Monthly Archives: March 2012

Claire Jones

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FOMC minutes

The minutes of the Federal Open Market Committee’s mid-March meeting are out on Tuesday at 2pm in Washington, DC (8am GMT). This from the FT’s US economics editor Robin Harding on what to expect: Read more

Robin Harding

The strength of the gross domestic income in the fourth quarter of 2011 – it was up by an annualised 4.4 per cent – has been widely remarked upon. The contrast with the weaker 3 per cent growth in gross domestic product is striking.

The rise in GDI invalidates part of what Ben Bernanke said in his labour markets speech only three days ago. Mr Bernanke said (my emphasis): Read more

Claire Jones

And then there was one.

The Treasury’s report on how it (mis)handled the crisis means that, of the three tripartite authorities, only the Bank of England has yet to conduct an internal review on its performance during the turmoil.

Unsurprisingly, the governor insists such a review is unnecessary. And if Sir Mervyn King is as “amazingly stubborn” as his former opposite number in Treasury has claimed, then he’s unlikely to budge. Plus the Bank’s habit of destroying the evidence is likely to make any review rather incomplete.

The Treasury review does, however, offer some nice tidbits into where it thinks the Bank got it wrong, as well as the fraught relationship between Whitehall and Threadneedle Street.

Tellingly, the report sees Treasury’s ability to challenge the advice doled out by the new, all-powerful, Bank as vital. Hardly a signal of trust.  Read more

Claire Jones

Jens Weidmann, Bundesbank president, was in London today to give a talk at Chatham House about rebalancing Europe.

The official speech was the standard Bundesbank fare about how it wasn’t up to the surplus countries, such as Germany, to rebalance their economies by boosting domestic consumption and that the onus should instead fall on the deficit countries to enhance their competitiveness.

No surprise there then. Neither was it too much of a shock that Mr Weidmann managed to get in a dig at the Banca d’Italia, Mario Draghi’s former stomping ground — though the dig covered the “unholy marriage” between Italy’s central bank and its finance ministry from the mid 1970s until 1981, a period before Mr Draghi arrived at the Bank.

However, some juicier stuff came out in the Q&A. Read more

Claire Jones

Today the Bundesbank has leapt to the defence of the much-maligned male banker, saying that it was not them, but the women on lenders’ boards that encouraged risk taking.

This from the FT’s Frankfurt bureau chief Ralph Atkins:

Board changes at banks that result in a higher proportion of female executives “lead to a more risky conduct of business”, concluded the authors of an extensive study of German finance houses released by the country’s central bank…

…Explaining their controversial findings, based on an analysis of German bank executive teams from 1994 to 2010, the report’s authors suggest a main reason is that women executives tend to be “significantly less experienced” than male counterparts and that a lack of experience drives risk taking.

The argument that women fail to control risk because they lack experience is a bit circular surely.

But, regardless of what has happened at German lenders, a plethora of women in their upper ranks is not an excuse that central banks can rely on in explaining their policy failures. Read more

Claire Jones

Central among the Bank of England’s current concerns are fears that the recent spike in oil prices could prove more permanent than commonly thought.

This from the latest Monetary Policy Committee minutes:

A clear risk surrounded the outlook for crude oil prices. The increase on the month appeared to have been driven primarily by fears of future disruption to the supply of oil.  Any worsening of the underlying tensions in the Middle East could have significant implications for future oil prices.  And with an underlying upward trend in global demand, the risks might be more to the upside than suggested by the oil price futures curve which was used as a guide in constructing the Committee’s inflation projections.

This suggests that the Bank’s outlook is more hawkish now than is shown in its February inflation forecast. But, even if that is the case, that might not be altogether apparent from the next round of fan charts, out in May.

In fact, because of the Bank’s dogged refusal to publish some of the information underpinning its forecasts until a week after the fan charts are released, the May forecasts may well do more to mislead than inform on the MPC’s thinking. Read more

Robin Harding

Masaaki Shirakawa, the governor of the Bank of Japan, gave a subtle and interesting speech this weekend that may not have been totally comfortable for his hosts at the Federal Reserve.

Mr Shirakawa set out four problems with aggressive monetary easing in the wake of a financial crisis. These are closely mirrored in the US debate about Fed policy but on several points he took the argument further: Read more

Claire Jones

Our week ahead email helps you to track the most important events in central banking. To see all of our emails and alerts visit

Bernanke on the labour market

Ben Bernanke delivers the two final talks in his four-part lecture series to college students on the Federal Reserve and the financial crisis.

What will be of more interest to markets, however, will be the Fed chairman’s talk on Monday on recent developments in the US labour market. This from the FT’s US economics editor Robin Harding on what to expect:

 Read more

Claire Jones

Obama’s World Bank nominee Jim Yong Kim is a man of many talents… (Mr Kim’s attempt to be the next Kelly Clarkson begins two minutes in). Read more

Ralph Atkins

Germany’s conservative “awkward squad” — willing to criticise publicly the European Central Bank — has a new member. Jürgen Stark, who quit the ECB’s executive board last year, has voiced alarm at the inflationary consequences of its actions to save the eurozone and warned the global financial system is “on drugs”.

The former Bundesbank vice-president’s comments are given expansive treatment in Handelsblatt, the business newspaper — they are spread over six tabloid pages. Two points struck me as novel. Read more

Claire Jones

The Bank of England has recently found itself accused of “taking far more money from people’s pensions than Robert Maxwell ever did” because of the impact that QE has had on annuities.

It’s not difficult, then, to imagine the uproar from the younger and poorer members of society if the Bank was to ban people getting a mortgage unless they can stump up, say, a 25 per cent deposit.

