Archive for the ‘Financial Markets/ Finance’ Category

Drivers and Management of RBI’s Liquidity operations in 2018-19

February 15, 2019

In the earlier versions of India’s monetary policy, RBI used to release this useful Macroeconomic and Monetary Developments Report (MMDR).  This was discontinued after April-2014 policy, as RBI started releasing Monetary Policy Report. In the MMDR, the chapter on Monetary and Liquidity Conditions used to be very useful as it would tell us about ongoing changes in RBI’s liquidity management. This would tell us the drivers of market liquidity and how RBI managed the situation. Alongwith MMDR, this very useful input was also done away with.

In the recent RBI Bulletin (Feb-19), there is a nice research note bringing back both: memories and insights. The note is written by Indranil Bhattacharyya, Samir Ranjan Behera and Bhimappa Talwar of the Monetary and Liquidity Analysis Division, Monetary Policy Department, Reserve Bank of India.

They first summarise the broad history of RBI’s LAF framework since 1999 and changes which have happened overtime. Then they discuss the drivers and management of liquidity in Indian money markets in 2018-19.

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Central bank independence in a democracy: narrower the mandate easier to defend it..

February 14, 2019

Jens Weidmann of Bundesbank is one of those central bankers whose speeches are quite interesting to read. The last one was connecting beatles to central banking.

In a new speech, he looks at several things but this one caught my eye:

Central bank independence in a democracy

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For many in Dakshina Kannada, Vijaya Bank is an emotion…

February 13, 2019

I blogged about how people in Dkashina Kannada region (Mangalore and included Udupi earlier) are really upset with Vijaya Bank’s merger (Dena bank too) with Bank of Baroda.

Here are two articles which continue to point to sorrows and protests amidst the local people over their bank’s merger and loss of identity:

These are sentiments which have built up over the years. The kind of fondness people have for “their banks” is best seen in Mangalore and Udupi regions.

How central bank boards/committees are different from private ones?

February 12, 2019

A nice speech by outgoing Bank of England’s FPC (not MPC) external member: Martin Taylor.

He speaks about how central bank boards/committees are different from the ones in private sector. He also discusses several others things:

  • Role of FPC
  • Role of external members vis a vis internal members
  • central bank independence
  • central bank neutrality: he rightly says that central banks should strive to be neutral but should not be neutered in the process
  • Brexit

On the differences between private board and public ones:

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Charting a course for the Financial Stability Board

February 11, 2019

Randal Quarles, Vice Chairman for Supervision at Federal Reserve gives a useful speech:

Let me begin with the principle of engagement, and let me lay the groundwork for this discussion by reviewing the way the FSB was established and its mandate, to see how we can continue to fulfill that mandate going forward. As we all know, the FSB was born out of the crucible of the 2007-09 Global Financial Crisis–a crisis that demonstrated in the starkest possible way the importance of global financial stability to the well-being of families and businesses around the world. In the months following the peak of the crisis, the world was struggling with financial market turmoil, and the resultant macroeconomic effects were felt by people everywhere around the world. It was clear that the response to this crisis needed to be global, and the G7 and G10, without any emerging market representation, were not the right bodies to organize a global response.

As such, the Heads of State and Government of the G20 called for the Financial Stability Forum (FSF), a relatively small and unmuscular group, to expand its membership and to strengthen its institutional framework. The result was the Financial Stability Board, which was designed as a mechanism for national authorities, global standards-setting bodies, and international authorities to identify and address vulnerabilities in the global financial system and to develop stronger regulatory and supervisory policies to create a more resilient global financial system. This new group is more representative of the interconnected global economy and financial system and can more effectively mobilize to promote global financial stability than anything that existed before. Whereas the FSF included only 11 jurisdictions (all of which were advanced economies), the FSB includes 24 jurisdictions and 73 representatives, which include all the members of the G20 and of which 10 are emerging market economies.

