Archive for May 17th, 2017

Meet David Pearce: The 15 year old boy who designed the New 1 Pound Coin

May 17, 2017

I had blogged about the new 1 Pound coin which is being touted as the safest coin the world.

Here is interview of David Pearce who was merely 15 years old when he sent in his deign and won the contest.

In the last few weeks many of us will have noticed a significant change to our ‘change’ – a new £1 coin. Although it’s entering circulation now, in 2017, the journey of the new £1 coin actually began in 2014, when the new 12-sided coin was first announced. And, in 2014, the public were given a rare opportunity to play a part in bringing the coin into the nation’s pockets with an invitation to submit designs that represented Britain. Heraldic designs, regional landmarks and cultural interpretations of the UK such as fish and chips and cups of tea were among over 6,000 entries submitted by the public, and in the end David Pearce’s design was chosen to symbolise the United Kingdom on the new one pound coin.

David, of Queen Mary’s Grammar School, was just 15 years old when he won the competition. His winning design features the floral emblems of the nations of the United Kingdom – the English rose, the Welsh leek, the Scottish thistle and the Northern Irish shamrock – emerging from one stem within a royal coronet. Now, as the #newpoundcoin starts to appear in our change, we speak to David to find out a little more about his design.

How did the thing come up?

How did your journey with The Royal Mint begin?

Well, my Design Technology teacher in school found out about the public design competition for the new one pound coin and recommended that I entered the competition to widen my portfolio for university admissions. 

What inspired you to enter?

I thought it would be a good opportunity to widen my portfolio, I didn’t really expect to win so I just took my teacher’s advice that it would be a good thing to do; I didn’t expect anything to come from it.

How did you find the process of designing the coin?

OK, I guess. I started with the template, and used the internet to research previous one pound coin designs to see what had been and gone. Because the brief was to design something that represented the UK, I researched symbols of the UK to find elements of heraldry that people would easily recognise as part of the United Kingdom. From there I came up with a few rough ideas and emerged with the one I liked the most. I compiled a few images into a mood-board, which had things such as royal crests, things that were synonymous with the UK, things that tourists would associate with the UK (which were very London-centric) and then flora – it was very diverse but very obvious at the same time. The main idea behind it, because it was the United Kingdom, was to unite the individual nations with a common element, the crown; so the four individual nations are represented by the flora and then united by the crown.


FBI History: With great power comes great scandal.

May 17, 2017

It is fascinating to know that Prof Douglas M. Charles of Penn State University is a FBI historian.

In this piece, he looks at brief history and key people behind the institution:

Drama at the FBI is nothing new. Given its 109-year history, the FBI has seen many scandals and numerous directors come and go.

Its directors, in fact, have always been the face and driving force of the FBI. Most have retired or moved on to other work, four were forced to offer resignations, but only two, including most recently James Comey, have been fired outright.

While FBI directors always served at the pleasure of presidents, they differed in their closeness to the chief executive. Most notably, FBI Director J. Edgar Hoover (1924-1972) worked to satisfy the political interests of some presidents and secretly undermine others. Since his death in 1972 and revelations of abuses, the federal government has treated the FBI director as independent from the White House.

As a historian who has long studied the FBI and its work, I believe knowing the agency’s past is crucial to understanding the firing of FBI Director James Comey and what may come of it.

Interesting stuff..

What we can learn from tweets which predict movement of euro-dollar currency pair?

May 17, 2017

Interesting paper. As traders share their predictions across asset classes on social media, it leads to research opportunities.

Vahid Gholampour and Eric van Wincoop analyse tweets that predict Euro-Dollar rates. They find that Tweets get the direction right but not the magnitude:

We focus on opinions posted on Twitter, because Twitter is widely used to express opinions about asset prices. Several anecdotal stories suggest that this information can be important. For example, on 13 August 2013, Carl Icahn, an activist investor, tweeted about his large position in Apple. As a result, Apple shares increased in value by more than 4% in a few seconds. We investigate what can be learned from Twitter by considering two and a half years of tweets that expressed opinions about the euro-dollar exchange rate.


