History of Jammu and Kashmir Bank: 80 years of Hope and Crisis

August 13, 2019

J&K Bank is a unique bank as unlike other public sector banks, it is owned by the J&K State and not central government, yet is classified as a private bank. The Bank has played a pivotal role in financial development of the State.

With J&K to become a Union Territory, the future ownership of J&K Bank is in question. The central government has promised to restore J&K to full statehood. Thus, it is unclear whether the central government will use this opportunity to transfer the ownership of the bank to itself or allow it to continue as a State government bank, under some special circumstances.

For time being, the bank is under investigation for frauds and illegal recruitments.  It is also reeling under NPA crisis as all banks (explained below).

This post tracks the history of J&K Bank showcasing its importance to the region.

Origins of the Bank

Most banks in India emerged due to presence of indigenous banks which charged high interest rates. This story applies to J&K as well. Though, before advent of J&K Bank, few banks opened branches in towns of Jammu, Srinagar and Gulmarg. In particular, Lloyd Bank (an exchange bank) and Imperial Bank had branches in both Gulmarg and Srinagar. Lahore based banks, Punjab and Kashmir Bank and Punjab National Bank had opened branches in both Jammu and Srinagar. However, the presence of formal banking was not enough.

This led Maharaja Hari Singh to think of opening a local bank. The sources suggest that Maharaja had requested Lala Harikshekn Lal, founder Punjab National Bank who called the idea as unpractical.  Later, Sir Sorabji Pochkanwala, founder, Central Bank of India guided on establishing the bank. After deliberating options of whether it should be a fully-State of Private bank, they settled for ownership of both State and public in the bank. They perhaps drew inspiration from other Princely States such as Baroda, Patiala, Indore etc which had already established State-sponsored banks.

The J&K Bank was registered on 1-Oct-1938 and commenced operations from Jul-1939 onwards. Its head office was in Srinagar and had eminent persons as shareholders and provided employment to local people.

The opening of J&K Bank led to establishment of another local bank: Federal Bank of Srinagar which started in 1945. It also had 7 branches and reached out to smaller locations such as Shopian, Sopore and Udhampur. The bank started with capital of Rs 1.67 lakhs and had deposits of Rs 23 lakhs in 1946. The deposits declined to 9 lakhs as it faced withdrawal of deposits due to Partition and political turmoil in Kashmir. The bank disappears from RBI records from 1950 inwards and it is unclear whether the bank was merged with some bank or liquidated. The region also saw Cooperative Banks opening in places such as: Baramulla, Jammu and Srinagar.

J&K Bank and Partition

By 1947, several other banks had opened branches in Srinagar and Jammu: Traders Bank, Oriental Bank of Commerce, National Bank of Lahore, New Bank of India etc. Some of these banks started in Pakistan but then moved to India during Partition.

RBI started registering financial data of J&K Bank from 1942 onwards. The bank had capital and reserves worth Rs 7.9 lakh in 1942, deposits worth 72 lakh and loans worth 33 lakh. It also had branches in 7 locations of the region (Anantnag, Baramulla, Jammu, Muzaffarabad and Srinagar). RBI registered it as an A2 bank which was working in Indian States and having no branches in British India and therefore not eligible for inclusion in the Second Schedule.

By 1947, J&K Bank had deposits worth Rs 2.64 crore and 12 branches. In 1948, the deposits of the bank decline sharply to 1.24 crore due to political turmoil in the State. J&K Bank also faced financial trouble as two of its branches viz. Muzaffarabad and Mirpur, fell to Pakistan administered Kashmir along with cash and other assets. Further, Punjab and Kashmir Bank which had major presence in the State shifted operations from Lahore to Ludhiana which must have created problems for the people as well. This is a phase of Indian financial history which needs to be studied.

RBI tries to restore normalcy

The Banking Regulation Act enacted in 1949 applied to all of India barring J&K. There were two legislative changes in 1956 which bought J&K Bank under purview of RBI. First, the Companies Act (1956) which did not apply to J&K State made an exemption if business is “related to the incorporation, regulation and winding up of banking, insurance and financial corporations”. Second, following the first change, the RBI Act (1934) and Banking Regulation Act (1949) also started applying to J&K and thereby to J&K Bank.