In fostering global financial stability, the actions of the FSB have the potential to affect the global economy and financial system in important ways. Success in promoting global financial stability should benefit everybody, through more sustainable and stronger economic growth. At the same time, financial stability policy will also affect institutions and markets beyond the FSB’s membership. Recognizing the wide-reaching effects of its work, the FSB must seek input from a broad range of stakeholders, each of whom brings a different perspective to the issues under consideration. While we are directly accountable to the G20, we are, through the G20, accountable to all of the people affected by our actions. In my view, that means we must engage in genuine, substantial dialogue with all of these stakeholders, to a greater and more effective degree than we have in the past.

He is also the chair of FSB now.

From Commodity to Fiat and Now to Crypto: What Does History Tell Us?

February 7, 2019

Nice paper as always from Prof Barry Eichengreen:

Over time, there has been a tendency for political jurisdictions and residents to converge on a single currency. Monopoly over seigniorage is a source of political power and a valuable lifeline when sovereignty is threatened. Moreover a uniform currency, insofar as it is free of counterparty and liquidity risk, facilitates economic activity. But will digital currencies now reverse this trend toward uniformity, given the apparent ease with which they can be created? The information sensitivity of those units, evident in the fact that they trade at varying prices, suggests that they do not yet provide the core functions of money. So-called stable coins are intended to bridge this gap, but whether they can be successfully scaled up and maintain their stability is doubtful. The one unit that can clearly meet these challenges is central bank digital currency. But there would be both costs and benefits of moving in this direction.

 

The Founding of the Federal Reserve, the Great Depression and the Evolution of the U.S. Interbank Network

January 28, 2019

Interesting paper by Matthew Jaremski and David C. Wheelock:

Financial network structure is an important determinant of systemic risk. This paper examines how the establishment of the Federal Reserve and Great Depression affected U.S. interbank network structure. Seeking liquidity sources, banks generally preferred to connect to Federal Reserve member banks in cities with Fed offices or clearinghouses. Overall network concentration declined initially as banks connected to Federal Reserve cities other than New York, but increased in the Depression. Banks that survived the Depression generally had higher percentages of connections to Federal Reserve cities and to correspondent banks that also survived.

More specifically, Federal Reserve was key to Depression in many ways:

The Federal Reserve was intended to reduce the banking system’s reliance on the interbank network, and especially the concentration of the system’s reserves in New York City. Although the share of interbank deposits held by major New York City banks did fall after the Fed was established, previous studies have not examined how the interbank network changed with the introduction of the Fed. Using newly digitized data on the interbank relationships of every U.S. depository institutions in 1900, 1910, 1919, 1929 and 1940, we quantify changes in network concentration and other aspects of network structure over four decades.

We show that while the banks most central to the network remained those located in New York City and other major centers, the regional Federal Reserve cities took on a more important role in the network after the Fed was established and again during the Great Depression. Ironically, by pushing the
network toward the regional Fed cities, the System’s founders may have inadvertently made the banking system more vulnerable to regional liquidity shocks and to the responsiveness of local Federal Reserve Bank officials to those events.17

Interbank connections were a conduit for bank distress during the Great Depression. Banks with correspondents that failed or otherwise closed were themselves more likely to close during the Depression. Banks apparently responded to the Depression by linking even more to correspondents in cities with Federal Reserve offices, especially to banks in New York City, which saw a relative increase in correspondent links between 1929 and 1940. Thus, while the establishment of the Federal Reserve altered the structure of the interbank network, the Fed’s presence neither eliminated the network nor prevent it from transmitting shocks across the banking system. Moreover, the amplification of distress through the network in turn contributed to events that further altered the network’s structure while at the same time having even more profound long-term impacts on the regulation of the U.S. banking system.

Hmm..

 

From Julius Baer to MBaer: Long history of one family in banking…

January 25, 2019

Interesting piece which again shows history and families matter in banking. Michael Baer, great grandson of Julius Baer is to start his own bank. He separated from the Julius Baer group in 2005 over differences:

Michael Baer, a great-grandson of Julius Baer — who founded the Swiss bank of the same name over a hundred years ago — is about to start accepting clients for his MBaer Merchant Bank AG. After receiving a banking license from the Swiss Financial Market Supervisory Authority at the end of 2018, the final preparations are now under way.

