Are US equities about to get a boost from a surprising source?
The Bank of Israel this month joined the Swiss National Bank and the Hong Kong Monetary Authority in investing in US stocks, initially setting aside 2 per cent of its $77bn reserves stockpile into share indices.
However, even though the amount could eventually climb to 10 per cent of its reserves, this hardly the sort of news that will move a market as big as US equities, for which $7.7 billion is small change.
But if other central banks, which collectively manage $10.7trn-worth of reserves, follow suit, then the impact could be significant. Read more
Hungary’s new central bank act has led to outcry from the IMF, the European Central Bank, the European Commission and the National Bank of Hungary itself.
The act, rightly, is perceived as part of a broader power grab by prime minister Viktor Orbán from any institution or individual that serves as a check on government policy. It is also the latest in a series of attempts to undermine the current governor, András Simor.
However, some of the measures that the act proposes already apply to many of the major central banks.
It is not so much a case of what the act says, then. More what it signifies.
That highlights just how flimsy and susceptible to politicians’ whims central bank independence actually is. Read more
The IMF and the World Bank will regard the publication of its report on the first Financial Sector Assessment Programme, or FSAP, for China on Tuesday as something of a triumph.
Pre-crisis, China (along with the US) refused to undergo the programme, which serves as a health check on a country’s financial network. Now, they are compulsory for those financial networks deemed systemically important.
People's Bank of China. Image by Getty.
That’s to be applauded; the more that is done to warn of risks to financial stability, the better. But the People’s Bank of China’s response to the exercise highlights its limits. Read more
Officials the world over are keen on macroprudential policy. But it’s far from obvious what tools macroprudential policymakers should be given. It’s also not clear the degree to which central banks should be responsible for exercising the macroprudential mandate.
Fear not. The IMF released a guide on Tuesday on the pros and cons of different institutional arrangements for macroprudential policymaking. What the guide shows is that the degree to which central banks are responsible boils down to how officials weigh up two sets of risks: those stemming from a lack of accountability and those caused by groupthink. Read more
Officials around the world agree that macroprudential policy is an important tool for safeguarding the stability of their financial systems. But there is less consensus on what does and doesn’t count as a macroprudential policy tool.
In an effort to provide some much needed clarity, then, the Financial Stability Board, Basel Committee and International Monetary Fund have today released a guide.
But their reading of what doesn’t count is contentious. Read more
The FT’s Peter Spiegel reports today of a standoff between the ECB and the IMF over how swingeing the next round of Greek cuts should be.
Part of the reason for the delay is a standoff between two of the members of the troika – the IMF and ECB – over whether Greece can keep paying its debts without taking more stringent austerity measures. The ECB has taken a tougher line, while the IMF has urged more leniency.
Which is right? According to a paper to be presented at a St Louis Fed conference tomorrow, the ECB is when it comes to Greece. But the case is far less clear cut on whether the troika should push for such harsh cuts elsewhere. Read more
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The majority of the world’s central bank governors and finance ministers are in Washington, DC this weekend for the IMF/ World Bank Annual Meetings.
Will there be any more policy coordination following the G-20 communiqué released late Thursday? Read more
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Both of next week’s key events are on Monday. Read more
Christine Lagarde. Image by Getty.
The Federal Reserve is too often seen as a panacea for the US’s economic ills. This no doubt owes much to its dual mandate to both maintain price stability and promote employment, despite there being little monetary policy can do to influence structural unemployment.
And so Christine Lagarde’s comments today that there has been a rise in structural unemployment in the US – and that, by implication, fiscal policy should shoulder more of the burden for creating jobs – is to be welcomed. Read more
The European Union today became the first jurisdiction to unveil proposals on how it intends to beef up its banks’ capital and liquidity buffers.
In terms of capital, the measures put European banks in line with Basel III in requiring them to hold common equity tier 1 capital of 4.5 per cent and total tier 1 capital of 6 per cent, up from 2 per cent and 4 per cent under the current regulatory regime.
That means the continent’s banks must raise a whopping €460bn in capital by 2019. Either that or shrink their balance sheets and shed risky assets.
But hold the applause. According to the IMF, this might not be enough. Read more