In 1950s, RBI began reviewing the status of Princely State Banks including J&K Bank. RBI noted that nearly two-thirds of its paid-up capital was contributed by the Jammu and Kashmir government. The Government had three nominees on the bank’s Board, one of whom was its Chairman. The Government had not just entrusted the bank with treasury work but the government and its institutions contributed substantial deposits and took loans on a large scale.

In 1959, RBI inspections revealed that the financial position of the J&K Bank was extremely unsatisfactory. Its capital had been wiped out, had major defects in the bank’s investment and advances portfolio, earning capacity, and head office supervision and control over its branches. It was ineligible for a bank licence. Despite RBI directions, the bank took ‘no concrete steps’. Unlike other banks where RBI could push stricter measures, this approach was not possible in case of J&K Bank as it was owned by the State Government.

By then, the stronger princely State Banks were made associates of State Bank of India. The possibility of the SBI taking over the J&K Bank was discussed by RBI Governor H.V.R. Iyengar and SBI Chairperson P.C. Bhattacharyya (later RBI Governor from 1962-67) in October 1961. RBI opined that this required answering two questions: First, whether RBI should agree to become banker to the state government. Second, whether RBI should appoint the J&K Bank as its own agent in the State. If RBI became the banker to the State government, this would imply J&K Bank would become RBI’s agent bank and would have access to currency chest. The RBI Governor said there was “so much trouble with State Governments regarding misuse of the currency chests that it is undesirable to add one more State to our list if we could possibly avoid doing so.”

Thus, it was decided to go slow on the integration of SBI with J&K Bank. This approach was also favored by the J&K Government as its own report showed that a local bank was needed to finance the businesses in the State. The report also suggested that the State should continue to conduct its business through the J&K Bank. Later, the J&K Bank became RBI’s agent for carrying out banking business for Government of J&K.

Bank Nationalisation opened gates

Despite these intentions, J&K state remained one of the most unbanked state. The average population per branch fell from about 87,000 in 1951 to about 73,000 in 1967 in India. Within India, the State of Madras had the lowest population of 39,000 per branch followed by Gujarat at 41,000 and Mysore at 43,000 people per office. The most under-banked areas of the country were Bihar (2,18,000), Assam (1,99,000), and Jammu and Kashmir (1,26,000).

This was partly due to inability of J&K Bank to expand in the State. In 1969, at the time of first bank nationalisation, there were just 48 branches in the State of which 22 were those of J&K Bank (all branches in home state). J&K Bank’s capital was Rs 8 lakh at time of formation which had barely increased to touch Rs 11.3 lakh in 1969. Its deposits were placed at Rs 8 crore making it the 38th largest bank in a list of 72 banks.

Post- bank nationalization in 1969, the Government encouraged and pushed banks into reaching out to unbanked regions. Under the Lead Bank Scheme, J&K Bank was made incharge of the State and was allocated 14 Districts.  The Bank was included in the Second Schedule of RBI in 1971, which was an important landmark in the history of the bank. This push reflected in the numbers as well. At the time of second nationalization in 1980, the State had 426 branches of which 180 branches were those of J&K Bank. J&K Bank had 200 branches which showed the bank had opened branches in other States such as Punjab, Haryana, Gujarat, Himachal Pradesh etc. The Bank had deposits of Rs 192 crore, making it the 29th largest bank in a list of 64 banks.

1991 reforms and 75 years of Bank: Glorious Days

On the eve of reforms in 1991, the bank had capital and deposits worth Rs 4.57 crore and Rs 1550 crore respectively. By 1991, there were either Public Sector Banks or Private Banks. J&K Bank was the lone State Bank. As RBI allowed new private sector banks, J&K Bank along with older private banks was reclassified as Old Private Sector Bank. It was really odd for a State bank to be classified as a Private Bank.

The financial sector reforms of 1991 pushed banks to list shares on stock exchange. The Bank listed on 4-August-1998 with staring price at Rs 35 per share. The State government continues to hold nearly 2/3rd share (59.23%) in the bank. Through its IPO, the bank popularised share ownership in the State.

