January 30, 2014
by Richard Payne
A draft agreement for an overhaul of EU securities trading regulation has now, eventually, been reached, We are told that, amongst other things, a particular subset of the new rules has been designed to regulate the use of ‘dark pools’. But what are these nefarious sounding trading venues? Is it obvious that their growth has a detrimental effect on the operation of securities markets (mainly equities markets) and what has caused them to come into existence? Continue Reading →
January 28, 2014
by Thorsten Beck
You never quite know whether you are in Africa or Asia when landing in Mauritius. This does not only refer to the people, the culture and the religion, but also to the financial system. Compared to most African financial systems, Mauritius’ banking system is relatively developed. Long-term financing is available for firms, as are mortgages for household. Host to several European and South African banks, it is also home to several cross-border banks active in Africa and India. And its high level of financial development is only one dimension of the Mauritian success story, growing from one of the poorest countries in Africa to middle-income status, with high levels of educational attainment, low child mortality and sinking income inequality. Continue Reading →
January 27, 2014
by Jose Luis Peydro
Andrew Clare argued last week that equity markets still rally despite of US tapering because the Fed promised to keep low monetary policy rates for long. Many commentators have also suggested that low levels of monetary rates induced an excessive softening of lending standards in the run-up to the 2007-08 financial crisis and are now creating another credit and asset price bubble in e.g. emerging markets. What are the effects of monetary rates for bank risk-taking? Continue Reading →
January 24, 2014
by Thorsten Beck
Anjan Thakor provides an interesting literature survey over the causes of the Global Financial Crisis and what lessons to draw from it.
Too much or too little consumer credit: on a familiar theme, Jonathan Zinman reviews different theories that can explain either under- or over-supply of consumer credit.
Viral Acharya and Sascha Steffen offer some estimates on what to expect from the ECB’s asset quality review with some surprising and some less surprising news.
Coming up next week: A postcard from Mauritius, dark pools and the effect of monetary policy on risk-taking. Happy weekend!
January 23, 2014
by Andrew Clare
The strength of equity markets in 2013 has suprised many. By late December, the S&P 500, the world’s equity market barometer, was up just over 30% – a very impressive performance. But will this continue in 2014, in light of tapering Continue Reading →
January 22, 2014
by Thorsten Beck
I was recently asked to contribute to a conference on Ireland’s economy, co-organized by the European Commission and Trinity College. Ireland is the first of the Eurozone crisis countries to exit the Troika program, which has created quite some positive buzz, but also lots of questions about the medium- and long-term perspectives for its economy. While a lot has been written about boom-and-bust cycle of Irish finance and the resolution of the crisis, I was asked to take a bit of a longer-term view on Ireland’s banking system. What role, if any, can we expect from the financial sector in the recovery phase and in the medium- to long-term future? What is the optimal structure of Irish banking in the future, in terms of ownership and types of banks and integration with international financial markets? What impact will the global and European regulatory reforms have on Irish banks and what should the focus be on the national level? And finally, what impact will the ultimate shape of the banking union have on the Irish banking system? Continue Reading →
January 20, 2014
by Peter Hahn
The discussion on competition in UK commercial banking just won’t go away. It was pretty loud in 2000 when there were a virtual banking dozen dominating the high street (actually eleven) and since 2008 just five have had 85% market share. Many are probably saying let’s at least get this debate in before we have just one….at the historical trajectory that would occur in 2022! But the numbers belie what is changing in banking and economy and this is not uniquely a UK argument. The US is plumbing modern lows in its number of banks; now below 7000 for perhaps the first time in almost a century – though about 30 banks garner 90% of the market. Many might hail the reduction of branches as an overall reduction in the industry’s costs to pass through while others have real concern of reduced community economies without physical financial institution presence. Undoubtedly, an increasing number of banking activities are gaining utility status: paying over the internet and secure government transfers are but a few. And we like our utilities to consolidate, their competition is often wasteful and duplicative. Yet, once consolidated they are rarely creative. Continue Reading →
January 17, 2014
by Thorsten Beck
In Strong Governments, Weak Banks,
Paul de Grauwe and Yuemei Ji argue that the Eurozone crisis has perverse effects on banks’ capital ratios, with banks in the core countries reducing capital ratios relying on their governments’ solidity, with the opposite in the peripheral crisis countries. Exactly the opposite what your macro-prudential text book would recommend.
Charles Calomiris from Columbia University will present his new book (Fragile by Design: The Political Origins of Banking Crises and Scarce Credit – co-authored with Stephen Haber from Stanford University) on February 27 at Cass.The event is open to the public, but registration is required.For those who have not met Charles yet, he combines an excellent academic record with policy experience across the globe and is an outstanding and entertaining speaker!
Coming up next week in our blog: The future of Ireland’s banking system, the effect of tapering on stock markets, and more…
January 16, 2014
by Meziane Lasfer
The recent activist hedge fund investors’, including Elliott Associates, call to Wm Morrison to shake-up its property portfolio (Financial Times, US activists shop for Wm Morrison stake, January 10th), raises a number of questions. The rise in the firm’s stock price on 13 January by about 5% suggests also that the market is taking the view that such radical policy, which involves the UK fourth largest retailer to raise up to £800m from property sales to fund a capital return to shareholders in the form of dividends and share repurchases, is value creating. However, it is debatable as to whether hedge fund activism is beneficial to all shareholders and whether it will lead to long-run value creation, as I wil discuss in the following. Continue Reading →
January 14, 2014
by Anthony Neuberger
The UK Government has suddenly become very keen on Defined Ambition pension plans, with the launch of a consultation on the subject a couple of months ago. The case for Defined Ambition is quite seductive. Defined Benefit is seen as a gold-plated vehicle where the employer takes all the risk and the employee is guaranteed a pension that is secure and protected against inflation and other risks. Very nice for the employee but expensive for the employer, so employers say they cannot afford them and are closing them down. Defined Contribution puts all the risks on the employee, which is much nicer for the employer but leaves employees with a pension that is likely to be small, and is sure to be very risky. Surely there is some compromise between DB and DC where the employer and the employee share the risks in an equitable way? The middle way is called Defined Ambition (DA). Continue Reading →