The lobbyists for the young and poor are less powerful than those serving the interests of the old and rich. Still, one suspects a raft of bad press about how the unelected (and well paid) technocrats that inhabit Threadneedle Street were preventing Mr and Mrs Smith from “getting on the property ladder” — long considered a rite of passage in British life — as the likely result of caps on mortgage lending.

With this in mind, the Financial Policy Committee, the Bank of England body charged with safeguarding stability, today resisted recommending that it be given the power to limit borrowing by would-be homeowners as part of its toolkit to stave off future financial crises.

Such caution in avoiding negative PR is wise for an institution under fire for a lack of public accountability.

But the problem is that the evidence suggests limits on loan to value, or loan to income, ratios for mortgages are by far the most effective tools in preventing financial crises.

Even the Bank’s own research suggests that the effectiveness of two of the three tools that the FPC wants to use instead of caps on mortgage borrowing is mixed at best.  Read more

Claire Jones

The European Central Bank’s bumper offer of more than a trillion euros in three-year loans has done much to soothe market jitters. So much, in fact, that talk is now turning to how central banks can remove some of the extraordinary support they have provided to the financial sector.

Yesterday it emerged that the ECB may not complete its €40bn covered bond purchase programme, launched at the height of the crisis in November. Further three-year longer-term refinancing operations, at present, are unlikely.

It is still far too early to see a more widespread withdrawal of central bank support. But it makes sense for central banks to do as much planning as possible for making an exit.

When the time comes to tighten, central banks are not short of options on how to do it. A raft of instruments are available to raise the cost of credit. Among them are interest on reserves, hiking reserve requirements, limits on the amount of liquidity offered through their auctions of central bank money, standard interest rate hikes and – in the ECB’s case at least – the issuance of central bank bills.

But what they do lack is experience of making an exit when the policy stimulus has been so large. A paper published last night by Citi, however, says there are a few lessons that can be taken from the Bank of Japan’s attempts to wean its banks off QE. Read more

Ralph Atkins

Mario Draghi is prepared to take risks — at least with his communication strategy.

Germany’s Bild today a large photograph of the European Central Bank president laughing enthusiastically on being presented with an original 1871 Prussian spiked helmet by the newspaper’s editorial staff.  It was obviously meant in jest. But was it demeaning for a supposedly serious central banker?

The picture refers back to Bild’s original endorsement of Mr Draghi for the ECB presidency last year, a move which signalled Germans were prepared to accept an Italian in charge of their currency. Read more

Claire Jones

The Bank of England’s minutes of its March Monetary Policy Committee meeting, out today, revealed that two of its nine members — David Miles and Adam Posen — wanted more quantitative easing.

But don’t let that mislead you into thinking further asset purchases are on the way. These are certainly not a more dovish set of minutes. In fact they do much to highlight the Bank’s concern over the recent rise in oil prices.  Read more

By Norma Cohen, economics correspondent

In the months and years since the financial crisis began, the Bank of England has been notably reluctant to fall on its collective sword in connection with its oversight role, or even to murmur a modest “mea culpa” in connection with any aspect of it.

Bank of England

Bank of England. Image by Getty

The most it has done has been to insist that it did not have the tools necessary to actually stop excesses from happening even where it could spot them. At least, that has been its public stance.

But in private, economists at the Bank may have a more nuanced role about their discipline and more generally, about what needs to be done to prevent another financial crisis. Read more

No, this isn’t a post about quantitative easing – which genuinely is a case of creating money (banking reserves) and using it to buy assets in a bid to boost economic output and inflation.

This is a post about the lack of understanding in the UK government that the private sector – whether it is a pension fund, a sovereign wealth fund or wealthy individuals – do not simply give the nation assets. Read more

A few people have asked me for more data and information on the jinxed generation article in Saturday’s paper, which shows the youngest cohort of people entering the labour market were the first in over 50 years not to have higher living standards then their immediate forebears.

 Read more

Claire Jones

Our week ahead email helps you to track the most important events in central banking. To see all of our emails and alerts visit

Bernanke goes back to school

Ben Bernanke, Fed chairman, next week delivers the first two of four lectures to undergraduates at the George Washington University School of Business. Read more

Robin Harding

The Federal Reserve Bank of Kansas City has today announced the appointment of Troy Davig as its new director of research.

“Troy Davig has been named senior vice president and director of research. Davig had served at the Bank from 2005 to 2010 in the Economic Research Department. He is rejoining the Bank after serving as senior U.S. economist for Barclays Capital since 2010. As director of research, Davig will act as the Bank’s chief economic policy advisor, provide executive oversight for the Bank’s Economic Research Division and serve as a member of the Bank’s Management Committee, which has responsibility for the Bank’s strategic planning and policy.”

Although low profile, the twelve research directors of the regional Fed banks are very important to monetary policy, especially when the president of the bank is not a macroeconomist. Esther George, who was appointed president in Kansas City last October, is mainly known for her work on bank regulationRead more

Claire Jones

The news of Hector Sants’ resignation on Friday came as a shock. But the reason for his departure – frustration at the progress of the integration of the Financial Services Authority into the Bank of England – should come as little surprise.

Integrating the FSA’s prudential regulators into the Bank was always going to be fraught with difficulty.

One problem that officials with experience of both the FSA and the Bank often mention is of trying to reconcile the cultural differences between regulators, who are often better paid, and economists, some of whom regard themselves as intellectually superior.

Having Mr Sants fill one of the three deputy governor seats at the Bank (and head the Prudential Regulation Authority) would have gone some way to reconciling those differences.

Who will speak up for the regulators now? Read more