Archive for the ‘Financial Markets/ Finance’ Category

Why Goa’s famous Mapusa market is a perennial source of inspiration for artists?

November 23, 2017

Nice piece by Arti Das. Learn about markets via pictures.

The word market suggests a commercial place with buyers and sellers. But Goa’s Mapusa market on Fridays is a sensory experience of colours, flavours, smells and people.

A market of abundance, filled with vegetables, meat, fish, dry fish, fruits, rock salt, spices, sausages and even wooden furniture and lottery tickets, Mapusa also includes Goa’s unique and fresh produce: pyramid-shaped coconut jaggery, kokum butter, and chicken sold especially as an offering to Devchar, a local deity.

The market’s name, as also the name of the town where it’s located, Mapusa, is generally thought to be derived from the Konkani word maap, or to measure – an apt title for a space crucial for the local economy. Yet, for many people, the market is a lot more than a place of commerce.

Graphic artist Orijit Sen said that Mapusa market, unlike a museum, is a reflection of culture that is not static. “The sheer intensity of that place is amazing,” he said. “Previously the market had only traditional produce from the nearby villages, but today you get products from all over the world. That’s the reality of Goan life and culture for me. It is not static and that interests me as an artist.”

Further:

Mapusa market is an important reminder of the fact that Goa is an agrarian society, not just a tourist destination. Here, in the relatively small space, mainly women bring produce from their farms along with handmade things like chorizo, pottery, cane baskets, vinegar and pickles. Anyone can sell their produce here. One merely has to just pay a sopo orrent.

“The first thing you notice about Mapusa market is the riot of colours,” said Niyati Patre, a regular at the market. “Even though it is crowded and messy, I love to shop here mainly for the local produce, medicinal herbs, plant saplings, coconut jaggery. This place is a must-see during the purumed or provisions market, just before the monsoon. At that time it is filled with spices, kokum and local rice. The market has remained the same all these years.”

It was partly this vibrancy that inspired photographer Assavri Kulkarni, author of the book Markets of Goa, to begin documenting it over a decade ago.

Flower market. Image credit: Orijit Sen

The market signifies different things to different people. For illustrator Fabian Gonsalves, the place is filled with nostalgia and inspiration. “You could bump into that old school friend or a relative, sit for five minutes for a cup of chai, exchange stories and continue shopping,” he said. “My favourite place is the pottery section, mainly to check out any new designs, or the small vendors who sell old Goan household items for low rates, like vintage plates, locks, keys and chains.”

Superb…that is what a market is..

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How Italian banks are trying to modernise…

November 23, 2017

Valentina Za of Reuters has a piece on modernisation of banks in Italy. Right from making themselves more digital to making branches like Pizzeria, they are trying it all:

Bailed-out Monte dei Paschi, the world’s oldest bank and a bastion of tradition dating back to 1472, has entered the realms of virtual reality. It’s an unlikely sign of the times.

They are looking to catch up with European rivals in digital banking, and are reducing their dependence on lending by selling insurance and other financial products.

How this overhaul plays out could shape the sector for years to come, with those who adapt most swiftly sweeping up a larger slice of new business, say bankers and industry experts.

 Monte dei Paschi’s online arm last week launched virtual reality (VR) branches, accessed via phone app and VR headset, and said 3,500 customers had signed up in the first few hours. But other banks are moving far more aggressively in revamping their businesses.

Italy’s biggest bank, UniCredit, set a template for lenders in need of restructuring by raising 13 billion euros from shareholders this year. As well as investing 1.6 billion euros in its IT systems, it is re-training 1,500 Italian staff and moving them from administrative jobs to client-facing roles.

Mediobanca has meanwhile acquired a “robo-advisory” service, an algorithm that proposes investments to customers of its digital arm who can access it directly. It is also hiring 100 financial consultants a year to reach more than 300 by 2019 to boost assets under management.

…..

Under a 500-million-euro renovation push aimed at turning its branches into modern-day piazzas, Intesa is partnering with a pastry chef to host his patisseries from next year and recently launched its first branch with a cafe inside.

Meanwhile UniCredit opened its first branch for small corporate clients near La Scala theater in September, with a lounge area where they can hold their own meetings.