We find that the direction of exchange rate changes is predicted by tweets in a way that is statistically significant. This suggests that there was information content in the tweets. But we also find that Twitter sentiment does not predict the magnitude of future exchange rate changes in a statistically significant way. Such predictability would be needed to develop trading strategies from this data. This absence of predictability based on a data-only approach is not surprising, because exchange rates are notoriously hard to predict. Twitter sentiment is only directional, and the data sample covers only two and a half years.

Also, Sharpe ratio for Tweet based trades is high indicating one could make money:

The large Sharpe ratios that we find suggest that there are significant gains from trading strategies based on Twitter sentiment. We can compare the Sharpe ratio from the TSI trading strategy to that of the popular currency carry-trade strategy based on interest differentials. Burnside et al. (2010) reported an average annualized Sharpe ratio of 0.44 for 20 currencies against the dollar based on a carry-trade strategy. A Sharpe ratio in the range [1.59, 1.78] is clearly very high by any reasonable standard. The methodology developed here could easily be applied to other currencies or portfolios of currencies, as well as other financial markets such as the stock market.


Denmark issues a tender to outsource printing of banknotes…

May 17, 2017

This blog had earlier pointed how Denmark has outsourced minting of its coins to Finland. The post also mentioned that Denmark will also be outsourcing printing of banknotes.

No agreement has yet been concluded with a supplier of banknotes. Danmarks Nationalbank has just published a timeline for the forthcoming tender for banknotes, and a supplier is expected to be found in early 2018.

Now Denmark Central Bank has issued a tender and a timeline for the same:

Danmarks Nationalbank has decided to discontinue internal printing/production of banknotes by the end of 2016. Like a number of other central banks, Danmarks Nationalbank will outsource this function to an external supplier. Danmarks Nationalbank will still be the issuing authority of banknotes in Denmark and will retain its expertise within banknote design and quality.

It is with great pleasure to announce that today, Monday 15 May 2017, Danmarks Nationalbank has initiated a competitive procedure with negotiation by sending a Contract Notice to the Tenders Electronics Daily (TED).

Danmarks Nationalbank expects the Contract Notice providing access to the procurement documents to be published within the next few days.  

Expected timeframe:

Dispatch of contract notice:                                                                                15 May 2017
Timelimit for request for participation:                                                              15 June 2017
Invitation to tender:                                                                                             1 September 2017
Timelimit for first indicative offer:                                                                       3 October 2017
Timelimit for best and final offer:                                                                        8 January 2018
Signing of contract:                                                                                            16 February 2018
Expected delivery of the first final batch of banknotes (one denomination): mid-2019

Interested banknote suppliers are invited to sign up for Danmarks Nationalbank’s news service for further news.

Will be interesting to see who gets the tender..

Should Walmart be allowed to get into banking?

May 17, 2017

Prof Lawrence White of Stern School has a piece on Walmart entry into banking. He says we should actually ask the following question: Why shouldn’t Walmart get into banking?

By the way I also learnt from the article that the retail giant entered banking in Canada and Mexico. In Mexico it sold off its banking business in 2014. The one in Canada continues. The issue is whether it should be allowed in America as well.

Prof White says:

One question to ask might be, “Why should Walmart be allowed to enter banking?” But a more relevant question would be, “Why shouldn’t Walmart be allowed to enter banking?” 

After all, the U.S. economy is generally market-oriented, and entry is generally recognized as potentially beneficial for consumers, as entrants can bring new ideas, innovations, and efficiencies to the market. Of course, incumbents usually don’t like the idea of entrants’ disrupting the status quo; and often those incumbents lobby for regulation and/or legislation that creates barriers to entry. But, for most markets, the presumption in broad U.S. economic policy is that entry should be encouraged—or at least, that policy should be neutral between incumbents and entrants—so that the benefits of entry can be enjoyed by consumers.

Of course, banking is special—as the regular readers of this blog are well aware. And how the specialness of banking and the presence of Walmart in banking can be reconciled must be addressed, and will be addressed below.