We hope to be operational by March,” Baer said in an interview. “We are still looking for suitable offices in Zurich,” said Baer, who himself worked at Julius Baer Group Ltd. for many years.

Can the family name help him to win customers? “I can provide an answer to this question in two or three years,” Baer said. “I’m proud that I can look back on such a long history in banking.”

His great-grandfather started what is today known as Julius Baer Group as a small currency exchange in Zurich in the 1890s. It later became a wealth management firm with international expansion starting in 1940, becoming the first Swiss private bank to go public in 1980. The majority of the voting rights from the initial public offering remained within the Baer family, ensuring full control of the Group. That only changed at the beginning of 2005 with the introduction of the ‘one share, one vote’ principle.

Such stories are so interesting…

Establishing viable capital markets

January 24, 2019

A new report by BIS:

Capital markets provide an important channel of financing for the real economy, they help allocate risk, and they support economic growth and financial stability. Moreover, capital markets have played an important part in financing the recovery from the Great Financial Crisis (GFC), a reminder of their “spare tyre” role in the financial system. This report examines recent trends in capital market development and identifies the factors that foster the development of robust capital markets.

The report finds that large differences persist in the size of capital markets across advanced and emerging economies. Emerging-economy markets have been catching up with their more advanced peers, but the gap has not yet been closed.

The analysis highlights the importance of macroeconomic stability, market autonomy, strong legal frameworks and effective regulatory regimes in supporting market development. Better disclosure standards, investor diversity, internationalisation, and deep hedging and funding markets, as well as efficient and robust market infrastructures, also play a key role.

The report’s recommendations across six broad areas outline practical ways to support the development of robust and efficient markets.

Should be an interesting read….

Strengthening the capacities of the system for fight against counterfeiting of the euro

January 23, 2019

Interesting speech by Ms Emilija Nacevska, Vice Governor of the National Bank of the Republic of Macedonia.

She talks about Twinning Project which is a European Union instrument for institutional cooperation between Public Administrations of EU Member States and of beneficiary or partner countries. The beneficiary countries could be those who want to be part of the Union and those who do not want to be part of the Union. One of the expertise is to build capacities to fight counterfeit of Euro:

It is my honor and pleasure to greet you on the behalf of the National Bank and to welcome you to today’s event held in our institution, marking together the beginning of this very important Twinning Light Project aimed at strengthening the capacities of the institutions involved in the system for fight against counterfeiting of euro. 

At the very beginning of my speech, I would like to express the gratitude of the National Bank to the European Union, because it has recognized the determination of our key institutions responsible for fighting money counterfeit to put their maximum in establishing a strong and efficient system for protection of the national, as well as the financial interests of the Union. Thank you, because the allocation of funds from the pre-accession funds for the implementation of this Project, means a trust that we are ready to work on strengthening the institutional capacity and on the mutual cooperation in order to implement the recommendations that will arise from the project activities. 

I am sure that we will justify the trust. Not only with the level of our commitment to the Project in the next eight months, but also with the willingness to implement all necessary activities for establishing a strong and efficient system for fight against counterfeiting of euro in the country. These activities are already outlined in the strategic commitments of our institutions, because our ultimate goal is to provide a system that, in all aspects, will be at the level of the system of a European Union member state. Only with full dedication, readiness and professionalism, the trust will be fully justified and we will prove that the Project was indeed successful – that the 250,000 Euros intended for its implementation were channeled in the right direction.

Expertise is to be built at multiple levels:

In the long run, this project will simultaneously be an investment for improving the operations not only of the National Bank and the Ministry of Interior, but indirectly also of other institutions that are actively involved in the system for fighting counterfeiting money: the Customs Administration, the Financial Police Office of the Ministry of Finance, the Public Prosecution Office and the judicial authorities. I believe that after the implementation of this Project, our interinstitutional cooperation in the field of monitoring and prevention of counterfeiting banknotes and coins will be further developed. I believe that very soon after the completion of the project activities, we will jointly state and announce that our national system for fighting counterfeit is at a higher level, compatible with the systems of the EU member states.  

Hmm..

