Daily Archives: December 10, 2009

Simone Baribeau

The Obama administration today released the long-awaited permanent modification data for the Making Home Affordable loan modification programme. Those who were expecting low rates of permanent modifications weren’t disappointed.

Only 31,382 of the 728,000 loans being modified in the trial phase – less than 5 per cent – have been made permanent. Read more

Simone Baribeau

The Bank of Canada today released its semi-annual financial system review, finding that the Canadian financial system’s vulnerability to adverse shocks decreased modestly since its last report in June.

But the country – whose banks weathered the financial crisis without any infusion of government money – has not radically changed its conservative outlook. “Over the medium term, vulnerabilities associated with global financial and economic imbalances and household indebtedness will emerge as the most prominent risks to the Canadian financial system,” the report said. Read more

Yesterday there was dampened interest in a $21bn issue of 10-year bonds. Today, as we await the outcome of the $13bn 30-year auction, there seems to be ever less interest in these longer-dated bonds: the spread between 2- and 30- year bond yields is at its highest for 17 years. Presumably investors are worried about inflation as the government deficit reaches a record $1,400bn. If this is the start of a trend, the US government will find it increasingly expensive to fund its debt-financed stimulus and bail-out packages.

Denmark’s central bank has cut the lending rate from 1.25 per cent to 1.20 per cent and reduced the current account rate by the same amount, to 0.85 per cent. The bank has also cut rates on certificates of deposit from 1.00 per cent to 0.95 per cent, while the discount rate remains the same, at 1 per cent. The bank said the reduction was “a consequence of purchases of foreign exchange in the market”. The spread between ultra-low euro money-market rates and those on the Danish krone have tended to strengthen the currency.

By James Lamont, South Asia bureau chief

A three month deadline for blueprints to overhaul India’s financial services industry is highly ambitious. Yet that is what Duvvuri Subbarao, India’s central bank governor, has given the boards of the country’s commercial banks to devise strategies to bank millions of unbanked people. Read more

In an effort to maintain a liquid currency, the Swiss National Bank will invite non-bank financial institutions in Switzerland and Liechtenstein to participate in the repo market from 2010. Initial candidates are likely to be insurance companies with significant treasury activities in Swiss francs, and managers of Swiss franc money market funds. “In this way we plan to further promote the secured money market and increase the stability and crisis resistance of the financial system,” said Thomas Jordan, member of the SNB governing board.

A number of other significant announcements emerged in Zurich today, Read more

  • US to extend Tarp stimulus to 2010 – FT
  • Unusual step: ECB president Trichet casts vote for broad Fed – FT Money Supply
  • ECB: Greece has one year to sort public finances – FT

 Read more

Switzerland’s central bank said it will stop purchases of corporate bonds as it joins other countries in starting to withdraw emergency measures.

The Swiss National Bank, which announced plans to buy bonds in March, also held the three-month Libor target at 0.25 percent, as expected. The bank said it will continue to “act decisively to prevent any excessive appreciation” in the Swiss franc.

Iceland’s central bank has cut its benchmark seven-day collateral lending rate one percentage point to 10 per cent, and lowered its deposit rate (current account rate) by 0.5 per cent to 8.5 per cent. The overnight lending rate will be lowered by 1.5 percentage points to 11.5 per cent and the Central Bank will continue to issue 28-day certificates of deposit with a maximum bid rate of 9.75 per cent, which is 0.5 percentage points lower than before. Read more

Ralph Atkins

There is a flipside to the diverging unemployment trends in US (up, sharply) and eurozone (up, relatively modestly) about which we have blogged frequently on Money Supply. The European Central Bank’s monthly bulletin today highlights how productivity trends have also diverged – see the chart on the left. While the US has maintained productivity growth rates in the pre-crisis range, eurozone productivity has fallen.

There is one obvious explanation. Government-sponsored short time working schemes in Europe have enabled companies to keep on staff, even though production has fallen steeply. But the ECB says the story of US/eurozone divergence holds true whether productivity is measured per person employed or per hour worked, and argues that the eurozone has been weaker at investing in productivity enhancing technologies. Read more

The Reserve Bank of New Zealand held its official cash rate at 2.5 percent, as expected, with central bank governor Alan Bollard forecasting earlier-than-expected tightening in mid-2010. Like neighbour Australia, New Zealand’s central bank is factoring in the wider gap between the benchmark rate and funding costs in its rate decisions. A higher currency and higher long-term rates have also reduced the need for immediate action.

Ralph Atkins

Jean-Claude Trichet has taken a stand on the future of the US Federal Reserve. Interviewed by two Belgian newspapers, he said he “would be amazed if the current debate in the United States were to lead to a Federal Reserve System that no longer had a close link with micro-prudential supervision, since this does not appear to me to be the lesson that should be drawn from the crisis at all”.

His answer did not rule out that the Fed’s bank supervision responsibilities might be cut back. But Mr Trichet’s comments sound to me like a clear ECB vote for the “broad Fed” model as described by my colleague Krishna Guha. Given the ECB is usually reluctant to intervene on politically controversial issues (especially outside the eurozone), they suggest Frankfurt has worries about how the debate is going in Washington.

The Bank of Korea has left the seven-day repurchase rate at 2 per cent for the tenth consecutive month as expected, but the central bank governor said the central bank shouldn’t wait too long before gradually raising rates. Lee Seong Tae said that maintaining borrowing costs at the current level a year from now would be “unimaginable” if the economy kept growing more than one per cent each quarter (or about five per cent annually). South Korea’s GDP returned to positive territory in Q3, growing 0.9 per cent in the quarter. The International Monetary Fund this week raised its forecast for gross domestic product growth in 2010 to 4.5 percent from 3.6 percent.

Krishna Guha

Krishna Guha of the Financial Times asks has a discussion of oversight regulation silenced the Fed hawks? Read more