But first, consider what the entry of Walmart into banking might well achieve: Walmart is well known for providing reasonably priced goods to low- and moderate-income households. Its position as the largest company in the United States—as measured by sales and by employment—is a testament to that reputation.

But it is exactly this demographic group—low- and moderate-income households—that is most in need of reasonably priced financial services. The percentage of U.S. households that are unbanked (i.e., do not have a bank account) or underbanked (i.e., have an account but rely on non-bank providers for some financial services and products) has been a longstanding policy concern. The most recent data (from a FDIC report that covers 2015) in this regard—based on a survey of more than 36,000 households nationwide—show that 7% of all households were unbanked and an additional 20% of all households were underbanked. Unsurprisingly, the percentages are substantially larger for low- and moderate-income households (see table)


The post also has a interesting discussion on the complex financial regulation setup in US:

So, how would the entry of Walmart—and, presumably, other non-financial companies that are interested in entering banking—fit into that system of prudential regulation?

The crucial concept is that the “Walmart Bank” that would provide banking services to the public would be organized as a separate subsidiary of the parent Walmart company. In essence, the parent Walmart company would be a bank holding company (BHC), which is a common ownership structure for U.S. banks. The Walmart Bank subsidiary would be expected to abide by all prudential regulations—including adequate net worth (capital) requirements—that apply to banks.


However, because it is relatively easy for the owners (including BHCs) of a bank to drain the bank of its assets—for example, by paying excessive dividends to its owners, or by making loans to the owners that are not repaid, or even by paying excessive prices for any materials that it buys from the owners—it is essential that any transactions between the bank and its owners be on arm’s-length terms. U.S. bank regulators have long been aware of this danger of the draining of a bank by its owners and have rules in place (which are embodied in Sections 23A and 23B of the Federal Reserve Act) that insist on this arm’s-length standard.

Current U.S. banking policy has much of this story right.  But where policy has gone “off the rails” is the insistence that a BHC cannot be engaged in commerce—that is, in non-financial services activities. This restriction on scope was embodied in the Bank Holding Company Acts of 1956 and 1970 and remains established policy for banks and banking in 2017. Its persistence as policy is more a testament to the lobbying strength of the incumbent bankers (who clearly prefer less competition) rather than to a concern about the economic welfare of consumers. It also yields the economically absurd result that it is okay for a local car dealer to own a bank (so long as the dealer doesn’t form a BHC that involves the car dealership); but it is not okay for AutoNation (a publicly traded company that operates hundreds of car dealerships) to own a bank.

Until 1999 there was a potential way around this no-commerce restriction on the activities of a holding company: the holding company of a savings and loan (S&L or thrift) institution faced no such restriction, and at various times companies such as the Ford Motor Company, Fuqua Industries, Weyerhaeuser, ITT, Gulf & Western, Household International, and Sears, Roebuck have owned S&Ls via the formation of thrift holding companies.

In the middle of the 1990s, Walmart decided to try to enter banking by becoming a thrift holding company. However, before Walmart was able to become a thrift holding company, the Gramm-Leach-Bliley Act of 1999 (which was primarily focused on allowing commercial banks—via BHCs—to enter investment banking) forbade the creation of any new thrift holding companies that could engage in commerce. It also restricted the sale of an existing thrift holding company to a non-financial company, such as Walmart.

There was a second, more limited way around the “no commercial owner” restriction: a few states—most notably Utah—offered “industrial loan company” (ILC) charters that allowed a commercial firm to own a financial institution that could issue deposits and make loans and thus could function as a bank. But in order to operate, the ILC would need to obtain deposit insurance from the FDIC.

Walmart duly obtained a Utah ILC charter and in 2005 applied for FDIC deposit insurance. In 2007 Walmart withdrew its application after it was clear that the FDIC would not grant it deposit insurance. Further, the Dodd-Frank Act of 2010 placed a three-year moratorium on the granting of deposit insurance to any new (or newly acquired) ILC. Although the moratorium expired in 2013, bank regulators appear to have “gotten the message” that the commerce-finance barrier should remain intact.

Another example of how despite best intentions, regulations leave many gaps to be filled.

But overall a good discussion about many aspects of economics and finance..