RD News 7Dec11

 

 

• Donald Kohn: The Financial Policy Committee at the Bank of England
• Pre-crisis, the most obvious failing of the UK system was that no single institution had the responsibility, authority, or powers to monitor the system as a whole, identify potentially destabilizing trends and respond to them with concerted action.
• Prudential Regulatory Authority will concentrate on microprudential oversight, while a new Financial Policy Committee will provide for the dedicated macroprudential overlay.
• If we see the threat to stability as being immediate and serious, we will be able to issue directives to the microprudential authorities on regulatory tools that should be deployed in the pursuit of macroprudential policy.

• Sweden Defends Higher Capital Ratios of 10-17%
• The Swedish central bank (Riksbank) has undertaken a study of the long-term social costs and benefits of increased bank capital requirements, concluding that the Basel III requirements ‘are too low for the Swedish banks.’
• Appropriate capital ratio for Swedish banks between 10-17% of risk-weighted assets.
• Arguing that existing studies have not taken Swedish conditions into consideration.
• Report follows a recent defence of “maximum harmonisation” of capital rules by the EBA, further indicating tensions between national and international approaches.

• State Street: Market constraints hinder more foreign investment in China – China’s Funds Future Vision paper
• Foreign investors continue to remain significantly underweight on Chinese assets because of market constraints.
• China’s managed funds sector grew to more than $335 billion AUM last year.
• The latest proposed expansion of the renminbi qualified foreign institutional investors scheme (RQFII), would allow domestic Chinese brokerages and fund companies to raise money offshore for investment in the domestic markets. This is directly linked to China’s desire to expand the use of renminbi outside its borders.
• China’s funds sector represents a significant long-term strategic play for foreign fund managers so long as they remain vigilant in aligning with regulatory changes in the market.

• ECB: publishes structural financial indicators for 2010
• Covers 06-10. Comprise statistics on the number of local units (branches) and employees of EU credit institutions; data on the degree of concentration of the banking sector in each State; the share of foreign-controlled institutions EU national banking markets.
• In most EU Member States, the number of credit institution units has continued downward trend observed in previous years. Number of credit institution employees has also declined.
• Data also shows that the degree of concentration and the share of foreign-controlled institutions vary significantly across national banking markets.

• Miguel Fernández Ordóñez (Gov, Bank of Spain): Mechanisms to prevent and manage banking crises in the future
• We should cease referring to the “crisis” in the singular and start talking about “crises” in the plural. This is because the far-reaching shock the Spanish economy and its banking system have undergone has not been caused by a single crisis but by the extraordinary overlapping of three economic/financial crises:
• International financial crisis
• Typically Spanish crisis, associated with excesses in the real estate sector, private-sector debt and deteriorating competitiveness
• Eurozone sovereign debt crisis
• Overall impact of these three crises is an extraordinarily complex scenario with multiple and unprecedented interactions. We must avoid intellectual laziness and seek innovative solutions to manage an exit from the situation. This is because many of the solutions used in the past are not only no longer available or useless, but – given the side-effects – may even prove harmful.
• It would be a grave error to establish rigid criteria that rule out the possibility of incorporating fresh financial restructuring tools.
• A consistent and internationally coordinated response to the crisis must be made compatible with a reasonable adaptation to the specific circumstances of each country.

• Svante Öberg (Dep Gov, Riksbank): Monetary policy’s Catch-22 – uncertainty
• As monetary policy acts with a lag, it must be based, at least partly, on forecasts. However, our forecasting ability with regard to GDP growth and inflation is very limited one year ahead and largely non-existent two and three years ahead.
• Should therefore place greater emphasis on analysing the initial situation and making forecasts for the coming year.
• We should also concentrate on assessing the repo rate over the coming six months, as there is such great uncertainty over the repo rate in the longer run.
• We should regard the forecasts for longer than one year ahead as potential scenarios rather than unbiased forecasts.