Charles Plosser, president of the Philadelphia Fed, today gave a quite interesting speech on developing regulation to address too-big-to-fail financial institutions. His comments (well worth a read) on the Squam Lake Group’s recommendations (also worth a read) come after a lull in the too-big-to-fail discussion. A few months back, living wills, robust resolution mechanisms, and early intervention were at the forefront of the public policy debate. But as the european debt crisis has captured headlines, officials have been quieter on their plans to address the TBTF problem (until today’s conference), with the notable exception of St Louis Fed president James Bullard, who’s been explicitly stating the implicit guarantee still holds. Read more
For all the turmoil in the markets over the past month, economists at the top US banks remain reasonably bullish about the future.
The American Bankers Association said its economic advisory committee, chaired by Stuart Hoffman of PNC Financial, believes there will be no “double-dip” recession in the US, which will instead experience a “moderate but solid” recovery with growth of 3 per cent this year and next. Read more
“Fortune favours the bold,” the Bank of Canada governor said today, exhorting Canadian businesses to invest and engage with the new ‘multi-polar’ world, and promising to deliver price stability in return.
Perhaps it is this upbeat, confident tone that has convinced investors of further planned rate rises. For convinced they are, if swap rates are anything to go by. Canada’s six- and twelve- month overnight index swap rates have risen to their highest levels since 2008 this week, reports Business Week. Read more
Fannie Mae and Freddie Mac, the large mortgage finance companies that have been hit by souring home loans, will delist their shares from the New York Stock Exchange for failing to meet minimum price guidelines.
Fannie and Freddie were taken over by the government in 2008 amid a collapse in home prices and are now 80 per cent owned by US taxpayers. Large shareholders include Vanguard, Blackrock and California’s state pension fund. The companies’ stock will instead trade on the over-the-counter market, known as the pink sheets. Read more
** corrected at 16.40 to read “in the near future” instead of “next few days”
Spain’s central bank has thrown down the gauntlet to bank regulators elsewhere in Europe, saying it plans to publish the results of “stress tests” on the country’s financial institutions in the near future to clear up doubts about Spain’s banking system. (Berlin has also dropped resistance to the plan.) Read more
Sir John Vickers has just been confirmed as head of the Independent Banking Commission
Sir John Vickers is warden of All Souls College, Oxford University, but has long been a core member of the British economic establishment. Until recently he was president of the of the Royal Economics Society and rare among economists in having held jobs in supervising both overall economic policy, as chief economist of the Bank of England, and detailed regulation and promotion of competition in individual industries, as chairman of the Office of Fair Trading.
His initial reputation was made in his analysis of privatisation in the 1980s, in which he argued that competition and effective regulation was generally more important than ownership in seeking to improve the efficiency of companies. Read more
Attention is focusing on Spain. Dominique Strauss-Kahn – who’s in the region anyway, apparently – will take the opportunity to visit the country on Friday to discuss the economy with the PM.
Agenda items might include Spanish sources of debt, following a disappointing bill auction on Tuesday, highest government bond yield spreads since the mid-90s, and data from RBS showing that Spanish institutions’ net borrowing from the ECB is at an all-time high (see chart). Note that the Spain is bucking the euro area trend, which has seen total euro area net borrowing fall by a sixth since its April 2009 peak of €629bn. The white line shows Spain’s borrowing as a proportion: now at a high of 16.5 per cent. High borrowing from the ECB suggests Spain is struggling to raise debt at reasonable rates elsewhere.
Spain is tackling problems in its economy. A raft of austerity measures Read more
Financial market tensions are serious – but not yet acute. That is clear from today’s offer of seven day dollar funds from the European Central Bank in conjunction with the US Federal Reserve. Demand was precisely nil – as it has now been in four of the six such offers since they were re-introduced at the start of May. (At the first and third $9.2bn and $5.4bn were taken.)
One reason is that the interest rate agreed with the Fed is high (1.17 per cent in today’s offer). But the lack of demand also shows that, in spite of apparent difficulties obtaining dollar liquidity, eurozone banks are not having to grab whatever they can. Jean-Claude Trichet, ECB president, last week said it was good that the facility existed. “If it is not utilised, that is also good because that means that there was no need for it.” Read more
Europe’s debt crisis must be serious: one of the European Central Bank’s most conservative policymakers has admitted it might be time to throw away the textbooks. In an interview with Die Zeit, the German weekly newspaper, Jürgen Stark, an executive board member, defended the ECB’s decision to intervene in eurozone bond markets – despite fierce resistant from former top officials at the Bundesbank, where he was previously vice president.
“I would like to differentiate between those who have to take decisions and bear responsibility and those who comment on developments from outside,” Mr Stark said. “We have had to deal with a crisis that no politician or central banker in Europe had experienced in 60 years. In such a case, the application of pure textbook knowledge is not be advisable.”
But Mr Stark’s new-found flexibility has limits. Read more
Chile, which has bounced back more strongly than expected from a devastating earthquake at the end of February, has hiked its key lending rate by 50 basis points, becoming the latest country in the region to start reining in monetary stimulus measures after recent rate rises by Peru and Brazil.
The half-point hike, to 1 per cent, was at the top end of market expectations, wrongfooting many who had expected the bank to take a more softly-softly approach. The key lending rate had been at a record low of 0.5 per cent since July 2009 and the bank had not raised the rate since September 2008, when it was 8.25 per cent. Read more from Jude Webber on ft.com.