Daily Archives: June 16, 2010

George Osborne and Mervyn King’s Mansion House speeches have just been published. Their content makes it clear that the Bank of England will be all-powerful in UK financial regulation and Mr King will sit on top of the new castle. He was already so powerful he felt able to make jokes about the chancellor’s youth, something I gather is generally not popular in Number 11.

(Boring aside. Mr Osborne is 39, 23 years younger than Mr King, a subject on which the governor chose to dwell at some length in a way that, to put it politely, bordered on patronising.)

Earlier today I wrote a list of things we did not know. Here are the answers in red:

  • What “oversight of micro prudential regulation” precisely means. It is a slippery concept which could include anything from the movement of the entire supervisory role of the Financial Services Authority into the Bank of England to a very limited role for the Bank in gaining more access to information. It means making the banking supervisors from the FSA a subsidiary of the Bank of England. Hector Sants of the FSA will be the new chief executive of the prudential regulator and a Bank of England deputy governor. This subsidiary will carry out

 Read more

Simone Baribeau

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

Let no one accuse the Bank governor of complacency. He insisted otherwise in his Mansion House speech just published. But he is on pretty confident form.

The governor insisted the weakness of the economy would create “spare capacity [that] will press down on inflation” which is currently running at 3.4 per cent.

But that is not all. So evidently effective has monetary policy proved Read more

James Politi

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 WeekRead 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


Other news

Ralph Atkins

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

Ralph Atkins

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

George Osborne’s mansion house speech tonight is generating lots of interest because it is billed as the moment he reveals his blueprint for financial regulation in Britain. Most of the speculation in the media this morning is of the “let’s print Conservative Party policy and pretend it is a scoop” variety. I have not seen the speech by the chancellor, nor the reply from Mervyn King, Bank of England governor, so here is a quick guide to what we know and don’t know.

What we know for certain

 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.