Archive for the ‘Financial Markets/ Finance’ Category

How Swiss are trying to protect their traditional banking from the digital banking force?

January 19, 2018

Interesting piece by Marcia Christoff-Kurapovna.

There is some EU directive against which has unsettled Swiss bankers:

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History of macroeconomic models from 1930 to today..

January 18, 2018

This is an interesting PPT from Benjamin Moll of Princeton Univ:

The Main Point of My Talk
• Macroeconomics and inequality is a two-way street
inequality ⇐⇒ macroeconomy
1. macroeconomic shocks and policies affect inequality
2. inequality affects macroeconomic aggregates
• This idea may sound obvious to you but  it only made its way into mainstream macro relatively recently
• lots of people (economists, journalists, …) frequently forget
• Another theme: large gap between  
• current research in academic macroeconomics
• macroeconomics in media/blogs, undergraduate teaching

One atleast gets some clarity about the different models. He divides these models across 3 generations.

Lots to ponder and think about.

Banking deserts in US are literally in deserts only…

January 17, 2018

Interesting post on NY Fed’s Liberty Street blog.

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25 years ago: When Credit Suisse stole a march on its larger rival UBS

January 10, 2018

Interesting bit of banking history from Switzerland:

UBS was so sure it had won that it had celebratory champagne cooling. But then Credit Suisse stole a march on its larger rival – a victory which set up today’s face-off between the two Swiss banking giants. 

Twenty-five years ago, Credit Suisse took over Volksbank, then Switzerland’s fourth-largest bank. The smaller lender was vulnerable after becoming ensnared in the collapse of the housing bubble in the 1990s. 

The news followed an artful and bitter takeover battle between two titans, which reads to their rivalry today. Volksbank was also the starting shot of a years-long period of consolidation among Swiss banks, a full five years before UBS’ historic mega-deal with Swiss Bank Corp., as finews.asia reported last month.

Both UBS’ and Credit Suisse’s global standing in private banking and investment banking have their roots in the shake-out to hit Swiss banking in the 1990s.

 

When a bank sponsors a beauty pageant: Case from Nigeria…

January 9, 2018

Interesting bit of story:

Heritage Bank Plc has said its support for the 2017 yearly beauty pageant is all about empowerment of women, as part of sustainable ways of banking.

The Head of Corporate Communications of Heritage Bank, Fela Ibidapo, also told journalists that the bank’s partnership with the organisers was also a revival of the tradition that the organisers were known for.

“Our involvement in this is not because of beauty per se. It’s primarily to empower ladies and women generally to always put in their best in whatever they do to make a living,” he said.

Ibidapo said that while the impact of the initiative might not be so visible in the short-term period, it would surely impact positively on their contributions to the nation-building process in the long run. 
 
The Chairman of Folio Media Group- the organizers, Fidelis Anosike, said the group would use the Miss Nigeria pageant to create a strong female platform.

Further:

A former Miss Nigeria (1979), Mrs. Helen Prest, observed that Miss Nigeria was a platform for empowering women, noting that before the advent of social media, Miss Nigeria was the social platform for young women to dream and make their dreams come to realities.
 
She said she was happy that the pageant was being revived by the new management of the Daily Times because it provides opportunities for young girls who are polished, good mannered, well- spoken and poised to attain national recognition by drawing attention to causes and empowerment for women.

Not sure how to react to such stories …

Just as there are stock market cycles, there are regulatory cycles of harsh and light regulation…

January 2, 2018

A lot of financial bubbles are linked to regulatory cycle. In order to invite participation, regulators start with easier/light regulation. This leads to rise in financial activity and build up of bubble. The idea is to take the punch bowl away but one rarely has the courage to do given the sentiment. Then eventually the bubble bursts and the regulatory cycle tightens. As, the activity slows down the regulator again lightens the load and the cycle again resumes…

In this article Securities and Exchange Commission of Pakistan (SECP) is going through a similar cycle (HT: Prof JR Varma):

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The rate of return on key asset markets in advanced economies from 1870-2015…

January 2, 2018

I have just started to read this long paper by Òscar Jordà, Katharina Knoll, Dmitry Kuvshinov, Moritz Schularick, Alan Taylor.

