mercoledì 16 settembre 2015

Superior debt management: solving the Eurozone crisis

Superior debt management: solving the Eurozone crisis
A sovereign funding instrument outside banking oligarchs reach
by Marco Saba, September 15, 2014

sabato 18 aprile 2015

The trick and the fix for mega banks balances

A graph exposing the bank accounting problem

lunedì 20 ottobre 2014

Mayer: How can Sovereign Money be accounted for

The global system of financial regulation is a complex


The Spider of Finance

LONDON – The global system of financial regulation is extraordinarily complex. Partly for that reason, it is little understood. In order to explain it to my students at Sciences Po in Paris, I have devised a kind of wiring diagram that shows the connections among the different bodies responsible for the various components of oversight. It makes a circuit board look straightforward.
Many people show some spark of recognition at the mention of the Basel Committee on Banking Supervision, which sets capital standards for banks. They may also have heard of the Bank for International Settlements, the central banks’ central bank, in which the Basel Committee sits. And the International Organization of Securities Commissions (IOSCO), which sets standards for exchanges and securities regulators, has name recognition in some quarters. But when you get to the International Association of Insurance Supervisors, brows furrow.
There are many other groupings. The International Accounting Standards Board does roughly what you might expect, though the Americans, while members, do not in fact use its standards – which are now confusingly called International Financial Reporting Standards. But the IASB has spawned other committees to oversee auditing. There is even – reminiscent of Hermann Hesse’s last novel, The Glass Bead Game – an international body that audits the bodies that audit the auditors.
The Financial Action Task Force sounds dynamic, like a rapid-response team one might send to a troubled country. In fact, it is the part of the OECD that monitors the implementation of anti-money-laundering standards. Why it is part of the OECD when its remit is global is a mystery few can explain.
This elaborate architecture (and there is a lot more) was assembled piecemeal in the 1980s and 1990s. Until the Asian financial crisis, it was a web without a spider at its center. When Hans Tietmeyer, a former head of the Bundesbank, was asked by G-7 finance ministers to review its effectiveness, he recommended a new spider, known as the Financial Stability Forum (FSF), which would examine the financial system as a whole and try to identify vulnerabilities that might cause future trouble.
I was a member of the FSF for five years. I confess that I am rather afraid of spiders, but even an arachnophobe like me found little reason to be worried. The FSF was not a scary creature, and the individual regulators, national and international, were largely left to their own devices, with all of the unhappy consequences with which we have become acquainted.
Before 2007, there was little political interest in tougher global standards, and individual countries resisted the idea that an international body might interfere in their sovereign right to oversee an unsound banking system. So when the next crisis hit, the FSF was found wanting, and in 2009 the G-20 governments decided that a tougher model was needed – the Financial Stability Board. The FSB has now been in operation for five years, and is currently working on some new proposals to deal with too-big-to-fail banks, which will be on the menu of the forthcoming G-20 meeting in Brisbane (along with surf and turf, Pavlovas, and other Australian delicacies).
There is not (yet) an international group that audits the FSB’s effectiveness. But if there were, what would it say about the FSB’s performance so far, under the leadership of Mario Draghi and then of Mark Carney, each of whom did the job in his spare time, while running important central banks?
On the asset side of the balance sheet, the auditors would be bound to note that the Board has done much useful work. Its regular reports to the G-20 pull together the diverse strands of regulation in a clear and comprehensible way. There is no better source of information.
They would also record that pressure from the FSB has accelerated the work of sectoral regulators. The second Basel accord took more than a decade to conclude; Basel 3 was drawn up in little more than 24 months (though implementation is taking quite long). The performance of the IOSCO and the IAIS has similarly been sharpened by the need to report progress through the FSB.
The Board has also issued some valuable warnings in its so-called “vulnerabilities” assessments. It has pointed to emerging tensions in the system, without falling into the trap of forecasting ten of the next three crises. And its peer review mechanism is prodding individual countries to strengthen their regulatory institutions.
Nonetheless, a frank assessment would acknowledge that this spider has so far caught few flies. To switch animal metaphors, it is a watchdog without teeth. It can neither instruct the other regulators what to do (or not do) nor force member countries to comply with new regulations.
Indeed, the entire edifice of global financial regulation is built on a “best endeavors” basis. The FSB’s charter, revised in 2012, says that signatories are subject to no legal obligations whatsoever. Unlike the World Trade Organization, for example, no international treaty underpins the FSB, which means that countries cannot be sanctioned for failing to implement the standards to which they are ostensibly committed.
So a fair verdict would be that the FSB has done no more and no less than what its political masters have been prepared to allow it to do. There is no political will to create a body that could genuinely police international standards and prevent countries from engaging in competitive deregulation – and prevent banks from engaging in regulatory arbitrage. It seems that we must await the next crisis for that resolve to emerge. In the meantime, the FSB, with all of its weaknesses, is the best we have.