The bank completed its 75 years in 2013. In its Annual Report 2013-14, Chairperson Mushtaq Ahmed said the bank is “at the cusp of a momentous event in our journey” and “it is such moments that enable us to understand our contribution to the socio-economic landscape of Jammu & Kashmir and nation as a whole”. He also proudly announced that the Bank had achieved Rs 100,000 crore of business and Rs 1000 crore of profit in its Platinum year. It had deposits of Rs 65000 crore and given loans worth nearly Rs. 40,000 crore. It had highest Return on Equity and lowest Cost to Income ration. The bank began to advertise itself as a private bank in terms of earnings and public sector bank in terms of cost structure.

The bank has aggressively tried to spread financial inclusion through Business Correspondents, Common Service Centres and branches.
 

Engulfed in crisis again

However, the bank has slipped since then. Its share price which had increased to above Rs 1000 levels in 2007 and is currently at Rs 44-45 levels which is nearly similar to its listing price. The bank generated losses in 2017 due to higher provisions on account of rising NPAs. The Gross NPAs rose from 5.97% in 2015 to 11.3% in 2017.

Apart from slipping finances which is common for most Indian banks, the bank has got involved in political turmoil as well. We have to wait and watch how and whether the bank is able to return to normalcy in future. In a way J&K Bank’s fortunes have mirrored those of the State. The State and its bank have gone through numerous cycles of hope and crisis. Hopefully, they are able to get out of this crisis as well.

Post-Script

Trivia: State of J&K has interesting connections with RBI as latter’s initial Deputy Governors came from the State. The first on the list was Mr. Wajahat Hussain, Minister in the Jammu and Kashmir State replaced C.D. Deshmukh in 1943, who was appointed as the RBI Governor. In 1945, Mr. MG Mekhri at that time Development Minister in the Jammu and Kashmir Government replaced Mr Hussain. The idea was to stick to the prevailing convention of appointing a Muslim as one of the DGs. Will RBI get a Governor from the State?

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Public Trust and Central Banking

August 12, 2019

Mario Marcel, Governor of the Central Bank of Chile in this speech talks about how central banks can restore public trust.

I underscore the importance of public trust as foundation of modern monetary policy and for the legitimacy of independent central banks in performing their broader mandates. This is ingrained in the agenda of our Annual Conference this year: new challenges to central bank independence, the management of central bank credibility, and the designing of the best communication strategies for an effective monetary policy.

There was a time when central banks spoke about discretion vs rules, macro models, inflation expectations and so on. Now it is all about trust, credibility. integrity etc etc..

GIFT City gets a second life after SGX deal

August 9, 2019

My new article in moneycontrol.com.

I reflect on this new development of National Stock Exchange (NSE) partnering with Singapore Stock Exchange (SGX) to offer NIfty products in GIFT city, international financial centre in Gujarat.

10 great twitter accounts for investors to follow..

August 9, 2019

Valueresearch has prepared this list of 10 twitter accounts which investors could/should follow.

 

A tale of two countries: Cash demand in Canada and Sweden

August 9, 2019

Superb paper by Walter Engert and Ben S. C. Fung (Bank of Canada) and Björn Segendorf (Riksbank). They try and understand why cash demand is different in the two countries.

First, Sweden and Canada economies are quite similar:

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Locating Equality: Real estate the main driver of rising inequality?

August 9, 2019

Harold James has a fascinating piece:

For years, wealth and income inequalities have been rising within industrialized countries, kicking off a broader debate about technology and globalization. But at the heart of the issue is a fundamental good that has been driving social and economic inequality for centuries: real estate.

Inequality is the leading political and economic issue of the current era, yet debates about it have long suffered from a degree of imprecision. For example, the standard measure of inequality, the Gini coefficient, reduces a country’s entire income distribution to a single number between zero and one, and is thus highly abstract. Similarly, while inequality is rising in many parts of the world, there is no simple correlation between that trend and social discontent or unrest. France is much less unequal than the United States, and yet it has similar or even greater levels of social polarization.

