Archive for February 21st, 2019

History of KC Das: the rosogulla inventors (and CV Raman connection)

February 21, 2019

Brilliant piece by Kathakali Chanda in Forbes India.

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Singapore changes its legal tender limits..

February 21, 2019

Singapore has recently streamlined its legal tender limits.

In this speech, Mr Ong Ye Kung, Minister for Education explains:

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How Lehman became Lehman: 1850-2008

February 21, 2019

Harvard Univ’s Baker Library has organised an exhibit of Lehman’s history.

Here is a piece on the exhibit in the Harvard Gazette:

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From Wall Street to Bay Street: The Origins and Evolution of American and Canadian Finance

February 21, 2019

New book on differences between American and Canadian financial system.

Prof Hugh Rockoff does a review:

Why did the Canadian financial system escape the devastation that the American system experienced in the Great Depression (although Canada did not escape the decline in economic activity) and in 2008? Indeed, why has the financial system of Canada been so much more stable throughout its history than the American system? It’s a question that many economic historians have thought about. Calomiris and Haber (2014) is a recent attempt to come to grips with this and other comparisons which highlight the instability of the American financial system. And I have done some work on this with Michael Bordo and Angela Redish (1994, 2015).

From Wall Street to Bay Street sheds light on these questions. The book, I should note, is written for the layperson and not for the typical reader of EH.Net. One imagines (hopes?) that the intended audience might include a journalist, a politician, or a business executive looking for an explanation of a puzzling fact that might in turn affect what they write or do. Although Kobrak and Martin include some comparative charts at the end of the book, the text itself includes no charts, tables, or equations. As an explanation for lay readers, it works well. But, as I will explain below, I think it is also a book that professional economic historians will profit from reading.

Joe Martin is the Director of Canadian Business History at the Rotman School of Management of the University of Toronto. Christopher Kobrak (an undergraduate philosophy major at Rutgers, a clear marker of excellence, and a Columbia Ph.D.) was at the Rotman School at his untimely death in 2017. They chose to tell the whole story of American and Canadian finance — insurance, investment banks, and so on, as well as commercial banking — chronologically. There are introductory and concluding chapters, and five chapters in which they take their story from the colonial period to today.

What explains stability of Canada?

What explains the relative stability of the Canadian system? Kobrak and Martin rely on two explanatory factors. One, that will be familiar to most American and Canadian financial historians, is Canada’s system of nationwide branch banking; a stark contrast with the United States which for much of its history had a fragmented banking system in which banks were always prevented from branching across state lines and in some cases were prevented from establishing any branches at all by unit banking laws. Most financial historians, I believe, agree that the absence of branching made American banks far more vulnerable to economic shocks than their Canadian cousins. The problem of state-centric regulation, however, was not confined, Kobrak and Martin show, to banking, but also troubled the American Insurance industry. This comparison illustrates one of the strengths of From Wall Street to Bay Street: its broad sectoral coverage creates opportunities for comparisons that test their conclusions about the origins of the difference in stability between the systems.

The other explanation that Kobrak and Martin rely on is culture. There is a tradeoff, they argue, between innovation and stability. “American finance,” in their estimation, “has been associated with an abundance of the former and not enough of the latter, with Canada assuming the opposite approach” (p. 14). In their concluding chapter they say that “Americans have always exhibited a tolerance for recklessness in commercial innovation, which appears curious to much of the rest of the world, including Canadians.” A reference to Tocqueville, who said much the same, helps to establish the venerable lineage of their observation about different attitudes toward stability (p. 262). Their reliance on cultural differences inevitably raises the question of whether it is “Kosher to Talk about Culture” to quote the title of one of Peter Temin’s (1997) well-known papers. A reliance on cultural explanations is always problematic. It is far easier to suggest cultural explanations for economic phenomena than to test them rigorously. For that reason, many economic historians shy away from them. Kobrak and Martin, however, are not afraid. I was skeptical at first, but I found myself coming away persuaded that part of the difference in institutional arrangements (including regulatory structures) and records of stability in the two financial systems ultimately derives from different attitudes toward innovation and stability.

Hmm…Should try and get a copy..

From LIBOR to SOFR in US

February 21, 2019

Nice piece by Jessie Romero in Richmond Fed Econ Focus. It talks about the journey of LIBOR to Secured Overnight Financing Rate or SOFR in US Dollar inter-bank market:

In 2010, the British bank Barclays came under investigation for manipulating a reference interest rate called the London Interbank Offered Rate, or LIBOR. At the time, LIBOR underpinned more than $300 trillion worth of financial contracts worldwide. Over the next several years, authorities would learn that multiple global banks, including U.S.-based institutions JPMorgan Chase and Citigroup, were guilty of manipulating LIBOR; the banks would end up paying more than $9 billion in fines, and more than 20 people faced criminal charges.

The scandal exposed serious flaws in how LIBOR was calculated and spurred international regulators to seek out alternative benchmarks. In the United States, this effort has been led by the Alternative Reference Rates Committee (ARRC), a private-sector group convened by the Federal Reserve and other regulators. The committee has recommended that markets adopt a new reference rate, and although the transition is underway, there are still about $200 trillion — 10 times the level of U.S. GDP — worth of outstanding contracts based on the U.S. dollar LIBOR. (The rate is also calculated for the Swiss franc, the euro, the British pound, and the Japanese yen; before the scandal, LIBOR was calculated for 10 different currencies.) In addition, new contracts referencing the rate continue to be written, even though it’s likely to disappear after 2021. Will the financial sector leave LIBOR in time?

LIBOR’s fall is as mighty an event as it can be….


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