing posts with label stocks. Show all posts

Monday, February 23, 2015

(Reuters) - A war of words between Greece and EU paymaster Germany escalated on Tuesday with Athens' new leftist prime minister rejecting what he called "blackmail" to extend an international bailout and vowing to rush through laws to reverse labor reforms.  A source close to the government said Greece intends to ask on Wednesday for an extension for up to six months of a loan agreement with the euro zone, on conditions to be negotiated. The source drew a distinction between a loan agreement and the full bailout program which the government insists is dead.  However hardline German Finance Minister Wolfgang Schaeuble dismissed the Greek gambit, telling broadcaster ZDF: "It's not about extending a credit program but about whether this bailout program will be fulfilled, yes or no."   Financial markets held their nerve after the latest talks among euro zone finance ministers broke down late on Monday and EU partners gave Greece until the end of the week to request an extension or lose financial assistance.   Many investors believe that whatever the rhetoric, both sides will find a face-saving formula before Athens' credit lines expire in 10 days. If they fail, Greece could rapidly run out of cash and need its own currency.  Greek banking sources said outflows of deposits increased on Tuesday after the failure of Monday's talks, but were not as severe as on some days last month around the election of a radical anti-austerity government.  The European Central Bank will review emergency funding for Greek banks on Wednesday but should not cut the lifeline this week, a source familiar with the situation said.   Both sides continue to insist Greece will remain in the euro.  Greek Prime Minister Alexis Tsipras told lawmakers in his Syriza party that the government - elected to scrap the bailout, repeal hated austerity measures and end cooperation with the "troika" of EU, ECB and IMF lenders - would not compromise.

Saturday, February 21, 2015

The European Central Bank has thrown Greece a lifeline to prevent Athens running out of money before crunch talks with European leaders.  The extension of emergency funding to the Greek finance sector by the eurozone’s central bankers lifted the euro and gave Greece’s prime minister, Alexis Tsipras, a stronger hand before meetings with senior officials at the leaders summit in Brussels.
Tsipras was scheduled to meet the German chancellor, Angela Merkel, in an attempt to hammer out a deal after he told her, following his election a little more than a fortnight ago, that he will lift draconian austerity measures, contravening the terms of the Greek bailout programme.  Greece has failed so far to persuade European leaders that it needs more generous loan financing to alleviate poverty and to promote growth. Talks earlier his week between eurozone finance ministers reached a deadlock after plans put forward by Athens for cheaper long-term loans were rejected...The ECB has come under pressure to allow Greece to access short-term lending facilities after it said the crisis-hit country no longer qualified for drawing on standard borrowing terms. ECB officials declined to comment, but two sources familiar with the matter told Reuters that the provision of emergency liquidity assistance (ELA) by the Greek central bank would be authorized by the ECB as a temporary expedient...  Merkel was scheduled to meet Tsipras privately on the sidelines of the one-day informal EU summit, which was meant to focus mainly on the Ukraine crisis and report back on negotiations in Minsk with the Russian president, Vladimir Putin.   Tsipras’s position appeared to weaken before the summit after figures showed a shortfall in Greek tax receipts and a steady flight of savings from the country’s largest commercial banks. Finance ministry data showed tax revenues were €3.49bn (£2.58bn) in January, well below the €4.54bn target set under Greece’s latest budget.  The grim data adds to concerns that Greece will run out of time and money before settling differences with European partners, who want Athens to stick with a debt plan that expires at the end of this month.  Greek households withheld tax payments desperately needed by the new Athens government after it rejected the last payment worth €7.2bn under the existing bailout scheme.   Greek banks have also been hit by a flight of capital to foreign-owned rivals in the runup to snap elections, which propelled Tsipras’s radical left party Syriza to the head of a coalition.

Sunday, January 11, 2015

The leading oil producer in Latin America, Venezuela, was meanwhile negotiating another big loan with China, as it takes a battering from the price drop and its own planned economy. While Venezuelan President Nicolás Maduro was in Beijing on , the daily El Nacional reported that China had already lent Venezuela more than $50 billion since 2007, though about half of that had been written off. Every Venezuelan it noted, owed China over $761. In oil-rich Mexico, experts were observing that the state may well have to envisage smaller budgets for several years, not just this year, as Mexico's own export blend may end up costing around just $30 a barrel. Milenio newspaper cited the Senate President Miguel Barbosa as suggesting that the cabinet should start drafting "austerity" plans — a word rarely heard in Mexico. The South China Morning Post reported on the economic stakes of the visit of Latin American leaders in China, although the Hong Kong daily also noted that the first windfall of lower oil prices could be felt in the air: lower costs for the world's airlines.  Analysts around the world widely agree that the most notable new factor in the current trend in energy production is the flood of mostly American-extracted shale gas into the market.  The Guardian notes that U.S. oil production has increased 48% over the past five years, which was originally offset by drops elsewhere. But as demand has also abated, prices have dropped, and may continue downward. Stephen Schork, a U.S.-based market analyst, told the London daily that investor “psychology” is driving oil trading. “We could get a rebound to $70 but we could see $30 before we see $70.”  The political ramifications weigh in the most immediate way on Russia, which may have to reconsider its aggressive policy towards  Ukraine, as it suffers the effects of both "western" sanctions and the sustained drop in oil prices.

