The Treasury gets paid
The Fed paid a record $46.1bn to the US Treasury in 2009, the central bank reported today, after riskier holdings boosted its income 40 per cent to $52.1bn over 2008.
“The significant increase in holdings was primarily due to increased securities holdings as a reseult of the Federal Reserve’s response to the severe economic downturn,” the Fed said in a statement. Read more
ECB and dollar liquidity: lost, not missed
Almost unnoticed, dollar liquidity provision by the European Central Bank and Bank of England is being unwound. Before Christmas, the US Federal Reserve said it expected to wind down this month currency swaps with foreign central banks. Jean-Claude Trichet, ECB president, is likely to confirm on Thursday, if asked, that January’s operations will be the last.
The joint operations formed an important part of the global response to the financial market crisis as it unfolded from mid-2007 onwards. The Fed worried that many of the strains in dollar money markets reflected pressure from European banks that were structurally short of dollars. But they have now become largely redundant. An ECB offer of seven-day dollar liquidity last week attracted just two bidders, who were alloted a total of little more than $5bn – another sign of how much financial market conditions have improved. Read more
The ominpresent ECB
Signs of ECB nervousness about just how Europe’s new financial supervisory regime will work are becoming apparent. Its latest review of the proposals, while generally supportive, urges a tougher wording to ensure the unimpeded flow of information between the three planned European supervisory authorities, central banks and the new European Systemic Risk Board, which it will dominate.
To work efficiently, the ECB concludes, the new system “requires effective information sharing procedures in order to ensure a smooth interaction of supervision at the macro-prudential and micro-prudential levels and the timely access of the ESRB to all relevant information required to perform its duties”. Read more
Greece: big, bad numbers
Greece’s fiscal problems are huge, but have been amplified because nobody can trust the numbers it produces. A European Commission report just released on the Greek statistical service is as damning you can imagine a Brussels institution preparing. It reveals how figures on the country’s public finances have been persistently mis-reported since before Greece join the eurozone in 2001 – a step it would never have been allowed to take if what is known now was known then.
Perhaps this offers part of an answer to the question of why Greece is such a big deal to the eurozone when the problems of California - a much bigger economy – are not of such existential importance to the US (see my earlier post). Athens has created such bad feeling in Brussels and at the ECB in Frankfurt, and the sense that nobody really knows what is going on with the Greek economy – except that it is bad. Read more
Taxing banks – the global state of play
Special taxes on banks are catching on – but moves around the world are disparate and show few signs of coordination so far, either in detail or in ambition.
In all of this, the big effort globally is to ensure banks have greater buffers against failure (higher capital) and that the authorities work to getin tinto a position where bad banks can fail (to minimise the implicit state insurance), but also to get banks to pay for the residual insurance that taxpayers are likely to provide for future systemic crises. Read more
Imagine a world in which banks are split by region, customer base, industry and function. This is one of the suggestions made by the Nigerian central bank governor at a conference organised by The Economist.
Lamido Sanusi said: “The Central Bank of Nigeria might eventually come up with banks that will address just the middle markets, the country’s regions, specific sectors of the economy such as agriculture or just operate as investment banks, Islamic banks or specialist financial institutions.” Such categorisation, he said, would entail different operational guidelines and capital requirements. Read more
The People’s Bank of China has raised the yield on 20 billion yuan ($2.9 billion) of one-year bills by about 8 basis points (bps) to 1.8434 per cent after holding it steady in the previous 20 auctions, compared with a median forecast among traders that it would go up by just 4 bps. It also drained a record 200 billion yuan via 28-day bond repurchase agreements, ensuring it will draw net funds from the market this week.
Last week the Chinese central bank surprised the market by pushing up the yield on its 3-month bills by about 4 bps to 1.3684 per cent, sending stocks and commodities lower on worries about tougher “fine-tuning” of monetary policy. Read more
The Bank of Israel yesterday raised its 2010 growth forecast from 2.5 per cent to 3.5 per cent. Bank forecasts are now more in line with analyst expectations: last week, Bank Leumi raised its forecast to 3.5 per cent and on Sunday, Bank of America Merrill Lynch did the same. An increase in demand for exports is driving the recovery, and the optimism.
The main assumptions underlying the 2010 forecast are that global trade will increase 7 per cent, terms of trade will deteriorate by 2.1 per cent. Unemployment is expected to fall below 7 per cent by the end of 2010. Details of the forecast and assumptions are below: Read more
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Chris Giles has been the economics editor of the Financial Times since 2004. Based in London, he writes about international economic trends and the British economy. Before reporting economics for the Financial Times, he wrote editorials for the paper, reported for the BBC, worked as a regulator of the broadcasting industry and undertook research for the Institute for Fiscal Studies. RSS
Michael Steen, Frankfurt bureau chief, covers the ECB and the eurozone's economies. He joined the Financial Times in 2007 as Amsterdam correspondent and later worked as a front page news editor in London. Before joining the FT, he spent nine years as a correspondent at Reuters, mostly in foreign postings that included a previous stint in Frankfurt, as well as Moscow, Kiev and central Asia. He read German and Russian at Cambridge.RSS
Robin Harding is the FT's US economics editor, based in Washington. Prior to this, he was based in Tokyo, covering the Bank of Japan and Japan's technology sector, and in London as an economics leader writer. Robin studied economics at Cambridge and has a masters in economics from Hitotsubashi University, where he was a Monbusho scholar. Before joining the FT, Robin worked in asset management and banking. RSS
Ralph Atkins, capital markets editor, has been writing for the Financial Times for more than 20 years following an economics degree from Cambridge. From 2004 to 2012, Ralph was Frankfurt bureau chief, watching the European Central Bank and eurozone economies. He has also worked in Bonn, Berlin, Jerusalem and Brussels. RSS
Claire Jones is Money Supply economics team writer, based in London. Before joining the Financial Times, she was the editor of the Central Banking journal and CentralBanking.com. Claire studied philosophy and economics at the London School of Economics. RSS
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