These are all adding bells and whistles. The real problem with Italian banks and other banks in trouble is imprudent banking and misgovernance. So unless we fix the basics, nothing much will change.

50 years ago: When banks closed for two days in Pakistan following devaluation on 19-Nov-1967..

November 21, 2017

India devalued the Rupee in 1966 amidst fair bit of drama.

Pakistan followed in 1967 with its own set of drama:

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European Banking Authority to be relocated from London to Paris: History of International Financial Centres remains exciting..

November 21, 2017

Post-Brexit, some of the EU agencies have to be relocated from London to other places. Actually there are just two agencies: European Medicine Agency and European Banking Authority.

European Banking Authority was established in 2011 post Eurozone crisis. Its objectives are:

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Lucknow Bank of Montreal celebrates 200th birth anniversary?

November 16, 2017

For a moment I was totally surprised to come across this news. Lucknow Bank of Montreal? How come one knows nothing about this bank>

It took me time to understand that Bank of Montreal recently completed 200 years of existence. And there is a place in Canada named Lucknow which was named after the Indian counterpart:

The village was named after Lucknow, India where, the Indian Rebellion of 1857 took place between the Indian rebels and the East India Company army. Lucknow takes the name of “Sepoy” which refers to the Indian foot soldiers who fought on the British side in the Relief of Lucknow. There are two theories about the origin of the name of Campbell Street-one is that the main street was named after Sir Colin Campbell, leader of the relief forces. The other is that the street is named after Malcolm Campbell, the community’s first merchant. Several Lucknow streets bear the names of some of the British generals involved in the Relief of Lucknow: Campbell, Ross, Outram, Havelock, Willoughby, Rose and Canning.

Eli Stauffer first settled the unnamed land that was to become Lucknow in 1856 where he constructed a dam and built a sawmill. In 1858, Ralph Miller purchased a parcel of Stauffer’s land and built “Balaclava House”, a log tavern. James Somerville purchased the Stauffer mill and land rights in 1858 and had village lots surveyed, earning Somerville the title of the “Father of Lucknow”. With the “Gravel Road” open into Kinloss in 1866, the village continued to grow and had a population of 430 in 1868.

Wow! Imagine how Lucknow inspired naming a village in Canada in 1857!

So, it is the Lucknow branch of the Bank of Montreal which celebrated 200 years of the bank’s anniversary…

How Newton learned about financial gravity the hard way…

November 13, 2017

Interesting post by Jason Zweig (HT. V. A. Nageshwaran).

Zweig picks this paper by Andrew Odlyzko of  University of Minnesota which looks at Newton’s investments and eventual losses in South Sea Bubble :

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History of Delaware as a banking haven…

November 9, 2017

Interesting article on US regional banking history. It is mainly about a fraudulent bank in Delaware but also tells how Delaware was a banking haven in 1800s. The region today is a corporate tax haven showing how history matters.

Most banks in Delaware are ethical:

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Global real interest rates since 1311: Renaissance roots and rapid reversals

November 6, 2017

Superb insights by Paul Schmelzing in Bankundergound blog.

With core inflation rates remaining low in many advanced economies, proponents of the “secular stagnation” narrative –that markets are trapped in a period of permanently lower equilibrium real rates- have recently doubled downon their pessimistic outlook. Building on an earlier post on nominal rates this post takes a much longer-term view on real rates using a dataset going back over the past 7 centuries, and finds evidence that the trend decline in real rates since the 1980s fits into a pattern of a much deeper trend stretching back 5 centuries. Looking at cyclical dynamics, however, the evidence from eight previous “real rate depressions” is that turnarounds from such environments, when they occur, have typically been both quick and sizeable.

Despite much research into the causes of real rate distortions in recent years, the discussion has arguably suffered from a lack of long-term context. Key additions – such as the  influential BoE staff working paper confirming the role of excess savings and lower investment preferences – typically trace back their observations to the late Bretton Woods period, or at best to Alvin Hansen’s time in the interwar period. Hamilton et al. and Eichengreen are rare exceptions in their inclusion of 19th century data.