But they just put the summary on voxeu.

They find equity and housing give similar returns and surprisingly volatility is much higher in housing, One would expect equity to have lower volatility as one has the option to diversify in this market. Then even in bond markets, volatility is high making it even worse for bondholders compared to equity ones. Then rate of return on capital is much higher than rate of growth than Piketty showed in his research.

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A potpourri of crazy economic realities that can be explained by simple demand and supply…

December 26, 2017

Ajit Ranade in this piece:

The year is ending and the holiday spirit is upon us. So rather than discuss some glitches in GST implementation or what to expect in the upcoming Union Budget, here is a potpourri of interesting and somewhat weird economic facts. They are not really that weird or crazy, once you work through supply and demand logic. So think of it as some stretching exercise for your economics muscles.

1. Sensex at new record high

The stock market index reached a new historic peak of 33,940 this week. The headlines usually are breathless. The financial news channel say “there was a wave of buying today”, indicating strong demand for shares. Obviously, if share prices are going up, then there must be a huge demand, and hence a strong wave of buying.

But wait a minute. In the share market, you cannot buy unless there is a seller. So why don’t the channels scream “there was a wave of selling today”! Indeed on any given day hundreds of millions of shares are traded. When offer price increases and buyers respond, the price starts trending up. If demand is strong, then price keeps going up.

There is anonymous, electronic order matching between sellers and buyers of shares, who are making offers and counteroffers. So remember, prices are going up, but lots of people are selling.

🙂 There are several others.

Just that the moment papers scream -“there was a wave of selling today” – the sentiment could just be reverse and lead to panic of sorts.

Finance is a one way street. Despite there being sellers on the other side one has to always pitch the demand/buyer side of the story. Most research reports are just “buy” with very few saying “sell”. The whole idea is to keep the sentiment going on one direction of buy despite the fact that for every buyer there is a seller..

Building a Sovereign Benchmark yield curve: Tunisia edition…

December 22, 2017

Usually having some form of Sovereign yield curve is one of the first building blocks of a financial sector. It forms the basis on which multiple financial instruments are then priced and traded. But then this bit is taken for guaranteed and hardly the focal point for any discussion om financial sector developments.

Thus it was interesting to read this bit from European Bank for Reconstruction and Development (EBRD). EBRD helped the Tunisian government develop its yield curve:

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Crisis and Response 2008–2013: Perspective from Federal Deposit Insurance Corporation (FDIC)…

December 22, 2017

The central banks are always in the thick of things during both good and bad times. Most commentary is driven from their perspective. However, in US case typically FDIC plays a fairly crucial role. It has to deal with the muck created by policies of both central banks and the government.

FDIC has released a report giving its perspective on the 2008 crisis.

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Martin Luther King’s 95 theses to protest against catholic church vs. Steve Keen’s 33 thesis to protest against economics

December 19, 2017

Brilliant post by Frances Coppola.

How Prof Steve Keen who has long dissented against current economics teaching has taken a leaf from one one of the buggest dissents/protests in human history:

Five hundred years ago, so legend has it, a dissident priest called Martin Luther nailed a list of 95 “theses” to the door of the Castle Church in Wittenburg. His action launched the Protestant Reformation. 

Last week, the dissident economist Steve Keen “nailed” a list of 33 Theses to the door of the London School of Economics. His aim was to launch a Reformation in economics as significant as the religious Reformation that Luther started. It was a bold gesture.

Wow!

However, Coppola finds the the 33 theses disappointingt:

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Changing history of Financial centres: Hong Kong set to lose global IPO crown as New York and Shanghai rise…

December 19, 2017

History of financial centres has been a long drawn one and is one of the most interesting aspects of finance. How and why global financial activities cluster in a few places across the world? It is a combination of both political, economic and geographic which makes these so called global financial centres. What is also interesting how these centres keep changing with one rising over the other.

