Fascinating discussion here from the Bank of England’s Andy Haldane on the stresses and strains facing shareholder-controlled corporate entities pretty much everywhere.
A quick taste:
These criticisms have deep micro-economic roots and thick macro-economic branches. Some incremental change is occurring to trim these branches. But it may be time for a more fundamental re-rooting of company law if we are to tackle these problems at source. The stakes – for companies, the economy and wider society – could scarcely be higher.
David Beckworth, economist, disagrees with Larry Summers’ secular stagnation theory because he reckons it overlooks the fact risk premiums are falling. Once this phenomenon is recognised, he claims, there is no long decline in real interest rates.
Beckworth puts the decline of the risk premium down to improved economic management and policy over the last 20 to 30 years. Essentially, central bank intervention in markets has been much more effective, leading to a smoothing out effect of the boom and bust business cycle, and an overall improvement in price stability.
Yet contrast that with BoE chief economist Andy Haldane’s new theory of risk in complex systems. As Haldane recounted in a speech at the end of March, central bankers — if they are to continue to be effective — need to understand the economy is no longer just a system, but rather a “system of systems”. This new nature of the economy, he suggests, is something brought to light by the 2008 crisis. Read more
This guest post, from Brian Reid, chief economist of the Investment Company Institute, is a response to this speech in April by the Bank of England’s chief economist, Andrew Haldane…
As banks learn to live under tighter post-crisis constraints, central bankers around the world are worrying about financial risks that could move from banks to capital markets and perhaps trigger the next great crisis. After the experience of 2007–08, regulators rightly should be on guard for sources of weakness in the financial system.
Unfortunately, in their vigour, many regulators are seeing ‘systemic risk’—threats to the stability of the financial system—when the issue at hand is investment risk. Investment risk is a necessary part of a well-functioning economy, attracting investors willing to take known risks in hopes of gaining a reward. Systemic risk occurs when the financial system itself breaks down and is unable to perform its normal functions of matching savings to investment opportunities or facilitating economic activity. Read more
On Monday night, FT Alphaville had the pleasure of chairing a discussion on “Socially Useful Banking“. The key speaker was none other than Bank of England’s executive director for financial stability, Andy Haldane. His speech was entitled “A leaf being turned“.
Since we were there for the evening, and moderating the lively Q&A, it’s been interesting to see what angles the papers have taken on it. Here-under a headline digest: Read more
First a reminder about this coming Monday, October 29th.
Andy Haldane, the Bank of England’s executive director for financial stability, will be giving a talk at Friends House, right across the road from Euston station. FT Alphaville is very happy to be chairing. Kickoff is 6pm.
While the event is free, you do have to reserve a seat. Click here to do so. Read more
Here’s a talking point: “Socially useful banking.”
As luck would have it, Lisa Pollack has been invited to chair a discussion on this very topic, featuring none other than FT Alphaville favourite, Andy Haldane. (Mr Haldane is the Bank of England’s executive director for financial stability but you knew that.) Read more
It’s no secret that we’re big fans of Andy Haldane on this blog.
Exhibit A — a paper given to this year’s Jackson Hole conference by the Bank of England’s executive director for financial stability, and Vasileios Madouros (also of the Bank). Read more
Among the “financial arms races” that Andy Haldane described in his April paper was the race for safety by financial institutions.
Since the start of the US crisis of 2007, the race for safety has replaced one of the other two races that Haldane discussed: the race for returns, a catchy way to describe individual firms trying to maximise profits while setting the stage for the collective market failure that followed. (The other race, for speed, continues.) Read more
Banks face paying more to raise finance in traditional bond markets – and some will continue to be locked out completely – as a growing demand for collateral from other lenders is undermining the strength of their balance sheets, the Bank of England has warned. The FT reports the BoE said that the issue of secured lending to banks is of growing concern to regulators and markets, while the FSA said it was pushing banks to produce better data on how many of their assets are tied up, or ‘encumbered’, against their own borrowing. Andrew Haldane, director of financial stability at the Bank, said that banks around the world expected that the “very very strong skew towards secured” funding seen in the second half of this year would remain in 2012. If concerns about how much of the banks’ balance sheets have been pledged against secured borrowing become acute, he warned that unsecured creditors, who are already charging a higher price, “might refuse to provide unsecured credit on any terms.” FT Alphaville has more on the report.