Saturday, December 6, 2014

Reasons why oil prices are dropping:
  1. 1. Obama is against Keystone XL because he wants the oil to be still in the ground when his Islam take over Canada and the United State.
  2. 2. As long as prices stay high in the U.S. the people will keep DEMANDING that Obama approve of the Keystone XL. Only a large oil country like Saudi Arabia could solve that problem by se; omg oil to the U.S. at much lower prices, which they are doing.
  3. 3. When the gasoline and heating oil prices drop to a reasonable amount to quiet the public. the drop will stop and remain constant for a long period during which time the Islamic terrorists will get their attacks moving on a large scale to take over Canada and the U.S..
  4. 4. At the point when both Canada and the U.S. are taken over then the Islamic terrorists will have no one to capture except other Islamic countries; which will surely happen.
  5. 5. However, I do not think that the Islamic terrorists will succeed in taking over Canada and the U.S. and I think the suicidal efforts will fail to capture and in the meantime many other Islamic captives will begin a world-wide rebellion and Islam will be done for 10,000 years....
  6. In order for the U.S. economy to continue with the Fed’s goal of 2% inflation moving forward, Americans need to start spending more money. The strategy of low interest rates to stimulate the housing market and consumer spending has exhausted.  With QE coming to an end, what’s left to stimulate the American economy?
  7. As the holiday season nears next month, oil prices continue to fall, with global oil prices posting a fifth consecutive weekly loss. Is it simply a coincidence that oil’s decline has come on the heels of the end of QE?  Is it possible for the United States to manipulate the price of oil to further stimulate growth?


Tuesday, December 2, 2014

The People’s Bank of China said it would lower its one-year benchmark lending rate at the weekend by almost half a percentage point to 5.6% and cut its one-year deposit rate amid concerns that the world’s second largest economy is weakening. The FTSE 100 closed 1% higher at 6750.76 on Friday, while the Dow Jones was also higher in early trading.  Analysts said one of the main effects of the interest rate cut would be to force down the Yuan against the yen and the dollar, helping China to export its way out of trouble. The Yuan has already fallen 10% against the dollar since the summer from a level that was widely regarded as overvalued and may have further to go in the coming months as the economy struggles and the US recovery gathers pace.  The interest rate cut will be welcomed by the millions of Chinese homeowners who pay a large proportion of their salary each month on mortgage payments. Rocketing mortgage debt has become a huge problem in China alongside the massive debts racked up by state enterprises and local authorities.  Officials at the central bank, aware that many homeowners have reduced spending on other items, will hope lower borrowing costs and the cut in deposit rates will encourage them to boost expenditure in other areas of the economy.  China’s slowdown was highlighted by David Cameron as one of his red warning lights signaling the danger of a second financial crash. He said faltering growth in emerging markets was a cause for concern alongside the escalating dispute in Ukraine and the Ebola crisis.  Beijing has maintained that GDP growth continues to stay above 7%. Government figures for the third quarter this year estimated growth at 7.3%.   Meanwhile back in unemployment and recession hit Europe no action from the EU Eurocrats; 7 years after the event they continue to run up their expense claims and take their pay and pensions, while debating what to do.... Pitiful...

Sunday, November 30, 2014

The Czech Republic‘s Interior Ministry is to tighten security measures at government offices after envelopes laced with poison were sent to two ministries.     "The central crisis committee agreed to raise security at selected state institutions, mainly ministries, and raise protection at other places," Reuters quoted Czech Interior Minister Milan Chovanec as saying on Friday.
The letters, which contained deadly doses of poison, were recently sent from Sweden and Slovenia by unknown persons and were stopped before reaching the intended addresses of Chovanec and Finance Minister Andrej Babis.   “We do not want to raise panic but... we need to adopt these security measures," Chovanec added.  The interior minister went on to say that hundreds of letters containing unusual substances are sent to government buildings each year, but this is the first case of harmful substances being used.    The Czech Republic, a European Union and NATO member, does not have any records of terrorist attacks over the past decades.
Across Europe, government bond yields are NEGATIVE, i.e. you have to PAY these bankrupt governments for the privilege of loaning them money.  And as IMF director Christine Lagarde said last week that a diet of high debt, low growth and high unemployment may yet become “the new normal in Europe”. Each of these data points signals an obvious long-term trend. We can see where this is going. But here’s the good news: none of this need affect you. The power is in your hands.
Even if the Swiss divorce themselves from prudent policy, and even if your government refuses to maintain sound money, you still have options.
You can choose to maintain a portion of your savings at a well-capitalized bank abroad in stronger currencies. You can choose to hold some physical precious metals (or even cryptocurrency) overseas at a secure location where it can’t be confiscated by a bankrupt government.
You can choose to own productive assets abroad or collectibles that cannot be conjured out of thin air by central bankers. All of these tools and resources already exist today. And for now, they’re available for anyone to take advantage of.