Just recently, we saw how Paris got a shot in the arm in in its bid for global financial centre as European Banking Authority shifted from London to the French capital. France has long hoped to compete with the Britain over control of global finance. It was nowhere in the race till Brexit happened.

For most part of the history till mid 20th century, Asians were nowhere in the race in the global finance. This began changing as Tokyo emerged as an alternative as rank of Japan surged in the global economy rankings. Though, what completely surprised was the way Hong Kong and Singapore shaped as global financial centres. Unlike other financial centres which grew as their home countries grew in global rankings, these two countries were hardly much in economic size but captured the imagination of financial firms via their superior infrastructure and legal matters. It was far easier to raise funds in these two places than other centres and eventually became the preferred destinations. Earlier, the choice before an international firm wanting to raise resources was mainly between London and New York/ Now they could not ignore Singapore and Hong Kong from their list. And like most competitions this one kept the incumbents on toes.

So when one came across this news that HK loses its equity IPO rankings to NY and Shanghai (surprise!), it made an interesting read. It is interesting to note the rise of Shanghai in these rankings. HK enjoyed a long term advantage over Shanghai on financial matters due to British connections/legacy etc. Those advantages seem to have gone away now…

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Free Riding in Finance: A Primer

December 19, 2017

Nice post on money and banking blog:

“The problem of the ‘stability commons’ is that anybody who could deplete the [financial] system’s resilience needs to be within the broad scope of the regime for stability.” Paul Tucker, October 2015.

Many features of our financial system—institutions like banks and insurance companies, as well as the configuration of securities markets—are a consequence of legal conventions (the rules about property rights and taxes) and the costs associated with obtaining and verifying information. When we teach money and banking, three concepts are key to understanding the structure of finance: adverse selection, moral hazard, and free riding. The first two arise from asymmetric information, either before (adverse selection) or after (moral hazard) making a financial arrangement (see our earlier primers here and here).

This primer is about the third concept: free riding. Free riding is tied to the concept of a public good, so we start there. Then, we offer three examples where free riding plays a key role in the organization of finance: credit ratings; schemes like the Madoff scandal; and efforts to secure financial stability more broadly.

……

Like adverse selection and moral hazard that arise from information asymmetry, free riding poses serious problems both for providers of financial services and for governments wishing to secure financial resilience. Rules and practices—such as the role of independent custodians in asset management—continue to evolve to limit the impact of free riding. In theory, technological progress that lowers information costs helps overcome information asymmetries. However, the distortions arising from free riding likely will persist so long as there are fixed costs to producing financial information, and the resulting information is not excludable.

The tragedy of the financial stability commons poses a particularly important challenge that, in a globally integrated financial system, requires an internationally coordinated response.

Getting to basics of finance…

How a Philadelphia nun faced up to Wall Street and became a face of conscientious capitalism?

December 18, 2017

The history of banking and finance tells us how the church has always had this discomforting relationship with the financial world.

This piece mentions about a Sister Nora Nash of Philadephia, who manages the church fund. Using both moral authority and investor power, she tries to ask tough questions to American CEOs (capitalists):

…..Nash’s current path leads inside of some of the world’s most exclusive boardrooms. Supported by her partners at the Interfaith Center on Corporate Responsibility, Nash has met with CEOs including Jamie Dimon (JP Morgan Chase), Brian Moynihan (Bank of America), Lloyd Blankfein (Goldman Sachs), Marilyn Hewson (Lockheed Martin), John Christmann (Apache Corporation) and Thomas Fanning (Southern Company).

Nash and her deputy, Tom McCaney, average about 90 actions – company dialogues or shareholder resolutions – per year.

“I dialogue with Lockheed Martin, Northrop Grumman and Boeing,” said Nash. “With the tobacco people. We do a lot of work in the oil and gas industry, because of the fracking and pipelines. Tom does all the health work, healthier food. I do climate change and of course a lot with banks. We are spread in a lot of areas.”

In an age when corporations are first in line for tax cuts but seemingly unaccountable when an economy sinks or an election tilts, Nash has sought leverage by joining the one group that big companies still have to listen to: shareholders.