Therefore, the majority of work on secular stagnation– and with it the debate regarding bond market valuations  – fails to consider the deeper historical rate trends. In contrast, a  multi-century dataset  offers the opportunity to look at cyclical behavior and the dynamics of reversals from earlier real rate depressions.

Quite a few charts and details there…Conclusion:

On aggregate, then, the past 30-odd years more than hold their own in the ranks of historically significant rate depressions. But the trend fall seen over this period is a but a part of a much longer ”millennial trend”. It is thus unlikely that current dynamics can be fully rationalized in a “secular stagnation framework”. Meanwhile, looking at past cyclical patterns, the evidence suggests that when rate cycles turn, real rates can relatively swiftly accelerate.

Hmm…

Changing business models in international bank funding..

November 6, 2017

Leonardo Gambacorta, Stefano Schiaffi and Adrian Van Rixtel analyse the changes in this paper:

This paper investigates the foreign funding mix of globally active banks. Using BIS international banking statistics for a panel of 12 advanced economies, we detect a structural break in international bank funding at the onset of the great financial crisis. In their post-break business model, banks rely less on cross-border liabilities and, instead, tap funds from outside their jurisdictions by making more active use of their subsidiaries and branches, as well as inter-office accounts within the same banking group.

There is a difference between international banks and MNC banks:

Business models in global banking are generally distinguished between multinational and international banking (McCauley et al., 2010; Gambacorta and Van Rixtel, 2013).2 Multinational banks maintain sizeable foreign branches and subsidiaries in multiple jurisdictions, matching largely local assets and liabilities. In contrast, international banks conduct cross-border business predominantly from the country where they are headquartered or from international financial centres.

Then there is difference between centralised and decentralised models of funding. One can say international banks mostly use centralised models and MNC banks use decentralised models but there could be exceptions as well.

There are some other interesting details as well in the paper barring empirics alone…

From Shakespeare to JUNK: A History of Drama and Finance

November 3, 2017

Here is a list of theater plays which have looked at role of finance in society. But all are based in US:

Ayad Akhtar’s new play, Junk, explodes onto Broadway this season, bringing with it an important conversation about the history of our current corporate economic dilemma and how we got here.

It’s 1985. Robert Merkin, the resident genius of the upstart investment firm Sacker Lowell has just landed on the cover of Time Magazine. Hailed as “America’s Alchemist,” his proclamation that “debt is an asset” has propelled him to dizzying heights. Zealously promoting his belief in the near-sacred infallibility of markets, he is trying to re-shape the world.

JUNK is the story of Merkin’s assault on American capitalism’s holy of holies, the “deal of the decade,” his attempt to takeover an iconic American manufacturing company and, in the process, to change all the rules. What Merkin sets in motion is nothing less than a financial civil war, pitting magnates against workers, lawyers against journalists, and ultimately, pitting every one against themselves.

Set more than 30 years ago, this is a play about how, while most of us weren’t watching, money became the only thing of real value.

Since the dawn of the theatre, many playwrights and composers have explored the world of finance. Whether corporate or personal, money matters have seeped their way into even the unlikeliest of works. As one of the prime motivators for most humans. matters of finance have served as the central driving force for some of the stage’s most memorable characters.

Whether they are swimming in cash, scrounging for change in the laundry cup, or even committing murder for it, money has been the prime motivator for some of the stage’s most famous tales.

Let’s take a look back at some of the theatre’s most popular visits to the world of cash and commerce…

Hmm..

Zimbabwe’s financial system is living on borrowed time – and borrowed money

November 1, 2017

Prof Roger Southall of  University of the Witwatersrand in South Africa has a piece on Zimbabwean economy.

Much of it is known but still worth repeating as so called leaders do not just learn lessons from monetary history:

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Internal capital markets in times of crisis: the benefit of group affiliation in Italy

October 27, 2017

First research says raising capital frm internal sources like parent firms. group firms etc is bad and  firms should raise capital only from external sources. Then comes a crisis and it says internal capital markets are fine.

Raffaele Santioni, Fabio Schiantarelli and Philip E. Strahan look at Italian case:

Italy’s economic and banking systems have been under stress in the wake of the global financial crisis and the euro crisis. Our results suggest that firms in business groups have been more likely to survive in this challenging environment than unaffiliated firms. Better performance stems from access to an internal capital market, and the survival value of groups increases, inter alia, with group-wide cash flow.