EU debt goes against treaties

EP Budgets Committee Chair: 'EU debt goes against treaties'


Published: 20/10/2014 - 08:22

Jean Arthuis believes EU debt from 2014 should be dealt with in the 2015 budget. []
As member states present their 2015 budgets to the European Commission for examination, serious questions are being raised over the alarming state of the EU budget. President of the European Parliamentary Committee on Budgets Jean Arthuis says the Union's debts will reach €30 billion by the end of 2014.
President of the Committee on Budgets in the European Parliament, and French Minister for the Economy and Finances from 1995 to 1997 Jean Arthuis is an MEP from the liberal ALDE group.  He was interviewed by EurActiv France.
The EU’s financial difficulties are a result of debts that have accumulated over several years. The European Parliament is due to adopt the EU budget for 2015 at the plenary session in Strasbourg on 22 October, so what is the current situation?
The European Union is still generating debt, which goes against the treaties. When the Council and the European Parliament set budgetary commitments, they must have accepted that one day they will have to honour those commitments.
The real issue is that we are creating a "snowball effect" of accumulated debt, to the point where the EU's debts were worth €11 billion at the end of 2011, 16 billion at the end of 2012, 23 billion at the end of 2013, and could reach €30 billion by the end of 2014. The debts just keep on growing. We have to put an end to this.
How can such an accumulation of unpaid bills exist when the treaties formally prohibit the EU from generating debt? Does this mean there are structural problems in the way the European Union's budget is established?
The multiannual financial framework, which has scheduled the EU's spending for 2014-2020, was adopted despite a €52 billion discrepancy between spending commitments and payments. €960 billion of commitment authorisations were scheduled, compared to only €908 billion of payment appropriations, which means that some bills will have to be deferred.
€220 billion is still awaiting validation from 2013.  This situation must be rectified.
What can be done to limit the accumulation of debt?
To face up to the 2014 situation, the European Commission is planning to increase payment appropriations by €4 billion. This was approved by the EP’s Committee on Budgets and will be put to the vote in the plenary on 22 October.
As far as the 2015 budget is concerned, the plan is to re-establish the level of payment appropriations initially proposed by the European Commission.
I think it is important to deal with the unpaid bills from 2014 at the same time as the budget for 2015, but to prioritise 2014 in order to stabilise the debt.
Does the EU's budgetary situation not clash with its demands on member states to make serious efforts to keep public deficits and debt at acceptable levels?
It raises questions over the authority of Europe. It is the member states that will have to honour this debt. We have a conciliation week between 6 and 14 November, the central aim of which will be to ask member states for more funds. We will see how that goes.
For us, tackling the debt problem is the main issue, but considering the state of the budget in some member states, we shall have to wait and see.
Jean-Claude Juncker, the new president of the European Commission, has announced a huge investment plan of €300 billion to boost economic growth in Europe. How will the EU mobilise this money in the current economic climate?
The big question is how Jean-Claude Juncker will bring €300 billion euro investment plan to fruition. We do not think this money will be recycled from elsewhere; it will probably take the form of private savings mobilised via Project Bonds.
But how will this be possible when budgets are so restricted? The future Vice-President of the European Commission for the Budget, Kristalina Georgieva, was unable to answer this question at her parliamentary hearing, as she did not have a detailed knowledge of the investment plan.

Krugman: human sacrifices are not necessary

Paul Krugman Reveals How Conservative Economists Are Like Superstitious Medieval Crusaders

The market is treated like a God, whose will only they can divine.

