Daily Archives: March 3, 2010

The Irish central bank governor has repeated that recapitalisation will be needed by Ireland’s two largest banks. (He had said the same on February 22.) Claire Murphy at Herald.ie reports:

CENTRAL Bank governor Patrick Honohan has indicated that Anglo Irish Bank and Bank of Ireland will require additional recapitalisation “very soon” … It is expected that fresh cash will be provided to the two main Irish banks within the next two months as the toxic loans are transferred to NAMA … The Government has already provided a total of €11bn into Bank of Ireland, Allied Irish Banks and nationalised Anglo Irish Bank … [Anglo Irish Bank] is expected to reveal losses of up to €12bn within the next few weeks.

Ewald Nowotny yesterday described as “unacceptable” the power of Moody’s to determine the fate of Greece, and possibly Europe with it. Moody’s has just replied – by denying it holds such power.

The ECB usually requires more than  A- rating on financial products used as collateral. This was lowered temporarily to BBB- during the crisis, a reduction expiring at the end of this year. Standard and Poor’s and Fitch have since downgraded Greek sovereign debt to BBB+, meaning they would not qualify as ECB collateral when the rating requirement changes back. Only Moody’s has kept a rating that would allow Greek debt to qualify. Read more

Reaction to Greece’s proposed austerity package will be all important. Greece will ask the ECB to assess the plan, Bloomberg reported earlier. And the sooner, the better, for market stability. Approvals, if and when they come, will reassure investors that words will translate to actions.

In the interim, Moody’s has given cautious approval by affirming its A2 (Neg) rating. Read more

Colombia’s currency has fallen 1.19 per cent against the dollar today, to 1,918, on news that the Colombian central bank will buy $20m per day at daily auctions through the first half of the year to address “misalignment of the exchange rate” (Bloomberg & Reuters).

A back-of-the-envelope calculation shows total dollar purchases will equal 1 per cent of GDP. (121 days at $20m, against a World Bank estimate of GDP $242bn in 2008). Read more

The Indian Ministry of Finance doesn’t pull any punches: it has investigated the $5bn ratings agency industry and promptly issued twelve recommendations.

“A rating is only an opinion, albeit a very influential one,” states the reportRead more

Simone Baribeau

Eric S. Rosengren, president of the Federal Reserve Bank of Boston, today gave a speech on asset bubbles and systemic risk. It’s more or less in line with Bernanke’s line: monetary policy wasn’t the main culprit in inflating the housing bubble and so the problem requires a regulatory fix.

Mr Rosengren calls for forward-looking, systemic risk supervision, which he says is a “serious gap” in financial regulation.

The systemic supervision that is needed would focus on possible future losses and is inherently forward-looking. Doing this well requires an understanding not only of institutions but also markets, and it requires taking into account the full range of outcomes, both expected and potential – including those that have a low likelihood of occurring but that could have serious adverse consequences. While we may not be able to eliminate all bubbles, we should be able to limit the degree to which the financial sector feeds and propagates these booms, and the sector’s vulnerability to subsequent busts.

Mr Rosengren doesn’t spell out exactly what tools the regulators would have at their disposal if they identified a risk of an asset bubble. But, where a bubble exists, Read more

Earlier this year, it seemed that the Bank of England would have a very boring first half to 2010, pausing quantitative easing, waiting until Britain’s election was out of the way and watching the slow recovery of the economy.

The confusion over the Bank’s economic forecasts resulting from its choices in presenting the November and February inflation reports has raised questions over whether the Bank will, indeed, sit on its hands or whether it will resume QE. In particular, the February inflation report appeared to show the Bank expecting inflation to undershoot the 2 per cent target by 0.25 percentage points two years ahead if policy was unchanged. I am still pretty sure nothing will happen until the May meeting for the following few reasons Read more

THE main cause of the financial crisis may have been reckless optimism, but the pessimists are hardly being hailed as heroes. When stockmarkets tumbled in 2008, short-sellers—those who borrow shares and sell them in the hope of buying them back later at a lower price, thereby profiting from a fall in their value—were cast as villains. Politicians have wanted to clip their wings ever since.

It’s not about central banks, but it has the potential to affect the risk profile of every country in Europe.

Kazakhstan is considering a new pipeline route to bring its growing oil surplus to Europe, via Georgia and Armenia, a route that was damaged during the 2008 Russian-Georgian conflict. This would reduce Kazakh dependence on Russian pipelines. A surge of oil production is expected from 2012 when the Kashagan oilfield comes onstream in the Caspian sea – doubling Kazakh output to 3m barrels per day. Read more

Please welcome Guoxin Asset Management to the world’s growing family of sovereign wealth funds. But don’t expect to read much more about it: GAM looks set to be exclusively domestic.

China’s state council has apparently approved the fund’s creation, says the Oxford SWF project. It will be owned by China’s SASAC and its purpose is to consolidate 128 state-owned enterprises to about 80 – oh, and make them profitable. The new fund is unlikely to have either mandate or budget to make international investments. Read more

Bullish sentiment from Polish central bank governor Slawomir Skrzypek. Bloomberg reports him saying that Polish rate setters should “start to think about tightening monetary policy” since the central bank’s own forecasts show inflation accelerating to 3.5 percent by 2012. This is in contrast to some bearish sentiment last week from the newest members of Mr Skrzypek’s rate setting council.

Ralph Atkins

Has Greece – finally – done enough? First impressions suggest today’s latest austerity measures, equivalent to €4.8bn, or about 2 per cent of gross domestic product, will help restore Athens’ credibility in financial markets. More importantly, they should rebuild faith in the European Union’s ability to put its own house in order.

Greece’s agony has been drawn out. Faced with a massive deterioration in public finances, largely hidden by the previous government, the Socialist administration of George Papandreou, prime minister, has gone through phases of denial and anger since being elected last October. Now, apparently, it has moved into acceptance. That probably has a lot to do with the presence of high-level European Commission and European Central Bank delegations in Athens this week – including Jürgen Stark, the German ECB executive board member known for his hard-line defence of EU fiscal rules.

Luigi Speranza, economist at BNP Paribas, argues that today’s announcement “dramatically enhances the credibility of the Greek commitment to comply with the announced fiscal targets”. Athens’ submission to Brussels and Frankfurt, he adds, Read more

Norway is planning a 90 per cent loan-to-value cap on mortgages. Sweden announced a similar measure two weeks ago, effective July.

Bloomberg reported the release of Norway’s financial supervisory authority guidelines to prudent lending, available in Norwegian hereRead more

Ralph Atkins

An outburst by Ewald Nowotny, Austria’s cerebral central bank governor, has raised an interesting prospect. Might the ECB do away with the services of ratings’ agencies and judge itself the credit-worthiness of eurozone banks’ collateral?

Late on Tuesday in Vienna , Mr Nowotny highlighted the predicament currently faced by Greece: if Moody’s follows the other rating agencies in downgrading further its assets, they could become ineligible for use in ECB liquidity operations once the pre-global financial crisis regime is restored at the end of this year. Such assets would then become worth much less – sending Greece further into a downward spiral. Read more

By Tom Braithwaite

Democrats led by Barney Frank on Tuesday slammed a proposal to grant additional consumer protection powers to the Federal Reserve, as the latest idea designed to unlock talks in the Senate appeared destined for the scrap heap. Read more