Sunday, October 12, 2014

Mr Draghi said the ECB's commitment to buy bundles of bank debt, known as asset backed securities (ABS), and offer cheap loans to banks in order to stimulate lending was the correct first course of action in an environment where borrowing costs are already very low.  "When you reach the lower bound you only have one instrument. It’s very clear that if we are going to go down this route [of QE], we have a spectrum of interest rates and spreads which is already very low. That’s why we started with addressing flows in the private sector, because we believe flows will directly affect private lending."
Mr Draghi has said he intends to steer the size of the ECB’s balance sheet back to the levels seen at the start of 2012, indicating an increase in assets of as much as €1 trillion (£800m). ,,,The euro is not a currency. It is a political project with political goals and intent, to show the world that the nations of Europe can exist with one currency. Well that's proved hogwash. They are disparate, divided countries. Trade amongst them, remove sales tariffs, but don't pretend they can function as one entity.
Bank bailouts were forbidden by the treaty of Rome, I believe.
If that treaty is void, what else are they ignoring that they created to bind them? Oh, that's right. Nothing, because Lisbon made all treaty self amending - they can change it without our permission or consent. Such is the dream of demented communists, socialists and troughers who have no interest aside form lining their own pockets with tax payers cash.Just exactly what deflation index is so horrifying a prospect for the economy? I don't see school fees dropping; medical expenses and insurance defy gravity; I don't see car prices falling; my risk insurance premiums only go up; electricity, rates and taxes levitate on their own; housing, thanks to large doses of money printing, is more expensive and rents are being urged higher...so what is the crucial expenditure that I am going to defer because prices are falling, damaging the economy beyond repair? It sure as hell isn't these bulge bracket "non-discretionary" items in the average monthly basket. I suppose the spotty gurus in the banks think that because food, clothing, TV screens and cell phones are falling in price, we are all going to wander around wretchedly skinny, naked and suffering withdrawal symptoms from being TVandCellphoneless, while we wait for a bargain? So let's get real...it is not about deflation, certainly not of anything measured by CPI indices...it is about zombie banks and zombie assets, so why not ask the geniuses poring over the CPI figures to publish a pricing index of what they are really wanting to watch?,,,hmmm...They are more worried about pension funds having to accept write off of their government debt.. Which will be coming if deflation sets in. Debt will rise as a percentage of GDP and as incomes drop then the debt is less affordable... Also I would like to point out here that everyone who seems to think that falling prices are a good thing are as dumb as a box of rocks....If there is deflation and prices are falling do you not think that salaries will fall too?? How are businesses that get less for their product going to carry on paying the same wages??

Wednesday, September 24, 2014

Spending money wont save the EU. If you want to save the EU then try creating wealth rather than destroying it through taxes, regulations and stupidities like green energy scams. Do you morons seriously think that you can power an advanced economy with windmills! By creating wealth and encouraging business and investment you can create employment rather than unemployment. The EU has been destroying wealth and discouraging business and investment for decades (Exhibit A - France, Exhibit B - all the others), and still the idiots learn nothing, they refuse to change.
How did this guy ever win the title 'Super Mario' when he doesn't understand the fundamentals of economics?

"Mr Draghi suggested that countries in Europe should be encouraged to increase spending within the existing rules designed to reduce deficits and rein in debt in order to boost economic reform and create more jobs"
Please correct me if I am mistaken , but this statement seems like double speak or BS nonsense.
On the one hand 'the existing rules' says no spending past 3% (the fiscal compact) and then he says they should be 'encouraged to 'increase spending' !!
WTF, France et al are already way past 3% . So what on earth is he talking about?
Spending can't be increased.
He makes no mention of reducing the welfare budget for example, (unless that means " national structural policies") ,so I can only assume he is just 'talking the talk!'
His LTRO and the newer version of offering cheap loans do not seem to working.