Today’s inequality debate effectively began in 2013 with the publication of French economist Thomas Piketty’s Capital in the Twenty-First Century, which found that the rate of return on capital tends to outpace the rate of growth, thereby causing inequality to increase over time. Specifically, appreciating real-estate values seem to be a fundamental driver of rising inequality. But here, too, one encounters a degree of imprecision. Real estate, after all, is not a homogenous good, because its value famously depends on “location, location, location.” There are elegant castles and palaces that now cost less than small apartments in major cities.

Wealth stirs the most controversy where it is most tangible, such as when physical spaces become status goods: the corner office is desirable precisely because others cannot have it. More broadly, as major cities have become magnets for a global elite, they have become increasingly unaffordable for office workers, policemen, teachers, nurses, and the like. While the latter must endure long, tiresome commutes, elites use global cities as they see fit, often hopping around from place to place. Large swaths of Paris and London are eerily shuttered at night. Manhattan now has nearly a quarter-million vacant apartments.

Whenever violence and revolution have  unequal societies, real estate has been a focus of discontent. 

Hmm..

NZ central bank cuts rates by 50 bps: Uses cartoons from Rugby to communicate (wish it was cricket)

August 8, 2019

I had blogged about how NZ central bank is using cartoons to communicate its decisions to public.

In the recent mon pol decision, it cut policy rates by 50 bps to 1%. It used cartoons from its national sport rugby to communicate. The entire dashboard is as simple as it can get.

But one so wishes pictures were from cricket. What a match and what display by NZ. Can’t still get over it. And yes Happy Bday to Kane Williamson!

100 years of Bank of North Dakota: A rare public sector bank in US

August 8, 2019

I had blogged about how there are two public sector  banks in US: Bank of North Dakota and Territorial Bank.

BND is celebrating its 100 years and has put up a useful website to track its history:

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Can ethics be taught: Doing a RCT to figure?

August 8, 2019

Pert Singer in this piece wonders whether teaching ethics can shape behavior:

In The Righteous Mind, Haidt draws support for his views from research by the philosopher Eric Schwitzgebel of the University of California, Riverside, and Joshua Rust of Stetson University. On a range of ethical issues, Schwitzgebel and Rust show, philosophy professors specializing in ethics behave no better than professors working in other areas of philosophy; nor are they more ethical than professors who don’t work in philosophy at all. If even professors working in ethics are no more ethical than their peers in other disciplines, doesn’t that support the belief that ethical reasoning is powerless to make people behave more ethically?

Perhaps. Yet, despite the evidence, I am not entirely convinced. I have had a lot of anecdotal evidence that my classes in practical ethics changed the lives of at least some students, and in quite fundamental ways. Some became vegetarian or vegan. Others began donating to help people in extreme poverty in low-income countries, and a few changed their career plans so that they could do more to make the world a better place.

How to figure this? Do a RCT!:

Two years ago, Schwitzgebel offered me an opportunity to test, more rigorously than had ever been done before, whether a class on the ethics of eating meat could change what students eat. Together with Brad Cokelet, a philosophy professor at the University of Kansas, we ran a study involving 1,143 students at the University of California, Riverside. Half the students were required to read a philosophical article defending vegetarianism, followed by a small group discussion with the option of watching a video advocating avoiding meat. The other half were a control group. They received similar materials and discussion on donating to help people in poverty.

We used information from campus dining cards to find out what food purchases the students in the two groups made before and after these classes. We had data on nearly 6,000 food purchases from 476 students. The purchases were identified with students who had, or had not, read and discussed the ethics of eating meat, but the data we received were made anonymous so that we could not identify any named student’s purchases.

The result was a decline, from 52% to 45%, in meat purchases among students in the meat ethics group, and the lower rate of meat purchases was maintained for a few weeks after the class. There was no change in the level of meat purchases in the charitable giving group (and we had no way of discovering whether these students gave more to charity).

Our results are, at this stage, preliminary and have not yet undergone peer review. We are seeking further data on the significance of watching the video – which may have appealed to students’ emotions more than their reason. Nevertheless, to our knowledge, this is the first properly controlled study, in the real world and not in a laboratory setting, of the impact of university-level philosophy classes on student behavior. The decline in meat-eating is not dramatic, but it is statistically significant, and suggests that in some contexts, ethical reasoning in the classroom can change behavior.