Euro’s complexity is mindboggling…

How California stayed with gold when the rest of the U.S. adopted fiat money?

January 23, 2019

Brilliant JP Koning in this brilliant post looks at this 1861 US monetary history. In this case, California refused to adopt greenbacks which were used in other states and continued to accept gold payments.

We are ten years into the age of bitcoin. But people are still using national currencies like yen, dollars, and pounds to buy things. What does history have to say about switches from one type of monetary system to another? In this post I’ll dig for lessons from California’s successful resistance to a fiat standard that was imposed on it in the 1860s by the rest of the U.S.

Not long after the war American Civil War broke out in 1861, a run on New York banks forced most of the country’s banks to stop redeeming their banknotes with gold. A few months later Abraham Lincoln’s Union government began to issue inconvertible paper money in order to finance the war. These notes were popularly known as Greenbacks.

$1 legal tender note, or greenback

Thus the 19 states in the Union shifted from a commodity monetary standard onto a fiat monetary standard. But Californians, who had been using gold as a payments medium for the previous decade-and-a-half, chose not to cooperate and continued to keep accounts in terms of gold. As a result, California stayed on a gold standard while the rest of the Union grappled with fiat money.

This had very different repercussions for prices in each region. As the Union issued ever more greenbacks to finance the war, the perceived quality of these IOUs deteriorated. Through much of 1863 and 1864, their price fell relative to gold. Because prices in the Union were set in terms of greenbacks, consumer and wholesale prices rose rapidly.

U.S. Index of Wholesale Prices (NBER)

In California, on the other hand, prices continued to be set in gold. Thus Californians did not experience significant inflation during the Civil War.

Hmm.

Why so?

Why did the east so easily switch onto a fiat dollar standard whereas California continued to define the dollar in terms of gold? By the 1860s, most Americans who lived east of the Rockies dealt primarily in banknotes. These notes, which were issued by private banks and convertible into gold on demand, circulated widely. Gold coins, which were heavy and prone to wear, were largely confined to bank vaults.

But Californians had never been fond of banknotes. The 1849 First State Constitutional Convention had prohibited the chartering of banks and issuing of bank notes:

but no such association shall make, issue, or put in circulation
any bill, check, ticket, certificate, promissory note, or other
paper, or the paper of any bank, to circulate as money
[California, 1853 #64, Article IV, Section 34]

Suspicion of banknotes ran so strong in California that when businessman Samuel Brannan tried to establish a note-issuing bank in 1857, the following was printed in the Evening Bulletin:

Mr. Brannan, attempts to violate the Constitution of the State, and to fasten upon the community that most pernicious of all evils, a shin-plaster currency….The evils of shin-plaster currency are so great, and the wishes of nine-tenths of our people are so bitterly opposed to its introduction, that we call upon every individual who has any regard for the interest of our State financially or otherwise, to repudiate Mr. Brannan and his shin plasters. (Cross, 1944)

According to Cross (1944), people referred to banknotes as shin-plasters because they were about the size of the plasters put on the injured shins of farmers and other outdoor workers.

Needless to say, Brannan’s notes never took hold. In place of banknotes, Californians had always preferred to pay each other with physical gold. With the discovery of the yellow metal in 1848 in California, the state had plenty of the stuff. Gold dust, despite its inconvenience (see below) was a popular early medium of exchange. Later on, private and government-issued gold coins also became important. Non-chartered private banks existed, but they issued only deposits, not notes.

Wow..

He says same thing goes for bitcoin as well.

Californians rejected the greenback because they had long adhered to gold as a form of payments. Any given merchant expected the rest of the mercantile community to continue paying with gold coin, which made it costly to adopt greenbacks. The reverse happened in the east, the monetary system tipping towards the more familiar banknote. Even as the greenback inflated, easterners still preferred to set prices in terms of paper. It was too costly for an individual merchant to shift onto gold given that every one else already accepted paper.

This same stickiness explains why new technologies like bitcoin haven’t got much usage as a way to pay. It also accounts for why Venezuelans have been slow to shift away from a bolivar monetary system to a dollar-based one despite the collapse of the bolivar. When groups of people collectively adopt a habit, this habit is very difficult to change.