Friday, January 10, 2014

The US President, has nominated former Bank of Israel Governor Stanley Fischer as vice chairman of the Federal Reserve.  He will take over from Janet Yellen, who becomes the first female chairman of the central bank when Ben Bernanke's term finishes at the end of the month.  The appointment comes as the central bank starts to withdraw its historic stimulus.  Mr Fischer is regarded as one of the world's most prominent monetary economists and has taught many top economist, including Mr Bernanke and European Central Bank President Mario Draghi.   "Stanley Fischer brings decades of leadership and expertise from various roles, including serving at the International Monetary Fund and the Bank of Israel," Mr Obama said in a statement.   "He is widely acknowledged as one of the world’s leading and most experienced economic policy minds and I’m grateful he has agreed to take on this new role and I am confident that he and Janet Yellen will make a great team."   As second-in-command at the International Monetary Fund from 1994-2001, Mr Fischer played a key role in battling the Asian financial crisis. Before that he was chief economist at the World Bank. Mr Fisher, who has both US and Israeli citizenship, was more recently was credited with helping Israel safely navigate the 2007-2009 financial crisis. He stepped down as governor of the Bank of Israel in June, three years into his second five-year term. Mark Carney, Bank of England Governor, said in a statement: "I am delighted by the prospect of Stan Fischer re-joining the global community of central bankers. I had the enormous privilege of working closely with him when Governor of the Bank of Canada and as chairman of the Financial Stability Board. I have found Stan to be an immense source of insight and wisdom on issues ranging from crisis management to the conduct of monetary policy and the reform of the global financial system."  Mr Obama also nominated Lael Brainard, who recently served as the Treasury Department's top official for international affairs, to serve on the Fed board and Fed Governor Jerome Powell to a new term on the board ending in 2028.

Wednesday, January 1, 2014

For much of Washington, 2014 could not come soon enough. November's mid-term elections represented Barack Obama's last hope of redrawing the US political map and moving on from a year marred by divided government and Congressional stalemate.  
Whether Democrats succeed in their unlikely dream of seizing back control of the House of Representatives or Republicans instead continue to make inroads on their fragile lead in the Senate is another matter, and much depends on whether the White House can first restore public faith in its flagship healthcare reforms by the 31 March enrolment deadline.
Spring will also see Republican leaders under renewed pressure from their Tea Party wing, which is preparing primary challenges against moderates in the Senate that will further constrain any ability to cut deals with Democrats once election fever starts.
Several potential bright spots could lift everyone's spirits, however. A recovering economy may take pressure off America's anaemic job market and shocking social stagnation. US troops should return from Afghanistan – with or without a deal in Kabul to retain a security presence. And progress toward Iranian nuclear detente may give the White House cause to celebrate a rare foreign policy success, even if Congress will still need persuading.
Other challenges looming in 2014 have been postponed by the dysfunction and inertia of 2013. Barack Obama still needs to decide whether to authorise the Keystone energy pipeline, which pits environmentalists against North America's unconventional oil boom; expect tough new climate change controls for power companies instead if he does. And with all three branches of government now proposing reform of the NSA, Obama will finally have to decide before January's state of the union address what to do about America's surveillance state.
For much of 2014, the US Capitol dome will be shrouded in scaffolding for renovations – both real and metaphorical. What emerges next December will say much about the future of American democracy.
Dan Roberts in Washington

Sunday, December 22, 2013

The "banking union" deal was announced, without the publication of detailed legal texts setting out how new structures would work, in the early hours of Thursday morning just ahead of an EU summit after talks between European finance ministers that lasted over 12 hours.
"We have been successful," said Rimantas Sadzius, Lithuania's finance minister, who chaired the talks. "It is an extremely complicated dossier. There is still room for simplification."
Michel Barnier, the French EU commissioner, hailed the agreement as breaking the "vicious circle between banks and sovereigns" but acknowledged concerns over the complexity of the new structures.
"Today is a big momentous day for banking union...we are introducing revolutionary change to Europe's finance sector," he said. "The commission does not agree on every point but real progress has been made."
Negotiations focused on the creation of a eurozone Single Resolution Mechanism (SRM) with the powers to close failing banks combined with a new financial supervisor for the eurozone under the auspices of the European Central Bank.
The talks were protracted because of deep divisions over who should have the last say over when a bank is to be wound up, combined with legal and practical difficulties of combining an EU regulation with a separate inter-government treaty to set the resolution body.
The commission and the ECB are concerned that complicated and unwieldy SRM structures, that have been defined by German objections over the mutualisation of banking risk, will not be able to take difficult decisions to close a bank quickly or secretly enough to prevent financial chaos.
The text of the agreement leaves it open for governments, meeting in a council of finance ministers, to block decisions by the SRM's board raising question over whether difficult decisions can be taken without blocking vetoes led by larger countries, such as Germany or France.
"Decisions by the board would enter into force within 24 hours after their adoption, unless the council, acting by simple majority on a proposal by the commission, objects or calls for changes," said the agreement.
The "banking union" proposals were drawn up in response to the financial and eurozone debt crises that brought down many banks and nearly destroyed the EU's single currency as governments had to be bailed out after rescuing their banks.
The key sticking points, which have yet to be conclusively resolved, have deeply divided Germany and France over the question of will have the final say in deciding to close a bank and how this will be paid for.
The agreement also fell short of creating a "common backstop" for a "single resolution fund" to help with the costs of bank failure in a deal that has left lingering questions over whether "banking union" can actually work.
During talks on Tuesday, Germany made a major concession to establish a common fund by 2025 that can provide mutualised support from eurozone governments to the bank resolution fund should its limited resources be overwhelmed in a crisis.
The climbdown was an important victory for France, Italy and the European Commission but there is no agreement or detail of how much the backstop will be or what form it should take.
"During this transitional phase, a common backstop will be developed, which would become fully operational at the latest after ten years. The backstop would facilitate borrowings by the fund. It would ultimately be reimbursed by the banking sector through levies, including ex-post," said the agreement.
In the meantime, an agreed fund comprising "national compartments" will be built up over 10 years from 2015 onwards from bank levies. It will only total €55bn (£46bn) by 2025, raising fears that it will not be enough to support a bank's restructuring in the event of a crisis.