We show that actual internal capital transfers increase during the crisis, and these transfers move funds from cash-rich to cash-poor firms and also to those with more favourable investment opportunities. The ability to borrow externally provides the internal capital market with additional funds, but sharing external capital becomes less important during a crisis. Our overall results highlight the benefits of internal capital markets when external capital markets are tight or distressed.

 

Lessons from the Old Masters on Assessing Equity and Efficiency: A Primer for Fiscal Policymakers

October 4, 2017

IMF Working paper by Vitor Gaspar,  Paolo Mauro and Tigran Poghosyan:

How can a society’s well-being be measured to include not only average incomes but also their distribution? How can the effects of policies be assessed by considering both equity and efficiency? This primer outlines the seminal contributions of influential economists of the past, including Arthur Okun, who developed a simple method to elicit people’s preferences regarding redistribution, and Anthony Atkinson, who showed how equity and efficiency can be measured simultaneously and summarized in a single, intuitive index expressed in monetary units (such as dollars). These methods are applied to recent data to gauge how countries fare when both mean incomes and their distribution are considered together, and to a hypothetical tax-and-transfer scheme assessed through a general equilibrium model for household-level data.

Should read this carefully..

How the CEO’s cultural heritage affects bank performance under competition…

October 4, 2017

Louis Nguyen, Jens Hagendorff and Arman Eshraghi have this interesting piece:

Given the technology at hand, why don’t the equity markets move to a T+0 settlement cycle?

September 28, 2017

This blog pointed earlier to how US is moving to a T+2 settlement in equity markets whereas India had it more than a decade ago.

JP Koning asks why don’t we move to a T+0 settlement cycle given we have the technology now? He says there is a reason why these systems are slower. The idea is to settle and net transactions at the end of the day rather than immediate to avoid repitition:

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Promoting Hong Kong as a hub for Corporate Treasury: Issues and Solutions

September 20, 2017

A nice speech from Normal TL Chan, CEO of the Hong Kong Monetary Authority.

He points how HKMA found out that taxation prevented Corporates to set up Treasuries in HK. Then they urged the govt to rectify the same:

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Bundesbank at 60: each country gets the inflation it deserves…

September 19, 2017

I just wrote y’day about how much Bundesbank matters to ECB policy and yet no German central banker is primed for the top job at ECB.

Least did I realise that year 2017 happens to be 60th anniversary of Bundesbank. Jens Weidmann, the chief of the central bank pays tribute and shares some fascinating history:

The Bundesbank first saw the light of the world on 4 July 1957, the day on which Germany’s Bundestag adopted the Bundesbank Act – alongside the Antitrust Act. Writing at the time, the Frankfurter Allgemeine Zeitung newspaper remarked that this day had witnessed “the adoption of two crucially important pieces of basic legislation for our entire economic system”.

When the Bundesbank Act came into force on 1 August 1957, the Bank deutscher Länder, the Land Central Banks and the Berlin Central Bank were merged to form a single institution, the Deutsche Bundesbank.

This new institution took over the headquarters of the Bank deutscher Länder in Frankfurt am Main. I wonder if you are aware that it almost ended up being based in Hamburg. Back then, the British forces were pushing for the Bank deutscher Länder to make Hamburg its home. But as it turned out, the Americans got their way, and the institution was established in their preferred location of Frankfurt, inside the US occupation zone.

That marked a major turning point for Frankfurt. The city evolved into Germany’s financial centre and later also succeeded in attracting the European Central Bank. But I don’t think Hamburg lost out in any way – Hamburg is an appealing, vibrant and economically successful location as it is.

He says though location of Frankfurt has little to do with Bundesbank’s success:

One thing I am quite certain about is that the choice of location did not influence the Bundesbank’s success, which I think can be put down to three key factors:

  • Its narrow mandate to preserve price stability,
  • Its independence, which allows it to pursue this objective even against political influence, if need be, and
  • An appreciation of the need for stability throughout much of the German population, which gave the Bundesbank the popular backing it needed to pursue its monetary policy objectives.