Hmm..

 

When Central European countries gave loans in Swiss Francs and it backfired..

August 7, 2019

Before the 2008 crisis, certain Central Europeans took loans in Swiss Francs given the stability etc. As Swiss entered the crisis and did their own thing, the CHF appreciated given its safe haven status. This led to problems for these countries as the borrowers had to pay more due to CHF appreciation. Some respite was there when Swiss National Bank decided to target their currency to prevent this appreciation. But once they removed the target, the problems again continues. This led to some of these economies to restructure their loans in either Euro or local currency.

For instance, the Slovenian government has decided to restructure in Euro and asked their central bank to face losses if any. They sent a letter to ECB for its view as per the law. ECB replied raising concerns over this move saying it is the role of the government and not Slovenia central bank.

Andreas Fischer and Pınar Yeşin in this SNB working paper look at evidence from other countries:

This paper examines the effect of currency conversion programs from Swiss franc-denominated loans to other currency loans on currency risk for banks in
Central and Eastern Europe (CEE). Swiss franc mortgage loans proliferated in CEE countries prior to the financial crisis and contributed to the volume of non-performing loans as the Swiss franc strongly appreciated during the post-crisis period.

Empirical findings suggest that Swiss franc loan conversion programs reduced currency mismatches in Swiss francs but increased currency mismatches in other foreign currencies in individual countries. This asymmetric effect of conversion programs arises from the loan restructuring from Swiss francs to a non-local currency and the high level of euro mismatches in the CEE banking system.

 

Amidst digitisation, Bandhan Bank opens its 1000th branch

August 7, 2019

Quite a few banks are either shutting down branches or going slow on new branches.

Bandhan Bank which got a banking licence in 2014 is thinking otherwise. It started with 500 branches and has doubled the number of branches in just 4 years.

Private sector lender Bandhan Bank on Saturday opened a new branch at Haltu in Kolkata. With this,  the bank has now a total of 1,000 branches.

The announcement of the 1,000th branch coincided with the inauguration of the bank’s new head office in Salt Lake City, Kolkata.

With a network of 3,014 Doorstep Service Centres that the bank already has, the total number of banking outlets now stands at 4,014 across 34 of the 36 states and union territories in India.

Chandra Shekhar Ghosh, MD and CEO, said, “This is a big milestone for Bandhan Bank. We started the bank with 501 bank branches in August of 2015. In just about four years, we have doubled that count to 1,000. We have always aimed at making banking accessible to all, and this landmark of 1,000 branches is another step in that direction.”

Some banks continue to believe that branches still matter…

RBI cuts policy rate by 35 bps!

August 7, 2019

RBI Governor Shaktikanta Das had earlier argued why should be change policy rates in multiples of 25 bps. RBI’s Monetary Policy Committee has gone ahead and changed the status quo and lowered the policy repo rate by 35 bps to 5.4%.

Four members agreed to cut the rate by 35 bps and 2 for 25 bps:

All members of the MPC unanimously voted to reduce the policy repo rate and to maintain the accommodative stance of monetary policy.

Four members (Dr. Ravindra H. Dholakia, Dr. Michael Debabrata Patra, Shri Bibhu Prasad Kanungo and Shri Shaktikanta Das) voted to reduce the policy repo rate by 35 basis points, while two members (Dr. Chetan Ghate and Dr. Pami Dua) voted to reduce the policy repo rate by 25 basis points.

 

 

How private prisons affect sentencing?

August 6, 2019

Christian Dippel and Michael Poyker in this voxeu piece:

Speaking Truth to Power..

August 6, 2019

A huge responsibility for those who advise the governments esp in today’s times. Speaking truth to power is like who will bell the cat.

Joseph Nye writes on appointment of Director of National Defense:

Many partisans accused President George W. Bush of lying and pressuring the intelligence community to produce intelligence to justify a war that Bush had already chosen. But the situation was complicated, and to understand the problems of speaking truth to power, we must clear away the myths.