Monday, December 9, 2013

Since the last crisis, central banks around the world have pumped trillions into the economic cycle, both by lowering interest rates and buying up securities in the markets. For central bankers like United States Federal Reserve Chairman Ben Bernanke, the aim of the policy was to stimulate the economy and rescue banks that could no longer raise capital elsewhere. But this "grand monetary experiment," as Spitznagel calls it, has side effects. Because it makes borrowing cheaper than even before and saving all but pointless, it encourages investors to pursue reckless deals. Share prices are exploding on stock exchanges around the world, while real estate prices are rising at an alarmingly fast pace. And many US companies are now in as much debt as they were before the financial crisis.  To take Spitznagel's metaphor a step further, the flood of money coming from central bankers acts like a highly aggressive, artificial fertilizer. It generates enormous yields in the short term, but eventually leads to potential devastation. For this reason, the ongoing party in the stock and real estate markets is beginning to feel uncanny to a growing number of observers. "It might go badly," Nobel laureate Robert Shiller told SPIEGEL. Some economists are even convinced that the question is no longer whether the next crash is coming, but when.  For brokers on the venerable trading floor at the New York Stock Exchange, such predictions are hugely exaggerated. "This is not a bubble," says Peter Tuchman, who has worked on Wall Street for almost 30 years and, with his white, Einstein-like hairstyle, half a dozen bracelets and well-worn running shoes, is a legend on the floor. He taps his smartphone a few times and pulls up a graph depicting the S&P 500 index of stock prices for 500 large companies, which has gone up by 166 percent since it hit rock-bottom in 2009. "This is a stable development," says Tuchman, pointing to the graph, which is directed uniformly upward. In his view, these are simply good times following on the heels of years of crisis. "There are new company listings every day," he says. "That is a good sign to me."

Thursday, November 28, 2013

An Unsustainable Demographic Makeup - But that is only part of the truth. The dilemma had its beginnings years earlier. "Interest rates are as low as they are today because the key economies loaded up on debt until 2007," says DekaBank economist Kater. In the financial crisis, it then became clear that these nations, as well as companies and citizens in many countries, had amassed too much debt, which could no longer be reduced by higher economic growth as it could in earlier years.
There are also demographic reasons for this. The percentage of young people in the population is shrinking, and yet they must generate greater economic output to reduce the debts they are inheriting from the current generation.
Because this is unsustainable, a redistribution from creditors to borrowers, or from savers to the state, is now occurring, as Kater explains. The operative expression is "financial repression." The government makes money when interest rates on government bonds are lower than inflation. Its debt burden is decreased, while savers are left to foot the bill, with their assets losing value in real terms.
The consequence is a massive redistribution. McKinsey, the consulting firm, has calculated that the governments of the United States, Great Britain and the euro zone already saved $1.6 trillion between 2007 and 2012 as a result of low interest rates. This is offset by a loss to private households of $630 billion. Older citizens are losing more than younger people, because the latter tend to have more debt and fewer savings.
As much as savers are being fleeced, there are also those who profit from low interest rates. People who own real estate have benefited from increases in value in recent years, while stock owners have seen Germany's DAX share index climb from one record high to the next. But this primarily benefits those who are not worried about having enough retirement income.