Owning shares gives Nash an audience where her message might otherwise be unwelcome: shareholders can confront executives at annual meetings. They can form voting blocs to demand transparency. And they can draw corporate leaders into dialogues that sometimes lead to change.

“We own corporations in every sector,” said Nash, who welcomed the Guardian recently to the imposing stone convent where she did her novitiate almost six decades before. The building’s grand dome overshadows a cemetery where Mother Francis, the German immigrant who founded the order in 1855, is buried.

The idea is not to confront:

The goal is not confrontation, Nash said, but to work together with companies to encourage stronger environmental policies, better product safety, cleaner supply chains and less preying on customers.

“I would encourage companies to go back and look at their ethical standards, and look at the consumer,” Nash said. “They have a commitment to the consumer.”

Her vow of poverty has not prevented Nash, who migrated to the United States in the 1950s from Ireland, from mastering the subtleties of securities regulations.

Filing the kind of shareholder resolution that can put pressure on a board of directors requires ownership of at least $2,000 in company stock – a hurdle the nuns appear to have no problem clearing.

“Our portfolio was established in the early 80s, and it was established for retirement, and also good works,” Nash said. “We do a good bit of community development and we are very much a part of impact investing. “It’s been doing very well, but I wouldn’t be allowed to give you numbers.”

Nash recently nailed down a commitment from Wells Fargo, which last year was fined a record $185m for creating millions of fake bank and credit card accounts, to hold a vote at its 2018 annual meeting on publishing a report on fraudulent activity within the company.

“They’ve got to get to the root causes,” said Nash, who met earlier this year with the Wells Fargo CEO, Timothy Sloan. “Where were the auditors, where were the board members? How could it have gone on for so long and not been found? That’s what we’re pressing for.”

Hmm..

How the church and the world of finance continue to have this topsy-turvy relationship for many years…

Does finance lead to economic growth? Summary of literature…

December 12, 2017

Alexander Popov of ECB looks at the biggest question on finance: does it lead to economic growth and if yes how?

He sums up the literature so far:

This paper reviews and appraises the body of empirical research on the association between financial markets and economic growth that has accumulated over the past quarter-century. The bulk of the historical evidence suggests that financial development affects economic growth in a positive, monotonic way, yet recent research endeavors have provided useful and important qualifications of this conventional wisdom. Moreover, the proliferation of micro-level datasets has enabled researchers to study more precise links between theory and measurement. The paper highlights the mechanisms through which financial markets benefit society, as well as the channels through which finance can slow down long-term growth. 

Nice bit..

Are Bank Holding Company Structures Still Beneficial?

December 6, 2017

Julie Stackhouse, Executive Vice President of St Louis Fed posts about structure of Bank Holding Company. They were popular till Dodd Frank Act was enacted:

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Primer on European Banking Union..

December 6, 2017

Riksbank economists – Markus Ehrenpil and Mattias Hector- have a short primer on the EBU:

The Banking Union is the result of the work within the EU on improving regulation and supervision of the financial sector that began after the financial crisis. The purpose of the Banking Union is to create a structure for the joint supervision and management of banks in crisis, together with a joint system for deposit insurance. Large parts of the Banking Union are now in place, but some work remains to be done before the European Banking Union is fully up and running.

Just like anything European, it is quite complicated. We see both forces of making things European yet keeping them local remaining…

Stories of banker turned monk and monk turned banker..

December 1, 2017

Two interesting stories:

 

How financial systems work: evidence from financial accounts (History of Funds Flow accounts..)

December 1, 2017

Bank of Italy is conducting a conference by the same title.

Here is the speech/opening remarks by  Luigi Federico Signorini, Deputy Governor of the central bank. He points to this interesting history of development of financial accounts, how central banks warmed up to these accounts, the decline of them in research and again their importance post-2008 crisis:

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How to get rid of banking supervisors?

November 24, 2017

Central bankers are increasinly talking about culture, incentives etc. There have been two recent speeches which revisit these topics using bank supervision lens. First by Norman Chan of HKMA and second by Andreas Dombert of ECB.

Norman Chan of HKMA in this speech goes back to banking history when there were no banking supervisors:

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