Daily Archives: July 7, 2011

Retired LSE professor Charles Goodhart makes a strong case in today’s FT about the systemic risks posed by bail-in bonds and contingent capital (cocos) — debt that converts to equity when a bank is in or near crisis.

But he may be overstating the case when he argues that the Basel Committee on Banking Supervision and the Financial Stability Board have become too enamoured of these cocos and should be forcing banks to raise more equity instead.

In fact, the BCBS did exactly what Mr Goodhart would have wanted when they met last month to determine how to make the world’s largest banks, known as Global systemically important financial institutions (G-sifis), more resilient and safer.  The regulators and central bankers agreed that 25-30 institutions would have to carry extra capital — ranging from 1 to 2.5 per cent of their assets, adjusted for risk — on top of the global minimum of 7 per cent set for all banks last year. 

Claire Jones

Brazilian finance minister Guido Mantega’s distaste for QE2 is well known. The Federal Reserve may have decided to give Brasilia a little of its own medicine, however.

Research published on the Fed’s website over the weekend takes aim at Brazil’s use of reserve requirements – the proportion of a bank’s reserves that they are required to park at the central bank – as a tool to manage liquidity.

The use of reserve requirements for this purpose (rather than to combat inflation, as is usually the case), is especially pertinent at the moment given that the Liquidity Coverage Ratio has become one of the more controversial aspects of Basel III. 

Claire Jones

ECB president Jean-Claude TrichetWelcome to the live blog where we will cover the European Central Bank’s rate decision and ECB president Jean-Claude Trichet’s press conference.

All times are London time; Frankfurt is one hour ahead. By Claire Jones and Chris Giles in London, and Ralph Atkins in Frankfurt.


 

16.39 Ralph Atkins’ key points, in no particular order, from today’s press conference. 

Chris Giles

What was that infamous “Jo Moore” phrase again?

Yesterday certainly was “a good day to bury bad news”. As all eyes were focused on the News of the World phone hacking scandal, the government slipped-out an announcement that its preferred candidate for the new chair of the UK Statistical Authority withdrew her candidacy.

MPs were not convinced Dame Janet Finch, a paid up member of the non-executive great-and-the-good, she was sufficiently independent to be an effective watchdog over official statistics and ministerial spinning of data. The good news for all those interested in clear official data and wider access to information held by government is that the next candidate put forward by government must know they are there to serve the public not the government.

This creates the possibility of a new dawn for UK statistics. all areas including monetary policy will be more transparent and, even if pre-release of data to ministers is curtailed, the Bank of England is unlikely to find its job of controlling inflation compromised.

What was wrong with Ms Finch? She gave a shocker of an interview to MPs last week