Monday, November 11, 2013

Why is it called a prize in "economic sciences", rather than just "economics"? The other prizes are not awarded in the "chemical sciences" or the "physical sciences."
Fields of endeavour that use "science" in their titles tend to be those that get masses of people emotionally involved and in which crackpots seem to have some purchase on public opinion. These fields have "science" in their names to distinguish them from their disreputable cousins.
The term political science first became popular in the late eighteenth century to distinguish it from all the partisan tracts whose purpose was to gain votes and influence rather than pursue the truth. Astronomical science was a common term in the late nineteenth century, to distinguish it from astrology and the study of ancient myths about the constellations. Hypnotic science was also used in the nineteenth century to distinguish the scientific study of hypnotism from witchcraft or religious transcendentalism.
There was a need for such terms back then, because their crackpot counterparts held much greater sway in general discourse. Scientists had to announce themselves as scientists.
In fact, even the term chemical science enjoyed some popularity in the nineteenth century – a time when the field sought to distinguish itself from alchemy and the promotion of quack nostrums. But the need to use that term to distinguish true science from the practice of imposters was already fading by the time the Nobel prizes were launched in 1901.
Similarly, the terms astronomical science and hypnotic science mostly died out as the twentieth century progressed, perhaps because belief in the occult waned in respectable society. Yes, horoscopes still persist in popular newspapers, but they are there only for the severely scientifically challenged, or for entertainment; the idea that the stars determine our fate has lost all intellectual currency. Hence there is no longer any need for the term "astronomical science."