Political leaders cannot be blamed for the analytical failures of intelligence, but they can be held accountable when they go beyond the intelligence and exaggerate to the public what it says. US Vice President Dick Cheney said there was “no doubt” that Saddam had WMD, and Bush stated flatly that the evidence indicated that Iraq was reconstituting its nuclear programs. Such statements ignored the doubts and caveats that were expressed in the main bodies of the intelligence reports.
Trust in intelligence runs in cycles in our democracy. During the Cold War, intelligence officials were often seen as heroes. After Vietnam, they became villains. September 11 restored public recognition that good intelligence is more important than ever, but the failure to find WMD in Iraq renewed suspicion again, and Trump has used it to obscure the problem of Russian interference in American elections.
The lessons for the next American DNI are clear. In addition to the bureaucratic tasks of coordinating budgets and agencies, he (or she) will have to monitor tradecraft in collection of intelligence, defend rigorous use of alternative techniques for analyzing it, and ensure careful presentation to political leaders and the public. Above all, the DNI has a duty to speak truth to power.

Was Mr Say the ultimate nemesis of Lord Keynes?

August 6, 2019

Profs. Alain Béraud and Guy Numa in this piece says we usually think that Keynes and Say were at opposite ends of each other. However, they are far more proximate than it is imagined:

In economics we love this comparison of this vs that. But if we analyse closely, there are more similarities than differences.  

The situation in the (Slovenian) banking system remains good, while risks have increased?

August 5, 2019

One is increasingly seeing how central bankers are saying both things at the same time:

The situation in the banking system remains good, while risks have increased

The Bank of Slovenia finds that the situation in the banking system remains good, according to the latest information, even as risks have increased. The profitability of the Slovenian banking system increased again, while this year has also seen growth in the balance sheet total and bank lending activity. The quality of the credit portfolio is continuing to improve, most evidently in the corporate segment. The capital adequacy of the Slovenian banking system remains comparable to the euro area average. The Bank of Slovenia draws attention to increased risks: while economic growth gradually slows, the key challenge for the banking system remains generating stable income in the low interest rate environment.

Call it Economists’ English!

It also suffers from these behavioral biases. You ask a fund manager and she always says we are doing well and risks have increased but they lie elsewhere. Now it cannot be the case that everyone is doing well and yet risks are rising.

Sweden’s march towards a cashless economy got a slight jolt

August 5, 2019

As one thought Sweden will go cashless in just a few years, there has been some fightback from cashusers.

John Detrixhe reports that notes and coins in circulation has gone up by 7% for the first time in 10 years:

Sweden is at the vanguard of countries embracing digital payments, so much so that the Scandinavian country could go effectively cashless in less than four years. In 2018, however, the amount of banknotes and coins in circulation increased for the first time in more than a decade.

Swedish banknotes and coins in circulation rose 7% last year, to 62.2 billion krona ($6.5 billion), according to the European Central Bank. It was the first yearly increase since 2007; the value of cash in circulation has dropped by around 45% over that period.

Are Swedes falling back in love with cash? Probably not. Groups that represent seniors and other vulnerable people have pushed backagainst the country’s rapid shift to digital payments, but last year’s uptick in cash circulation is due, in part, to technical factors. Namely, there was a currency overhaul in which old banknotes and coins could be exchanged for new ones (pdf).

Some Swedes may also have boosted their personal holdings of banknotes and coins in case of a crisis. The Swedish Civil Contingencies Agency recently recommended that Swedes put aside some cash in case of an emergency, such as a data center glitch that causes payments systems to go offline, or terrorism or a cyber attack.

However, at best this has halted the march a bit:

These factors are probably one-off instances, as Swedes continue to switch to card payments and mobile payment apps like Swish. This puts government officials in a tough position, as not everyone is ready for digital transactions. Poorer people and the elderly tend to rely on cash. As more and more payments take place through smartphones (even going to the toilet in Sweden can require an app), it can be difficult for people who aren’t digitally savvy to keep up. Others want to preserve their privacy, or simply want to keep their payment options open.

All eyes on Sweden..

The structure of global trade finance: Evolution from market based to bank based

August 5, 2019

Olivier Accominotti and Stefano Ugolini in this piece look at evolution of global trade finance.