Photo Credit: via youtube

In his Friday column, Paul Krugman delves into the irrationality of economists who have gotten everything wrong about austerity and the perceived threat of hyper-inflation in the past few years, and yet still cling to their quasi religious reverence for the wisdom of the markets. Economists like Alan Greenspan, for instance.
This week's turmoil in the stock market is, in Krugman's view, a result of weak economies world wide, economies that have been stifled by austerity measures and a stern refusal to adopt policies that would stimulate growth and relieve millions of people who are in debt. But those who believe in the "market gods" don't seem to be getting the message.
"We have been told repeatedly that governments must cease and desist from their efforts to mitigate economic pain, lest their excessive compassion be punished by the financial gods," Krugman writes. "But the markets themselves have never seemed to agree that these human sacrifices are actually necessary. Investors were supposed to be terrified by budget deficits, fearing that we were about to turn into Greece — Greece I tell you — but year after year, interest rates stayed low. The Fed’s efforts to boost the economy were supposed to backfire as markets reacted to the prospect of runaway inflation, but market measures of expected inflation similarly stayed low."
Worse, perhaps than worshipping the God-like market, is that the austerity hawks are misinterpreting the message.
Inflation hysterics like Alan Greenspan even express disappointment and exasperation when their dire predictions about inflation don't come true."It’s hard to escape the conclusion that people like Mr. Greenspan knew as much about what the market wanted as medieval crusaders knew about God’s plan — that is, nothing," Krugman zings.
In fact, if you look closely, the real message from the market seems to be that we should be running bigger deficits and printing more money. And that message has gotten a lot stronger in the past few days.
I’m not mainly talking about plunging stock prices, although that’s surely telling us something (but as the late Paul Samuelson famously pointed out, stocks are not a reliable indicator of economic prospects: “Wall Street indexes predicted nine out of the last five recessions!”) Instead, I’m talking about interest rates, which are flashing warnings, not of fiscal crisis and inflation, but of depression and deflation.
Most obviously, interest rates on long-term U.S. government debt — the rates that the usual suspects keep telling us will shoot up any day now unless we slash spending have fallen sharply. This tells us that markets aren’t worried about default, but that they are worried about persistent economic weakness, which will keep the Fed from raising the short-term interest rates it controls.
The interconnected world economy is tumbling in the opposite direction of what Greenspan and his ilk feared: deflation and stagnation, which are far worse than inflation.
Krugman advises skepticism the next time a talking head purports to know what we have to do to satisfy the markets. "What they’re really doing is trying to bully us into doing what they themselves want," he concludes.

domenica 19 ottobre 2014

Clearing-houses immense power disclosed in 1908

This is from a November 1908 statement of THE NATIONAL BANK OF THE REPUBLIC OF CHICAGO:

THE CLEARING HOUSES of the country do not even yet have any adequate conception of their own power. Clearing house government is still in the process of evolution. As a mechanism for the clearing of checks and the clearing house system is complete. But it is more than a mere machine. In a larger sense of the word it is Government, and it only needs further development to take the place of all police power so far as the world of credits is concerned, and credits really rule the world.

Take the events of the past year as illustrations of the growth of the clearing house power. In the hour of panic it was the clearing house far more than the Government that checked the tide of disaster.

The bank examinations of the Government being insufficient, the clearing houses are now beginning to institute examinations of their own. They are creating a system of regulation far more effective than that which the Government has instituted. They are providing a guarantee of solvency and payment far more powerful than any system of Government guarantee which Congress can devise.

But there are larger possibilities of development in the clearing house system than even these achievements disclose. This country needs such concentration and flexibility of reserves as would promote its financial stability; and what the Government has been unable to do it is within the power of the clearing houses to accomplish whenever they are conscious of their power and ready to exercise it.

From: the book: Clearing-house Systems Of The World: A Review Of The Methods Used In Clearing Checks In The Principal Countries. Also The Origin And Development Of ... American Bankers Association Year-book, 1910

