Monthly Archives: September 2011

Claire Jones

Central banks are usually the most conservative of lenders, accepting only the safest assets in return for their cash.

However, many have been willing to lower their standards since the crisis began in order to counter liquidity shortages.

Even so, what the National Bank of Denmark has done today is drastic. Read more

Claire Jones

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Both the European Central Bank and the Bank of England will vote on monetary policy on Thursday.

The Monetary Policy Committee decision is out at noon local time (11.00 GMT). According to a Reuters poll, most expect the Bank to hold rates and maintain the stock of asset purchases at £200bn. However, a significant minority predict more QE, with most of these believing that £50bn is the amount that the MPC is most likely to plump for.

Though those expecting more QE in October are in the minority, the bulk of analysts do believe the Bank will expand its asset purchases at some point in the near future, with November considered the most likely option. The Bank also publishes the minutes of its FPC meeting on Monday at 09.30 local time (08.30 GMT), which may shed some light on the rather ambiguous statement that came out this week.   Read more

Claire Jones

Regulators on both sides of the Atlantic are calling on banks to strengthen their capital buffers by lowering dividends.

Britain’s Financial Policy Committee yesterday suggested as much. Today, Eric Rosengren, the president of the Federal Reserve Bank of Boston, was more explicit.

Mr Rosengren’s approach is also more interventionist. Read more

Claire Jones

Yesterday’s Financial Policy Committee statement well illustrated the bind officials find themselves in. On the one hand, they are calling on banks to build up their capital and liquidity buffers. On the other, they are desperate for them to prop up their ailing economies by lending to businesses and households.

If you look at today’s Bank of England data on broad money aggregates, then it’s easy to see why the FPC is so concerned.  Read more

Claire Jones

The Swiss National Bank’s forays into the foreign exchange markets have – along with the appreciation of the franc – led to spectacular losses, which in turn have provoked the ire of some of the country’s politicians.

One of the reasons why is that the central bank has traditionally paid out Sfr2.5bn each year to the Swiss confederation and the country’s cantons, which own the majority of the SNB.

The losses have thrown that into doubt. With the central bank announcing a paper loss of Sfr10.8bn for the first half of 2011, will it pay out? The message from Thomas Jordan, the SNB’s vice chair, today: don’t count on it.  Read more

Robin Harding

The launch of ‘Operation Twist’ last week has overshadowed a more modest kind of innovation by the Fed: it has become one of the first central banks to move into the iPad era with the launch of two separate apps for Apple’s tablet computer.

‘The Fed’, an app created by the Chicago Fed, is basically a tablet interface for the websites of all twelve regional banks and the Fed board in Washington. It pulls feeds of news and speeches from each website and presents them in the app.

 Read more

Claire Jones

The Bank of England’s Financial Policy Committee statement, out today, has left a lot of people scratching their heads.

The first of two recommendations calls on banks to “take any opportunity they had to strengthen their levels of capital and liquidity so as to increase their capacity to absorb flexibly any future shocks, without constraining lending to the wider economy”. The second warns that “some actions taken to raise capital or liquidity ratios could potentially worsen the feedback loop between the financial sector and the wider economy, and so should be avoided”.

At first glance, the recommendations appear contradictory. They are not. But they are conflicting.   Read more

Claire Jones

A lot has recently been written on the causes of banking crises. Central banks – many of which have taken on responsibility for macroprudential policy – have produced much of it.

This time it is the turn of Martin Weale, an external member of the Bank of England’s Monetary Policy Committee, and Matthew Corder, a Bank economist, who have published a paper on predicting crises and recessions.

Though the research points to three reasonable predictors of crises, none are perfect. The degree to which they are flawed offers some indication of just how tricky setting policy for financial stability will be.  Read more

Ralph Atkins

The European Central Bank favours the eurozone using as flexibly as possible its €440bn bail-out fund, the European Financial Stability Facility. But does that include giving the EFSF access to its liquidity?

The idea of making the EFSF an ECB “counterparty” – able to take part in its regular offers of unlimited liquidity – was proposed originally by Daniel Gros and Thomas Mayer in a Centre for European Policy Studies research paper. It gained ground last week as European leaders came under pressure in Washington from the rest of the world to come up with a more decisive response to the escalating eurozone debt crisis. With access to ECB liquidity, the EFSF’s firepower would be enormous. Read more

Robin Harding

Although it seems like a world away, the main economic policy argument in the early summer of 2010 was about the effectiveness of fiscal stimulus, in the wake of the Obama administration’s $787bn American Recovery and Reinvestment Act.

Now that the administration is asking for a new $447bn stimulus that question should be back at the top of the agenda – and thanks to two excellent new NBER papers it is going to be a lot harder for people to distort the economic argument.

Most of the new evidence suggests that in today’s specific circumstances – where the zero lower limit means that monetary policy is not as loose as the Fed would like – then fiscal stimulus could be very effective indeed. Read more