Trade finance is the oldest domain of international finance. From the very beginnings of the history of international commerce, merchants and firms have been in need of working capital in order to finance their commercial transactions and have looked for methods to reduce the risks involved in long-distance trade. However, relatively little is known about how trade finance evolved over the very long run. In a recent study, we review the main developments in international trade finance from the Middle Ages to today and compare its structure and governance across time (Accominotti and Ugolini 2019). Our goal is to understand whether alternative structures existed in the past that might provide regulators with insights on how to design more resilient trade finance.

They say that earlier trade finance was mainly through bills of exchange and was more market driven. Now it is mainly driven by Letters of Credit via banking system:

The 2008 crisis has revealed how banking and liquidity problems can have far-reaching consequences on global trade. This column reconstructs the evolution of global trade finance from the Middle Ages until today. Just like in medieval times, today’s global trade is predominantly financed through banks so that banking problems automatically transmit to international trade. In contrast, from the 16th to the 20th century, trade finance was mostly market-based. The decline of market-based trade finance was triggered by major geopolitical shocks.

However, much of this market was centralised in London. Now this bank-based system is widely spread:

The long-run evolution in the structure of international trade finance has implications for its governance. In the 19th century, the global trade finance market was highly centralised and regulation was exercised by the leading political and economic power of the time – the UK. London’s monopoly over the trade finance market was criticised by potential competitors as it granted UK financial institutions a significant rent. By contrast, the more decentralised structure that prevails nowadays makes international control over the trade finance market less feasible. While this market structure clearly has advantages, it also makes exporting and importing firms more dependent on local credit conditions and pushes back the governance of the trade finance market into a sort of anarchy.

Hmm.. 

Analysing capital flows: Push factors, pull factors and pipes

August 2, 2019

Missed pointing to this speech by Mark Carney, Governor Bank of England.

He gave the speech in June-2019 and says we need to lower volatility in capital flows:

Today, I want to examine what drives capital flow volatility and, in the process, sketch an agenda for sustainable capital flows in the new world order.

Specifically, what should be the priorities to increase sustainable cross border capital flows? How many are the responsibility of the receiving country? What about the advanced economies who set the tone for the global financial cycle? And to what extent does the structure of the international monetary financial system itself, including the global safety net, determine safe flows?

To begin to answer these questions, the Bank of England is developing a holistic “Capital Flows-at-Risk” framework that assesses the relative contribution of the three drivers of Capital Flows-at-Risk:
 ‘Pull factors’ – domestic conditions and institutions that affect the relative attractiveness of investing in an individual country.
 ‘Push factors’ – that determine global risk appetite and financial conditions, particularly the level and prospects for US monetary policy and financial stability.
 ‘The Pipes’ – the structure of the global financial system itself, particularly the degree to which it dampens or amplifies shocks.

How these three Ps drive capital flows and their volatility plays a crucial role in macro and financial markets stability.

Estimating Jane Austen’s income: insights from the Bank of England archives

August 2, 2019

Central Bank archives are not just about figuring the organisation but several other things.

John Avery Jones, a retired Visiting Professor at the LSE in this post estimates Jane Austin’s income from the Bank of England Archives:

Based on these assumptions, and taking into account such details as that she did not keep anything back for tax on the first receipt which was presumably funded by Henry’s bank, and assuming that she spent the income from the Navy Fives, the income from Mansfield Park would be £310. This is precisely Henry Austen’s figure; perhaps he was not exaggerating on this occasion. On that basis the total tax she paid (before its abolition in 1816) would be about £56. Alternatively if she commenced her profession at the later time the income would be £337, which is almost identical to Professor Fergus’s figure. (On the different assumption that she carried on a trade, which would necessarily have been set up at the time of the receipts from Pride and Prejudice and Sense and Sensibility, the tax would be lower and so would reduce the estimate of earnings from Mansfield Park to £297.)

Her total income from writing in her lifetime was a mixture of taxable receipts and receipts after the abolition of income tax in 1816. These amount, on my estimate, to around £631 before tax (while tax was in force), or £575 after tax, which would be equivalent to just over £45,000 at today’s prices.

Hmm…


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