Ladies and gentlemen, the fundamental problem facing monetary policymakers is that they are caught in a conflict of objectives. In the short run, staving off inflation can sap economic momentum and drag on employment. On the other hand, the central bank can temporarily dampen unemployment if it tolerates a higher rate of inflation. This phenomenon is what economists call the Phillips curve relationship. It is a concept which crops up in a famous remark uttered by Helmut Schmidt in the early 1970s, when he once said that “I would rather have 5% inflation than 5% unemployment”.

An inverse relationship exists between inflation and joblessness because an unexpected increase in inflation pushes down real wages, lowers the price of labour, and thus tends to lead to a drop in unemployment.

But that only happens in the short run. Because employees will push for the higher rate of inflation to be offset, thus moving real wages and unemployment back to where they were before. There is a shift in the Phillips curve.

And if the unions, fearing a further increase in the rate of inflation, push through even higher wage increases, unemployment will rise as a result.

Let me use an everyday situation to shed more light on how this principle works. Imagine a person who is habitually late for work. Now, their partner might be able to outsmart them once by moving the hands of the kitchen clock forward by five minutes. But in the long run, that person will get used to the new time, so the clock will have to be put forward even more to prevent that person from leaving the house late in future.

That’s exactly how it is with monetary policy. If you fire up the printing presses to fend off unemployment, you will end up mired in high inflation and high unemployment.

He brings some episodes from German history which affirmed this fight for price stability:

Bearing that in mind, it was undoubtedly crucial that the Bundesbank, just like its predecessor, the Bank deutscher Länder, had independence from political control. Because German post-war history also bears witness to a number of situations in which the Bank was forced to head off political demands to loosen monetary policy.

One such situation that springs to mind is the famous “Gürzenich speech” which Konrad Adenauer delivered shortly before the Bundesbank was established. At that time, the Bank deutscher Länder had switched to a tight monetary policy stance because there was a risk that the brisk external demand might cause Germany’s economy to overheat. Konrad Adenauer, speaking in 1956 at Cologne’s Gürzenich Hall, warned that the tight policy would be “disastrous … for the man on the street”. A year later, the SPIEGEL magazine looked back at these events and wrote: “What is more, the credit constraints later turned out to be absolutely correct; they came just in time to prevent the boom from morphing into an inflationary economic gallop.”

Another situation I can think of occurred in the year 1979, when the government drummed up sentiment against an increase in the discount and Lombard rates. Manfred Lahnstein, State Secretary in the Federal Ministry of Finance, presented his critique before the Central Bank Council and then went public with his misgivings. He expressed concerns that the policy rate hikes might endanger the economic upswing. As it turned out, the German economy expanded at a real rate of 4½% in 1979, even though policy rates were increased. The Bundesbank, then, did well to prevent the global inflationary tendencies from spilling over into Germany more strongly than they did.

Because the Bundesbank held its ground in both these cases and refused to be knocked off course, the Die Welt newspaper once dubbed it in retrospect the “bulwark on the Main”.

That was praise indeed for the Bundesbank, of course. For it had resisted the political pressure not because it was indifferent to the macroeconomic prospects, but it firmly believed, even back then, that monetary stability is the best contribution a central bank can make in the long run towards high levels of employment and sustained economic growth.

He also adds that what is also central to this is people’s appreciation of merits of stable currency.

But I am convinced that the Bundesbank only prevailed in its skirmishes with politicians because it could count on the general public’s appreciation of the merits of a stable currency. This brings me to the third of the key factors in the Bank’s success which I mentioned earlier on. A policy strictly geared to stability only stands a chance of success if the general public is sufficiently aware of the merits of stability. That’s because, in the long run, it is not right for democratic states to have a monetary policy which runs counter to public opinion.

On this topic, Otmar Issing once said that each country gets the inflation it deserves.

This is mainly due to German hyperinflation of 1920s continue to remain etched in people’s memories…

He then goes on to discuss current crisis and ECB’s role so far…

Superb throughout.

 

Primer on Islamic Banking

September 19, 2017

Superb primer by Arshadur Rahman of Bank of England. It explains the basics of Islamic Banking and does a great job.