 

RBNZ wins award for its excellent financial dashboard (example for other central banks to follow…)

January 22, 2019

Central Banking.com announced the winners for the year 2019. In the initiaitive of the year category, it gave the award to RBNZ for its financial dashboard:

While adherence by central banks and regulators to the Basel Accord provides important levels of bank transparency in addition to stock exchange and company account disclosures, information can be hard to pull together in a meaningful manner. And very few central banks have opened up their financial system to public scrutiny to quite the same level as the Reserve Bank of New Zealand.

Public disclosure plays a particularly important role in New Zealand because of the central bank’s ‘light touch’ and comparatively ‘lower-intensity’ approach to prudential supervision, and because there is no explicit government guarantee for deposits, Tobias Irrcher, a policy adviser for the financial system policy and analysis department at the RBNZ, tells Central Banking.

“The sheer volume of disclosure had become very large, and there were some issues about how comprehensible it all was and the fact that it was all in different places. It was difficult to compare one bank with another, and thus banks didn’t come under widespread scrutiny,” adds his colleague Toby Fiennes, head of the financial system policy and analysis department. “We wanted to invent something that was accessible.”

In May 2018, the central bank launched its Financial Strength Dashboard to increase the accessibility of the disclosure information by banks to the public. The dashboard offers a graphical overview of all major banks’ capital positions, liquidity, asset quality, profitability, balance sheet composition and credit concentration. In all, it contains more than 100 individual metrics on the financial strength of New Zealand’s banks.

Along with graphic representations, the central bank provides simple descriptions of the data available to support financial literacy. The data is also provided in an Excel file for researchers to analyse in greater depth. “We had an internal mantra of ‘insights over information’. It’s not good enough to just put numbers in a table on a website and expect users to make sense of that,” says Irrcher.

Further:

For the dashboard to be effective, people need to access and use the information. If this includes professional investors, retail depositors and rating agencies, its effectiveness as a disciplinary force will be greater still.

The dashboard currently receives more than 11,000 visits a quarter – a large increase compared with its predecessor, which typically received about six users a day and 500 in a quarter. More than 30% of the current users are repeat visitors, which suggests a number of people are using the dashboard as a reference tool. “Based on the user statistics to date, the dashboard has successfully broadened the audience for prudential disclosures far beyond the point where it was at before. This is probably the single best indication that the dashboard is having the desired impact,” says Irrcher.

Retail depositors can access this information either directly or through “super-users”, those who use the information for their own purposes or to help others understand risks, such as rating agencies, banking academics and financial journalists, says Fiennes. This improves their ability to make informed decisions on which they bank use.

“When you look at a graphical presentation, some relationships stand out that maybe you were not fully aware of before. For example, the extent of concentration in the banking sector or interesting variations in the opinions of credit rating agencies,” explains Irrcher.

The banks can also use the dashboard to benchmark themselves within the market. “We can now see more about our competitors,” Annis O’Brien, head of external reporting at ANZ New Zealand, tells Central Banking.

Increased usage should also ensure less errors are made, and if they are, they are quickly corrected.

I just saw the dashboard website. It is indeed excellent and worthy of an award. One can look at most of the indicators across the NZ based banks. Interesting to note that two Indian banks -Bank of Baroda and Bank of India – have very high capital ratios.

All other central banks should emulate RBNZ…once again the pioneer…

Examining the trade-off between price and financial stability in India

January 21, 2019

Ila Patnaik, Shalini Mittal and Radhika Pandey of NIPFP in this recent paper find trade off between price and fin stability:

In recent years, many emerging economies including India have adopted inflation targeting framework. Post the global financial crisis,
there is a growing debate on whether monetary policy should target financial stability. Using India as a case study, we present an empirical
approach to assess whether monetary policy can target financial stability. This is done by examining the trade-off between price and
financial stability for India. Using correlation between price and financial cycles, we find that a trade-off exists between price and financial
stability. Our finding is robust to a series of robustness checks. Our study has implications for the conduct of monetary policy in emerging
economies. Presence of a trade-off may constrain the ability of a central bank in emerging economies to target financial stability with
monetary policy instrument.