Big Banks Start Charging Clients for Euro Deposits

Big Banks Start Charging Clients for Euro Deposits -- Update10-17-14 3:58 PM EDT

By Juliet Chung and Vipal Monga

Several global banks have begun charging large customers to deposit their money in euros, a rare move that could have costly implications for investors and companies that do business on the Continent.
The actions are driven by policies from the European Central Bank, which in June became the largest central bank to impose a negative interest rate on deposits--meaning banks are paying to park their money with the ECB. The effort is designed to encourage banks to instead use that money to lend. When the ECB dropped those rates further in September, some banks started pushing those costs--or costs related to the rate cuts--onto customers.
Now, instead of paying customers interest on their euro accounts as they have done traditionally, some banks have started charging them. Bank of New York Mellon Corp. recently started charging 0.2% on euro deposits, the bank said Friday, and Goldman Sachs Group Inc. and J.P. Morgan Chase & Co. have also started charging clients, according to people familiar with the matter.
Meanwhile, Credit Suisse Group AG has told customers it will pass along negative interest rates on all currencies in which they apply, people familiar with the matter said, and has started charging on euro deposits.
The reversal is the most sweeping of its kind that many bankers and their clients say they can recall. The clients most immediately affected are investment firms, such as hedge funds and mutual-fund companies. Multinational corporations with sizable operations in Europe could also face additional costs, according to people familiar with the matter.
HSBC Holdings PLC will soon start charging customers with more than roughly 10 million euros in deposits, according to a person familiar with the matter. The move is intended to discourage a flood of deposits from institutional investors fleeing competitors that have already started levying charges on euro deposits, the person said. An HSBC spokesman said Friday the bank was "monitoring the situation."
Several bankers said the changing regulatory landscape has made it harder to eat the cost, as they might have in the past. In 2011, BNY Mellon disclosed a move to charge some of its U.S. depositors for holding their cash, after investors poured money into the bank to escape gyrations in the market. The bank later aborted the plan.
A BNY Mellon spokesman said the 2011 situation "resolved itself" as deposit levels shrank. "The current euro situation is much more enduring and is likely to be the norm for some time," he said.
The latest move by the banks is notable because so many of them are taking the same step, giving customers fewer options for moving their money. Several people familiar with the matter said the fees could vary depending on the client and the bank.
"As we go through this period of low-interest rates in the Eurozone, our expectation is this is going to linger for a long time," said Peter Yi, head of short duration fixed income at Chicago-based trust bank Northern Trust Corp. "This isn't something that's going to go away in the next year."
Mutual-fund firm Vanguard Group confirmed they are being charged for their euro balances. "That is being passed on," said Vanguard spokesman David Hoffman. "It's very recent."
He declined to say which banks are instituting the charge, or detail the firm's euro cash exposure.
The new charges are setting off a search by some clients to try to avoid or minimize fees. Investors and bankers say some are moving their balances into cash-like instruments such as money-market funds or repurchase agreements, also known as "repos," which are short-term loans backed by collateral. Other clients are looking for banks where they can park cash without getting charged.
The BNY Mellon spokesman said the bank was working with clients who were looking for alternatives to cash deposits to find investment opportunities.
In an interview on Friday, BNY Mellon Chief Financial Officer Todd Gibbons said the firm expects the fees to be imposed across the industry. He said 15% of BNY Mellon's deposits are euro-dominated and that he expects most of the affected clients to be "savers on the institutional side," including financial-services firms, corporations and pension funds.
BNY Mellon began charging clients 0.2% on euro deposits starting Oct. 1, according to a memo sent to clients. Mr. Gibbons also discussed the charge on an earnings call Friday.
The charges highlight the divergent paths central banks in the U.S. and Europe are taking. Although the Federal Reserve has kept interest rates low for years, it continues to pay banks on excess deposits and has signaled it hopes to raise rates relatively soon.
The fees also underscore challenges institutional depositors such as hedge funds, mutual funds and corporations may face going forward in finding a welcome haven for their deposits. Banks are forced to set aside more capital against deposits under new banking rules yet have difficulty earning any return on that cash, making such deposits unattractive.
Relationships between banks' prime brokerage businesses, which execute and finance trades for clients, have already come under pressure as banks have started squeezing their clients for more profits.
In positive interest-rate environments, banks typically earn interest on client cash and pass part of that return on to their depositors. On euro deposits, banks can get paid the ECB's overnight deposit rate; the rate on benchmarks like the Euro Overnight Index Average, or Eonia, that trade and tend to trend with the ECB's interest rates; or yield on other investments.
The ECB in early September lowered its rate deeper into negative territory, to -0.2% from -0.1%. The Eonia went negative for the first time in late August.
Not all big banks are following suit. Deutsche Bank AG had not started levying charges on euro deposits as of Friday, according to people familiar with the matter.
State Street Corp. said in a statement Friday it hadn't yet started charging on euro deposits but that it had told clients it might do so in the future. "Continued persistence or deterioration of the current rate environment may require that we take action consistent with prudent financial management," the statement said.
Anthony Carfang at Treasury Strategies, a Chicago-based consulting firm, said highly visible negative rates made such charges more palatable than they may have been in the past. "This looks like a pass-through," he said. "That makes it a lot more acceptable in the customer's mind."

Max Colchester and Daniel Huang contributed to this article.
Write to Juliet Chung at and Vipal Monga at
(END) Dow Jones Newswires

October 17, 2014 15:58 ET (19:58 GMT)