Might the Fed raise the discount rate at this week’s policy meeting? I think this is a possibility and should be considered as a risk factor. But I would not include a discount rate increase in my base case forecast for the meeting.
The Fed will I think seek to draw an increasingly sharp distinction between liquidity policy and monetary (interest rate) policy in the spirit of the ECB’s separation principle at this meeting and in subsequent communications.
Austrian stress tests have shown that the country’s top banks would lack capital if the global economy were to double dip. Central bank supervisor Andreas Ittner said the Tier one ratio of the six biggest banks would drop to 5.8 per cent by the middle of 2011 under the scenario. “Our stress tests show that capital adequacy levels must be raised further in the medium term. This applies to both the quality and the amount of banks’ own funds,” he said. The tests show Austrian banks being particularly hard hit in Eastern Europe.
Separately, the Austrian government took full control of Hypo Group today. A $2.2bn bail-out is expected, from both government and shareholder capital.
Why is Greece such a big problem for the eurozone when the arguably far-worse financial plight of California is not raising similar concerns about the US or the dollar?
The question seems pertinent given the relative insignificance of the Greek economy – it accounts for less than 3 per cent of eurozone GDP (California provides about 13.5 per cent of US GDP). But I am not sure if I have yet heard a satisfactory answer. Suggestions I have heard include:
The central bank of the Philippines is offering an incentive for rural banks to merge and consolidate. The incentive may come in the form of money or regulatory relief, and will be applicable to mergers, acquisitions and consolidations with, or among, rural banks – especially those that are capital deficient. The monetary board of the Bangko Sentral ang Pilipinas (BSP) has approved the measure in principle.
The Russian central bank will spend $1bn next week, buying 30 metric tons of gold from Gokhran, the state repository. Gokhran had planned to sell 20-50 MT on the open market, but cancelled after news of the sale leaked. The sale would have helped plug Russia’s budget deficit, and, apparently, purchase some diamonds from state-run miner Alrosa.
Thanks to Big Picture blog, which keeps us posted on the weekly death count in the world of banks. The same data, viewed as a cumulative chart, shows an upward trend in US bank failures. Indeed, for the geeks among you, the bank failures (red line) so closely mirror the exponential trendline (black), the R squared is 0.9948.
That does not mean, of course, that bank failures will continue along their current exponential path. But it does mean they haven’t slowed down in any significant sense – yet.
Bankers should count themselves lucky that the UK and French governments are only considering a 50 per cent supertax, because their value to society is negative, says a report released today by the New Economics Foundation.
To me, the report is a perfectly sensible attempt to describe the externalities - the difference between the private value and the social value – that are embodied in different jobs. But it is combined with numbers that appear to be complete guesses alongside some horrible howlers.
The Gulf is so much more exciting. Abu Dhabi today announced a $10bn injection to a fund for younger brother Dubai. The first action for the fund will be a $4.1bn payment of Nakheel sukuk obligations due today. No carefully timed, carefully worded press releases to minimise market shock: a slam dunk, last minute rescue. Phew!
Stocks around the world have risen, but S&P said it was unlikely they would raise ratings of the six government-related entities downgraded on December 2 (Bloomberg).
A summary of the support from Abu Dhabi and the UAE central bank:
Dubai’s woes make it unlikely the UAE will rejoin the plan for Gulf monetary union any time soon.
The Gulf co-operation council – Saudi Arabia, Kuwait, Qatar and Bahrain, the UAE and Oman – will meet over the next three days in Kuwait, where a single regional currency is likely to be discussed. The UAE pulled out of the plan in May in protest at the Saudi siting of the proposed joint central bank. Kuwait, about to take over presidency of the GCC, has said the location would not be reviewed.