Hmm..

How and why did we start collecting economics statistics (such as inflation, GDP etc.): Case of US

January 21, 2019

A really nice paper by Prof Hugh Rockoff of Rutgers Univ.

He discusses an area which is seldom discussed in economic research which is origins of statistics/data which help us understand the trends in an economy. How and why did we start collecting data on things like inflation, employment and output? He discusses the US case:

Although attempts to measure trends in prices, output, and employment can be traced back for centuries, in the main the origins of the U.S. federal statistics are to be found in bitter debates over economic policy, ultimately debates over the distribution of income, at the end of the nineteenth century and during the world wars and Great Depression. Participants in those debates hoped that statistics that were widely accepted as nonpolitical and accurate would prove that their grievances were just and provide support for the policies they advocated.

Economists – including luminaries such as Irving Fisher, Wesley C. Mitchell, and Simon Kuznets – responded by developing the methodology for computing index numbers and estimates of national income. Initially, individuals and private organizations provided these statistics, but by the end of WWII the federal government had taken over the role. Here I briefly describe the cases of prices, GDP, and unemployment.

Most of the time the origins of these stats was due to some or the other crisis. How some people (economists/statisticians) responded to calls from the polity to develop these numbers is quite a story…

Agricultural Loan Waiver: A Case Study of Tamil Nadu’s Scheme

January 10, 2019

Deepa S. Raj and Edwin Prabu of RBI have this interesting and timely paper:

This paper examines the impact and implications of Tamil Nadu’s agricultural loan waiver scheme of 2016, based on data collected through a field survey of seven districts of the state as well as farm loan transactions data obtained from select primary agricultural co-operative credit societies. The state government’s loan waiver scheme was applicable only to agricultural loans availed by small and marginal farmers, while other farmers with land holdings of above 5 acres were not eligible for the waiver benefit.

Empirical findings using Regression Discontinuity Design (RDD) suggest that in the immediate post-waiver period near the cut-off acreage of 5 acres, the probability of obtaining credit was higher for non-beneficiary farmers than for beneficiary farmers. However, the differentiation in post-waiver access to credit to the beneficiary farmer and the non-beneficiary farmer comes down as the supply of funds for agricultural loans normalises.

The paper also has a summary of the previous debt waiver schemes and their impact….

2008-18: A decade where mainstream academic world and mainstream policy world went own ways..

December 28, 2018

JW Mason gives a nice overview of macroeconomic research in the decade:

He says the macro research may not have changed in academic world but in policy world there are sure changes.

Has economics changed since the crisis? As usual, the answer is: It depends. If we look at the macroeconomic theory of PhD programs and top journals, the answer is clearly, no. Macroeconomic theory remains the same self-contained, abstract art form that it has been for the past twenty-five years. But despite its hegemony over the peak institutions of academic economics, this mainstream is not the only mainstream. The economics of the mainstream policy world (central bankers, Treasury staffers, Financial Times editorialists), only intermittently attentive to the journals in the best times, has gone its own way; the pieties of a decade ago have much less of a hold today. And within the elite academic world, there’s plenty of empirical work that responds to the developments of the past ten years, even if it doesn’t — yet — add up to any alternative vision.

For a socialist, it’s probably a mistake to see economists primarily as either carriers of valuable technical expertise or systematic expositors of capitalist ideology. They are participants in public debates just like anyone else. The profession as the whole is more often found trailing after political developments than advancing them.

……

Many critics were disappointed the crisis of a 2008 did not lead to an intellectual revolution on the scale of the 1930s. It’s true that it didn’t. But the image of stasis you’d get from looking at the top journals and textbooks isn’t the whole picture — the most interesting conversations are happening somewhere else. For a generation, leftists in economics have struggled to change the profession, some by launching attacks (often well aimed, but ignored) from the outside, others by trying to make radical ideas parsable in the orthodox language. One lesson of the past decade is that both groups got it backward.