Sunday, October 27, 2013

Central bank governors and senior regulators are set to ordain that banks must have a minimum core tier one capital ratio, including a new so-called "buffer" to protect against extreme economic conditions, of 7%, I can reveal.
This is considerably lower than was wanted by the "hawks", the US, UK and Switzerland. They wanted a core tier one capital ratio of 8 to 9% including buffer, which is what British banks currently have to maintain. In fact most British banks currently have a core tier one ratio of around 10%.
But the new 7% minimum has been agreed in the face of stiff resistance from a number of countries, led by Germany, many of whose banks typically have much lower stocks of core capital in the form of equity and retained earnings - and will have great difficulty meeting the new standard.
This new international minimum was negotiated by regulatory and central banking officials in a meeting of the Basel Committee on Banking Supervision earlier this week. It is expected to be approved by the governors and senior regulators when they meet in Basle on Sunday. It will then be ratified in a final, supposedly irrevocable way by the heads of the G20 governments, at their summit in November. The 7% minimum represents a dramatic increase on the current minimum of 2%. That 2% minimum is widely seen as far too low: banks' low levels of capital relative to their assets was a major contributor to the severity of the 2008 banking crisis, as investors lost confidence in their ability to survive losses.
As they approached collapse, the capital ratios of Northern Rock and Royal Bank of Scotland fell to dangerously low levels - which is why Northern Rock was nationalized and RBS was semi-nationalized.
The point of capital is to absorb losses when loans and investments turn bad.
Although this new 7% minimum ratio of core capital (in the form of equity and retained earnings) to assets (loans and investments) as measured on a risk-weighted basis represents a significant increase, some will argue that the ratio is still too low.
One reason for this is that the absolute minimum capital ratio, without buffer, will be around 4%, or double the previous minimum.
Under the new system, if a bank's capital ratio falls below 7% or would fall below 7% when the bank is tested for financial stresses, the bank will be forced by regulators to raise new capital. And if the ratio falls below 4%, the bank will be put into "resolution" - which means that it will be taken over by regulators and wound up.
It means that banks' core capital ratios must always be above 7% in normal economic and financial conditions. But regulators would tolerate those ratios falling below 7% for short periods during economic downturns.
A senior regulator has told me that many of the biggest banks - those "too-big-to-fail" banks whose collapse would cause ruptures to the financial system - will in practice be forced to hold more than the 7% minimum.
"There will be some kind of add-on for systemically important banks," he said. So the likes of Barclays, JP Morgan, Royal Bank of Scotland, UBS and so on will in practice have to maintain core capital ratios greater than 7%.
The major concern of banks about the imposition of the higher capital ratios is that it will constrain their ability to lend in the transition period, as they build up stocks of capital - and that could undermine the global economic recovery.
The point is that there are two ways for banks to raise capital ratios: they can persuade investors to buy new shares; or they can shrink their balance sheets relative to their existing stock of capital by lending and investing less.
Because of the threat to economic growth of rapid implementation of the new capital ratios, the regulators and central bank governors are expected to give banks several years to meet the new standards.
The Basel Committee on Banking Supervision softened some of its proposed capital and liquidity rules while introducing new restrictions on how much lenders can borrow in order to rein in their risk-taking.
The panel agreed yesterday to allow certain assets, including minority stakes in other financial firms, to count as capital, according to a statement. The committee set a leverage ratio to apply to banks globally for the first time, which could become binding by 2018, pending further adjustments to the method of calculating banks’ assets.
“Even after all the compromises, the banks aren’t off the hook from tighter capital and liquidity rules,” said Frederick Cannon, chief equity strategist at New York-based Keefe, Bruyette & Woods.
France and Germany have led efforts to weaken rules proposed by the committee in December, concerned that their banks and economies won’t be able to bear the burden of tougher capital requirements until a recovery takes hold, according to bankers, regulators and lobbyists involved in the talks. The U.S., Switzerland and the U.K. have resisted those efforts. The announcement reflects the give and take between the two sides, said Barbara Matthews, managing director of BCM International Regulatory Analytics LLC in Washington.
German Concerns
Germany hasn’t signed yesterday’s preliminary agreement, said Sabine Reimer, a spokeswoman for BaFin, the country’s financial regulator.
“One country still has concerns and has reserved its position until the decisions on calibration and phase-in arrangements are finalized in September,” the committee said in a footnote to its statement.
Sumitomo Mitsui Financial Group Inc., Japan’s second- largest bank by market value, led banks higher in Tokyo after the committee agreed to allow some deferred tax assets to be counted as capital. The nation’s banks and regulators had fought against excluding deferred tax assets.
“The Basel Committee’s easing of restrictions gives investors a reason to take another look at Japanese banks, which have been cheap recently,” said Mitsushige Akino, who oversees about $450 million in assets in Tokyo at Ichiyoshi Investment Management Co.
Sumitomo Mitsui rose 2.8 percent to 2,587 yen at the 3 p.m. close of trading in Tokyo. Mitsubishi UFJ Financial Group Inc., the country’s largest bank, gained 2.5 percent and Mizuho Financial Group Inc. climbed 2.2 percent.
‘Making Concessions’
“They’re definitely making concessions on the definition of capital and the liquidity ratios,” said BCM International’s Matthews, who used to lobby the committee on behalf of banks. “Those were necessary to convince the Germans to accept the leverage ratio. But even though we see a lot of concessions, there are also limits to the concessions. So this isn’t fully caving in.”
The Basel committee, which represents central banks and regulators in 27 nations and sets capital standards for banks worldwide, was asked by Group of 20 leaders to draft rules after the worst financial crisis in 70 years.
Yesterday’s agreements were announced after a meeting of the group of governors and heads of supervision, which oversees the committee’s work. While the committee narrowed differences when it met two weeks ago in Basel, it left most of the final decisions to its board, members said.
The board said some of its proposals might not be completed by the end of this year, the deadline set by the G-20. Liquidity requirements for how much cash and cashable securities banks need to hold against their longer-term liabilities and counter- cyclical buffers, which would raise minimum capital requirements in times of faster economic growth, have to be worked on longer, the board said.
Lobby Efforts
European banks lobbied against the proposed exclusion of minority interests that banks hold in other financial institutions. Japan fought the hardest against the elimination of deferred tax assets, past losses that lenders use to offset tax charges in future years. The U.S. has opposed removing mortgage-servicing rights, contracts to collect payments, which are unique to U.S. banks.
The compromise announced yesterday would allow a bank to count part of a stake it owns in another financial firm in relation to the risk the capital is supposed to cover at the entity in which it invested. Deferred tax assets and mortgage- servicing rights would be included in capital up to a limit. The total for all three could not exceed 15 percent of a lender’s common equity.
While the capital ratios allow banks to assign weights to assets based on their risks, the new leverage figure considers all assets without a risk assessment. The committee initially set it at 3 percent -- meaning a bank’s total assets cannot be more than 33 times its Tier 1 capital, which includes securities that could help a lender cover unexpected losses.
Level Playing Field
The new rule also defines how assets are tallied, so as to level the playing field between different accounting standards and bring off-balance-sheet items into the calculation. The ratio will be tested from 2013 until 2017, and banks would be required to start publishing their individual leverage figures starting in 2015.
Bankers including Deutsche Bank AG Chief Executive Officer Josef Ackermann and HSBC Holdings Plc Chairman Stephen Green have said that the new rules may force banks to reduce lending, potentially limiting economic growth.
While yesterday’s announcement resolved several issues, many areas of contention, such as the actual minimum capital ratios that will be set, remain outstanding, said KBW’s Cannon.
“The definition of capital had to be finalized before the numbers can be put on, but there are still many moving parts,” said Cannon, whose research firm specializes in financial companies. The committee is planning to present a final package of reforms to the G-20 leaders meeting in Seoul in November.
Risk-Weighted Assets
Banks currently need to hold capital equal to a minimum of 8 percent of risk-weighted assets. Half of that must be Tier 1, and half of the Tier 1 needs to be common stock. Both Tier 1 and common-equity ratios will be increased, Cannon and other analysts expect. The Basel committee is also revising how the risk weighting will be done.
Like the leverage ratio, the liquidity rules are new to the Basel standards. The liquidity coverage ratio sets the amount of cash that needs to be held by a lender against any payment coming due within a month, while the net stable funding ratio considers liabilities up to 12 months.
The committee announced several modifications to the definition of liquid assets and of how to measure the safety of different types of funding. Government deposits will now be considered the same as corporate cash put in a bank, instead of treated as other banks’ money as originally proposed. Bank deposits are seen as less stable.
The changes should please banks, said Cannon.
“They compromised more on the short-term ratio than we were expecting,” he said.