Regulations which potentially constrain lending to small businesses should be eased when the UK economy is suffering, according to Andrew Haldane, the executive director of financial stability at the Bank of England. The volume of small business lending in the UK is shrinking by about 10 per cent a year, with banks blaming a lack of demand and businesses saying loan rates are too expensive. But Mr Haldane believes that the rules governing how banks calculate risk weightings – which show how much capital is required to back a loan and therefore how costly it is to provide – should be relaxed when economic growth needs boosting. “There is a strong argument for making risk weights dynamic and real-economy focused,” Mr Haldane told the Financial Times. Super-wonk Haldane’s most recent speech, on banking, was discussed last month on FT Alphaville.
Andy Haldane’s latest speech is a coherent, logically argued history of modern banking that ends with four intriguing policy ideas. The Bank of England’s Executive Director, Financial Stability, is always worth reading but his Wincott Annual Memorial Lecture, delivered on Monday evening, is the best introduction to his views on banks.
The FT’s Martin Wolf includes a cogent summary of Haldane’s proposals as part of his formal response to the speech, highlights of which are available on his blog. Read more
It’s no coincidence that with the shift to central clearing looming on the horizon, the Bank of England’s director for financial stability is talking about this subject.
Haircuts, that is. Read more
Sharp thoughts on Friday from Andrew Haldane, executive director for financial stability at the Bank of England, on the changing topology of the market — including the rise of high-frequency trading.
Haldane — champion of the “we may have become too impatient” philosophy — wonders in a speech to the International Economic Association in Beijing, about a number of issues connected to the above. Read more
High-frequency trading is creating systemic risk and markets may need a “redesign”, a top official at the Bank of England said in prepared remarks. The FT reports that in a policy speech to be given in Beijing, Andrew Haldane, executive director for financial stability at the Bank of England, said the “race to zero” in the amount of time it takes to make a trade is increasing volatility and “tail risk” in global markets. It is the strongest statement of concern about market structure by a central bank official and echoes the sentiments of securities and futures regulators in the US and Europe. It is also unusual in that it ties the issue to broader efforts to reduce systemic risk and generate growth
If in the long run we’re all dead, in the short run we’re all disease-ridden invalids blinded by incandescent temptation, staggering around with little idea of what we’re doing.
That’s (almost) the gist of a paper published Tuesday by Andrew Haldane, Executive Director, Financial Stability, Bank of England, and his colleague Richard Davies. Read more
To understand Andrew Haldane’s latest — all you have to do is glance at these charts.
One is regulatory bank capital, the other is a market-based signal of bank solvency: Read more
No, this isn’t a festering collection of mutant organisms…
Andrew Haldane, the Bank of England’s executive director of financial stability, has penned a hugely thoughtful piece about the implications of growing cultural impatience and short-termism on financial markets — and society at large, reports FT Alphaville. In a nutshell, Haldane observes that as people’s preferences get more short-termist in mindset, bad money drives out the good– encouraging volatility in stock-markets and the detachment of fundamentals from asset prices. Another negative implication may also be on GDP. Read more
The Bank of England’s executive director of financial stability has a refreshingly straight-forward answer to his self-imposed question “The Contribution of the Financial Sector: Miracle or Mirage?”
His response: Read more
Al-Qaeda. IBM. Power grids. Dominoes. Pollution. Facebook friends. FT Alphaville finds that these are just some of the subjects Andrew Haldane, the Bank of England’s executive director of financial stability, manages to touch upon in his highly-readable effort to answer Too Big to Fail. Read more
Want a risk-free and profitable trade, asks FT Alphaville? The Bank of England’s financial stability guru, Andrew Haldane, proffers up two riskless arbitrage examples as he delves into the hot-button subjects of mark to market, accounting reform and market distortion.
Here they are — two examples of theoretically risk-free and profitable trades (really) courtesy of the Bank of England’s financial stability guru, Andrew Haldane.
It’s just a shame no one bothered to exploit them: Read more
In the early days of banking, liability was not just unlimited; it was often as much personal as financial. In 1360, a Barcelona banker was executed in front of his failed bank, presumably as a way of discouraging generations of future bankers from excessive risk-taking…
Andrew Haldane, executive director of the Bank of England’s Financial Stability unit, seems to have latched onto an effective, if not exactly modern, potential solution to the problem of excessive risk-taking at banks. And while he doesn’t think executing bankers was “conspicuously” successful in the past, he does have some less antiquated suggestions for reforming the banking sector in a joint presentation with the BoE’s Piergiorgio Alessandri. They include: Read more
Earlier this week, Andrew Haldane, the Bank of England’s director for financial stability gave a speech to the Marcus-Evans Conference on stress testing.
While that doesn’t exactly sound particularly enticing, it was. And we’d recommend that you read this – the paper Haldane has authored based on his speech. It’s entertaining and fascinating – and what it really very clearly shows is just what a blinkered world modern finance operates in. Read more