Keynes famously wrote that “Practical men who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.” It’s a good line. But in recent years the relationship seems to have been more the other way round. If we want to change the economics profession, we need to start changing the world. Economics will follow.

Hmm..

This line-  the image of stasis you’d get from looking at the top journals and textbooks isn’t the whole picture, the most interesting conversations are happening somewhere else – is quite true. You get far more ideas reading newspapers and blogs (most of which ironically are written by top academicians) than reading journals and textbooks..

Post-Brexit, will Paris emerge as an international financial centre?

December 27, 2018

My new piece in Moneycontrol. I discuss whether Post-Brexit, Paris will emerge as an international finance centre.

 

Understanding Exchange Rates and Why They Are Important

December 24, 2018

Nice piece by Adam Hamilton of RBA:

Exchange rates are important to Australia’s economy because they affect trade and financial flows between Australia and other countries. They also affect how the Reserve Bank conducts monetary policy. This article outlines how exchange rates are measured, the different types of exchange rate regimes, the factors that influence the exchange rate and how changes in the exchange rate affect the economy.

 

The 2008 crisis: transpacific or transatlantic (savings glut or European Banking glut?)

December 24, 2018

Nice paper by Robert N McCauley of BIS.

There are two broad hypothesis which are responsible for the 2008 crisis: Savings glut of Asian economies or Banking glut of European economies:

This study analyses two hypotheses that ascribe the 2008 US financial crisis to capital inflows.

The Asian savings glut hypothesis posits that net inflows into high-grade US public bonds from countries running current account surpluses led to the housing boom and bust. An excess of savings over investment abroad led to an excess of US investment over savings.

The European banking glut hypothesis holds that gross inflows into private bonds led to the boom. Leveraging-up by European banks enabled the leveraging-up of US households.

They show the European story fits the data and trends better than Asian story. Hence, more of a European banking problem:

Gross flows from Europe better matched US mortgage market trends towards private credit risk, floating interest rates and narrow spreads. What is more, European banks produced, not just invested in, US mortgage-backed securities. Their US securities affiliates held huge exposures to such securities that deserve recognition. Furthermore, European banks’ leveraging-up also provided credit that enabled housing booms in Ireland and Spain. These findings favour the European banking glut hypothesis.

 

Rearranging the name of Consumer Financial Protection Bureau..

December 20, 2018

Came across this interesting controversy over names. Mick Mulavney, the former chief of CFPB wanted to change or rearrange the name of the watchdog to BCFP:

Mulvaney, who was installed by President Donald Trump as acting director of the bureau in November 2017, had maintained that he was only following the statute in insisting that the agency be called the Bureau of Consumer Financial Protection, or BCFP. He also rearranged the letters in the lobby of the agency’s office building.

Sen. Elizabeth Warren (D-Mass) on Monday asked the CFPB inspector general to investigate Mulvaney’s name-change decision, which she said would cost the agency between $9 million and $19 million, citing news reports.

Warren helped set up the bureau during the Obama administration in the wake of the financial crisis,

The new chief has decided to continue with CFPB:

Kathy Kraninger, the new director of the Consumer Financial Protection Bureau, is reversing the name change that her predecessor, Mick Mulvaney, tried to impose on the agency, according to an internal email Wednesday.

“I care much more about what we do than what we are called,” Kraninger wrote in the all-hands email, which was originally obtained by the consumer group Allied Progress. “As of December 17, 2018, I have officially halted all ongoing efforts to make changes to existing products and materials related to the name correction initiative.”

Kraninger’s decision to distance herself from Mulvaney, her former boss at the Office of Management and Budget who was just named acting White House chief of staff, came just a week after she was sworn in to lead the bureau.

Kraninger said that for reports, legal filings and other official business, the agency will use Mulvaney’s preferred name. “The name ‘Consumer Financial Protection Bureau’ and the existing CFPB logo will continue to be used on all other materials,” she said.

Hmm,

This reminds me of another similar story in India. The proposed name for IDFC was actually IFDC with Finance ahead of Development. The Government decided to bring D ahead of F! Thankfully, this happened before the institution came up unlike CFPB..

 


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