Sunday, October 20, 2013

WASHINGTON—Senate leaders on Wednesday struck an 11th-hour agreement to avoid a U.S. debt crisis and fully reopen the federal government, putting lawmakers on track toward ending a stalemate that worried investors world-wide and provided striking evidence of congressional dysfunction.Negotiators rejected a Democratic proposal to delay for one year a fee of $63 per insured person levied on groups that offer health policies, including employers, labor unions and insurance carriers—a fee opposed by many large employers and unions. The agreement does includes backpay for all federal workers who were furloughed during the government shutdown.
The Senate deal doesn't include a provision granting federal agencies more flexibility to mitigate the effects of the across-the-board reductions known as the sequester. Congressional aides said the next round of cuts kick in when the stopgap spending measure ends in mid-January, motivating lawmakers to reach an agreement to ease the burden of the sequester's blunt cuts by then. The next round of reductions will bring annual spending levels down to $967 billion from $986 billion, largely through cuts to defense spending.
The setback in the House on Tuesday was the result of pressure from conservatives, who objected both to the Senate bill and Mr. Boehner's alternative because they gave Republicans too little of what they had been demanding. Conservatives have been pressing for major changes in the 2010 health-care law and additional measures to reduce the deficit.
GOP leaders had tried to build backing by including proposals sought by conservatives, including one that would have cut government health-insurance benefits for congressional and administration officials, including their staff, under the 2010 health-care law. But the bill met powerful headwinds when the conservative political group Heritage Action on Tuesday evening announced its opposition and said votes on the measure would be included in the group's influential ratings of lawmakers.
The White House Wednesday provided a little more clarity about when the Treasury will run out of its ability to borrow money. Mr. Carney said that moment will come "at the end of the day" Thursday. The Treasury had previously said the "extraordinary measures" it deployed to keep below the debt ceiling would run out on Oct. 17, without clarifying whether that meant midnight Wednesday or the subsequent day. Beyond Thursday, "the Treasury would have only cash on hand. It would not be able to borrow new money to meet obligations," Mr. Carney said. The Treasury has said that on Oct. 17 it would be left with only about $30 billion to pay the nation's bills.
There was palpable relief among Republicans who had been part of a bipartisan effort to break the deadlock. "We're ready to open the government and we are ready to make sure everyone around the world knows the U.S. pays its bills on time," said Sen. Lamar Alexander (R., Tenn.).

Sunday, October 13, 2013

The IMF said Dublin was on track to meet its obligations under the deal, but "near-term prospects are weaker and significant fiscal, financial sector and unemployment challenges remain".
Ireland was forced to seek help after a property crash left its banks massively under-capitalised and the state's finances collapsed.
Since then it has stuck rigorously to the recipe of austerity laid out in the programme by its "troika" of lenders.
The EU is desperate for Ireland to exit the rescue smoothly to show the tough-love approach can succeed, given the struggles of fellow bailout recipients Greece and Portugal and deep-rooted public dissatisfaction across the region.
Ireland has met nearly all its funding needs through next year by issuing debt periodically over the last 12 months, having issued a 10-year bond in March for the first time since being locked out of markets in late 2010.
Yet banks continue to shun calls from households and businesses for easier credit conditions while struggling with low profits and a ratio of bad loans that has reached 26%.
Unemployment also remains a huge problem. A fall in the jobless rate from 15% to 13.7% since early 2012 has eased the social security burden but 58% of those without work are considered long-term unemployed, "posing a risk to Ireland's growth potential", said the IMF.

Friday, October 11, 2013

The head of Slovenia's central bank, Bostjan Jazbec, has said it will consider asking for outside help if the country's funding costs stay high. He also said Slovenia's GDP would shrink by 2.6% this year, more than April's 1.9% forecast.
Slovenia's banks are largely state-owned and saddled with bad loans worth 22.5% of its GDP.
Mr Jazbec's comments are likely to fuel speculation over whether Slovenia will be bailed out by the EU.
Still hope
Mr. Jazbec said he would consider asking for aid if yields on Slovenia's bonds remained high.
During a news conference, he said the country was doing everything it could to bring its funding costs down.
"If that is not successful, then there is a possibility to ask for help within various programmes," he added.
Meanwhile, Slovenia's Prime Minister, Alenka Bratusek, has admitted to parliament the amount needed to rescue the banks is "completely unknown".
But Ms Bratusek told STA, the state-owned news agency: "We are very intensely preparing measures that are needed, so as to avoid asking for help."
The results of the bank's stress-tests, out at the end of November, will indicate whether or not a bailout is needed.
Eurozone members can ask for help from the European Stability Mechanism, set up in 2012.