The Fed has extended its dollar swap lines to the European Central Bank, the Bank of England, the Bank of Canada and the Swiss National Bank for another year (though, as of last Wednesday, no-one was using them).
Bar a three-month hiatus between February and May 2010, the lines have been in place since December 2007. They are now due to expire in August 2012, just a few months’ shy of five years after their introduction. At the height of the crisis, more than 14 central banks had set up arrangements.
The lines, set up to counter a lack of dollar liquidity for foreign banks with no access to Fed support, highlighted the dollar funding gap.
Financial markets think Bank of England meetings on monetary policy will be a bore for almost another year. The minutes last week persuaded investors that the Monetary Policy Committee was unlikely to raise interest rates until mid 2012.
Economists are now following in investors’ footsteps with Barclays Capital becoming the latest group of forecasters to push back their forecast of a rate rise from November 2011 to May 2012, arguing that “policy [is] paralysed by domestic double dip” fears.
As I argued in the Financial Times last week, investors have got ahead of themselves a little and the balance on the MPC is rather more delicate. It could easily tip towards a rate increase, particularly if Charlie Bean swung into that camp. Based on their recent words, here is my guide to the MPC members’ views, from the most dovish to the most hawkish.
As you can see, there is quite a delicate balance on the MPC. It could easily tip 5-4 to a rate rise. Getting a majority in favour of QE2 appears much more difficult at present.
The blueprint for Basel III is more than a year old. And there is consensus on its fundamental tenets – to hold more and better quality capital, for liquidity requirements, leverage ratios, and countercyclical buffers.
Yet the devil is in the detail. There remains disagreement on the calibration of countercyclical buffers, not to mention what form the leverage ratio and liquidity buffers should take.
So Sunday’s appointment of Riksbank governor Stefan Ingves to chair the Basel Committee is significant.
France’s tendency to hog the IMF managing directorship is well known. But (as this post by Chris Giles shows) the extent to which it has done so is staggering.
If Christine Lagarde was to complete her five-year term, then French nationals will have served as the Fund’s managing director for 41 years. By 2016, the Fund will be celebrating its 70th birthday, meaning that one out of a total of 187 members would have held the managing directorship for a whopping 59 per cent of the time.
The Bank of England’s governance structure has taken a bruising of late. The Treasury Committee has questioned whether its Court of Directors is up to the job, and has called for more external members of the Financial Policy Committee – hardly a ringing endorsement of Bank personnel.
So it was with more excitement than the subject of central bank governance usually commands that the Bank’s governor, flanked by four of his fellow interim FPC members, faced the committee this morning for an evidence session on its accountability.
But for those expecting a grilling it was rather a damp squib. With the exception of George Mudie MP, who told the Bank it was getting “great power” with very little in the way of accountability in return, the questioning of committee members appeared rather subdued. Perhaps because the Bank attempted to downplay any concerns the committee might have by heaping it with praise.
In justifying why the Bank of England’s policy rate remains on hold, Sir Mervyn King frequently notes that inflation of more than double the Bank’s target has yet to lead to higher wages.
Before at the Treasury Committee this morning, Sir Mervyn again indicated the avoidance of a wage-price spiral was playing a key role in the decision to keep bank rate at 0.5%.
The governor now appears to be publicising a new line of argument as well. The argument, first voiced at the May Inflation Report press conference, goes like this.
The Bank for International Settlements’ Annual Report, released Sunday, more than any other document influences the global central banking agenda. Reports have held more sway in recent years owing to the BIS both forecasting the crisis – well more so than others anyway – and highlighting the deficiencies of some of central banking’s then-sacred cows, notably inflation targeting.
The reports rarely shirk the big issues. And this year’s address head-on the rather awkward question of whether the crisis constitutes a negative supply shock. The BIS says yes. And what’s more, as there is far less slack than many policymakers are willing to admit, policy rates in not just emerging, but also advanced economies, must soon rise despite weak growth.
The BIS is probably right. But will the European Central Bank, the Fed and the Bank of England budge? That depends on two factors.
Bankers who re-package - or securitise - their loans and sell them on, not only contributed to the global economic crisis. They also disrupted the European Central Bank’s radar systems.
The ECB prides itself in its “monetary analysis” – the study of monetary aggregates and lending data for early signs of inflationary dangers, which is used when setting interest rates. But a new statistical database released by the ECB today shows how loan securitisation has confused the picture.
Sir Mervyn King, as the Bank of England governor is now known, is a busy man. He runs the UK central bank and, insiders say, delegation is not his strongest characteristic.
In the reforms to the UK economic policy framework following the financial and economic crisis, the government will make Sir Mervyn busier still. On top of his duties as chief executive of the Bank, chairman of the Monetary Policy Committee and guardian of system-wide financial stability, he is geeting more duties to perform.
He now chairs the Financial Policy Committee, a body whose remit remains unclear but appears to add teeth to the financial stability role. He will also chair the board of the Prudential Regulatory Authority, the bank supervisory arm which will come to the Bank from the Financial Services Authority. It is no wonder that parliamentarians are concerned about accountability at the Bank.
In the publication of the interim Financial Policy Committee’s first minutes this morning, we were witness to the birth of the body the Treasury and the Bank of England want to be the glue that links monetary policy and banking supervision.
Alongside the Bank’s financial stability report, which the FPC rubber-stamped, the new committee without powers produced an interesting analysis of the financial scene containing few surprises. Its main conclusion – that peripheral eurozone sovereign debt is the biggest risk to financial stability – is hardly new.
The really fascinating aspect of the FPC minutes and the news conference was the insight they gave into the new super-powerful Bank and the personalities involved.