Also interesting to know BoE planning to introduce a Shari’ah compliant facility. This will faciliate UK Islamic banks hold central bank assets:

  • ​Islamic banking is a relatively young but growing sector of the broader financial services industry. Numerous banks around the world offer Islamic, or Shari’ah compliant, financial products.
  • Some central banks offer Shari’ah compliant liquidity facilities to Islamic banks, affording them similar flexibility to other firms in managing their liquidity. Such facilities avoid the payment or receipt of interest, which is otherwise the most common basis for operating a liquidity facility.
  • The Bank is establishing a Shari’ah compliant facility, specifically a deposit facility to allow UK Islamic banks to hold central bank assets as part of their liquid assets buffer. This article explores the various ways in which this can be done, along with the model the Bank has chosen to adopt.

How religions have shaped all these banking and financing cultures and institutions..

Did Free Banking Stabilize Canadian NGDP?

September 15, 2017

Interesting post by Prof George Selgin. Selgin counters view of a blogger who says that Free banking between 1867-1935 in Canada did not stabilize its GDP.

About a month ago, a Facebook post drew my attention to an attempt, by Casey Pender of Prague’s CEVRO Institute, to test my thesis that free banking contributes to NGDP stability using statistical evidence from Canada, which had a relatively free banking system between 1867, the year of Canada’s confederation, and 1935, when the Bank of Canada was established.

In “Some Odd Data on Free Banking in Canada,” a blog post discussing his preliminary findings, Pender reports that he had hoped to

be able to show that Canada, from 1867-1935, had a more stable NGDP percent change from year to year than the U.S. And I thought this would be an easy and quick historical example that I could use to bolster my underlying theory. But things seem like they just ain’t so.

Instead, in comparing the fluctuations of Canadian and U.S. NGDP using data from the Macrohistory database, Pender found that Canadian NGDP was not less but more volatile. Moreover that conclusion held not just for the full 1870-1935 sample period, but also for the sub-period 1870-1914, which omits various extraordinary Canadian government interventions during WWI and the Great Depression.

Here is Pender’s chart showing his results from the full sample period:

 

 

 

 

 

 

 

 

Having now been made privy to these findings, I suppose that you are looking forward to seeing ol’ Doc Selgin eat humble pie. Well, you can quit holding your breath ’cause that won’t be happening anytime soon. In fact, for the moment at least, I remain thoroughly impenitent.

He says one must not just look at changes in NGDP but look at the relationship between those fluctuations and underlying changes in Canada’s monetary base. He shows that this relationship is much stronger in Canada than US…

In the end:

In brief, both our Canadian regression results themselves, and a comparison of those results with results using U.S. data, seem fully consistent with the theory that free banking helps to stabilize the relationship between NGDP and the monetary base.

Does that mean they confirm the theory? Alas, it doesn’t. Freedom in banking is but one of many differences between the pre-WWI Canadian system and its U.S. counterpart. Furthermore, even if Canada’s more stable NGDP-M0 relationship were in fact due to its having had a relatively free banking system, it wouldn’t follow that my theory is correct. Free banking could well have contributed to the stable relationship in question for reasons apart from the one my theory points to. We know, for example, that branch banking — itself an element of free banking — made Canada’s system less fragile, and therefore less vulnerable to financial crises, than the U.S. system. We also know that financial crises tend to involve a collapse in bank credit and spending. So the relative stability of the Canadian NGDP-M0 relationship, instead of reflecting a tendency for changes in M to offset opposite changes in V, may instead simply have reflected a relative lack of banking crises and associated increases in the ratio of bank reserves to bank credit.  Although all this is still good news for fans of free banking, it leaves my particular hypothesis unproven.

In short, while my theory has yet to be discredited, it also has yet to be confirmed. I hope that either Mr. Pender or some other enterprising econometrician will eventually settle the matter, one way or the other.

Hmm..

75th anniversary of Bank of China branch in Sydney and some interesting history…

September 15, 2017

Philip Lowe, chief of Reserve Bank of Australia shares some history from the Archives at the 75th anniversary.

Back in 1940s it was much easier to open a bank branch in Australia and tougher for people to travel to the country. How global banks and finance is built over the years is a tale of many a struggle:

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