The following is a guest post from Chris Cook, a senior research fellow at the Institute for Security and Resilience Studies at University College London. His work is focused on a new generation of networked markets – which will, in Chris’s view, necessarily be dis-intermediated, open, decentralised and, therefore, resilient. But his approach is informed by the past, and it is there that he finds a framework for an independent Scotland to use the pound, a Plan A Plus.
The rejection by all the Westminster parties collectively of the SNP’s Plan A for a post-independence UK currency union has elicited a string of possible Plan B solutions, several of them already considered and rejected as inferior to Plan A by the SNP’s expert group of ‘wise men’.
But the current debate is ill-founded, since the UK can have no more control over who uses the £ symbol as a unit of account, than they can have control over the use of metres and kilogrammes. Read more
So just how fast will the the Bank of England raise interest rates? For clues and pointers on its latest thinking now that employment has rapidly approached the thresholds (markers, thumb rules?) of forward guidance , the Inflation Report is out. Click to get straight to it:
Inflation had returned to the 2% target… and cost pressures were subdued. Members therefore saw no immediate need to raise Bank Rate even if the 7% unemployment threshold were to be reached in the near future. Moreover, it was likely that the headwinds to growth associated with the aftermath of the financial crisis would persist for some time yet and that inflationary pressures would remain contained…
Someone tell cable? Read more
Declaring victory by press release on Thursday, the Bank of England announced that it will re-focus its funding for lending scheme towards small businesses next year.
The current scheme expires at the end of January, and a day after the ECB floated its own funding-for-lending trial balloon, the UK central bank has said that it will carry on, but “with incentives in the scheme skewed heavily towards lending to small and medium-sized enterprises (SMEs).”
Major thanks also to the housing market boom (our emphasis): Read more
I would also wish to understand the impact of the introduction of the leverage ratio on the ability of the banks to support growth in lending to UK consumers and businesses… Read more
Confidence in the stability of the UK financial system as a whole over the next three years, charted by the Bank of England…
So, McKinsey consultants will be allowed to stalk the halls of the Bank of England, to review “strategic investment decisions, working methods, and allocation of time and resources.”
FT Alphaville already have some ideas. Read more
Not surprisingly, and as Financial Policy Committee external member Martin Taylor predicted, his comments on the housing market have got plenty of attention.
Reading his speech from Monday though, we think there was another comment in there worth keeping an eye on.
It’s clear that the safety of the banking system is an absolutely central objective, and one which the FPC has already worked on and will continue to address. But is that enough?
Barclays asks clients what they think every few months and the latest batch of answers from 799
dart throwing interns global investors show that they are ready, set and already yawning over the prospects for tapering by the Fed this week.
In the UK, however, who knows? Consensus came there none. Read more
If you laugh at this, then maybe a lot of macroprudential regulation is comical.
What to make of this startling call from UK’s Royal Institute of Chartered Surveyors, to the Bank of England’s Financial Policy Committee?: Read more
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The triennial central bank survey of foreign exchange and derivatives market activity from the BIS is out.
FX details are here and OTC IR derivatives are here. Oh, and the Bank of England’s parochial summary is here.
But if you are interested in how financial centres stack up against each other you’ll need to consult this table: (Click to enlarge)
Not a relaxation of capital requirements by the Prudential Regulation Authority on Wednesday — it’s a relaxation of the amount of liquid assets which banks have to hold (falling by some £90bn, apparently) so long as they do meet strictures on capital.
From the release: Read more
First — GDP or unemployment as the slack indicator in forward guidance about low rates?
More on why the Bank of England chose unemployment (the 7 per cent threshold, not seen being reached until 2016), from the July/August minutes of the MPC: Read more
Have a chart from HSBC which, once the key is provided, will explain sterling’s weakness, probably:
Before we get there though we should touch back on Carney’s forward guidance thing, of which there are numerous different takes. Here are three for the hell of it: Read more
That’s Bank of England Governor Mark Carney, announcing on Wednesday that Jane Austen will adorn the new ₤10 note. Read more
Sir Merv, as portrayed by Diana Blakeney. Click the image for full effect.
Apparently the recent sovereign bond yield spike has almost completely wiped out the Bank of England’s QE bond portfolio’s unrealised profit. As Bank of America Merrill Lynch’s John Wraith said:
…the mark-to-market gains that were previously being registered by the Bank of England’s portfolio of Gilts acquired through the UK’s QE Asset Purchases since March 2009. As recently as 2nd May, this portfolio was showing an unrealised profit of £26.8bn; this had collapsed by 24th June to just £1.2bn.
Get your pitchforks out. Read more
Ostensibly, this is Governor Mervyn King and Governor Zhou Xiaochuan celebrating the RMB 200bn currency swap announced between their two central banks this weekend.
Click to enlarge for the Prudential Regulation Authority’s table on UK bank capital shortfalls…
The Bank of England has ushered some new risks into its biannual risk survey.
Out of the list of top seven key risks go funding risk, the risk of financial market disruption/dislocation and the risk of tightening in credit conditions. In their place we get the risk of property price falls, operational risk (‘cyber’ security), and risks surrounding the low interest rate environment. Read more
A pretty interesting paper, and conclusion, from the Bank of England’s External MPC unit on Friday — or at least one that should keep the debate going over the art/science of GDP revisions… Read more
…And the treatment of public debt in the government’s books gets left in some disarray.
Remember this from the ONS, in February? Read more
Gaspard Koenig has been sounding off, entertainingly, at the Centre for Policy Studies on the costs associated with the Banque de France — whose governor, Christian Noyer, has been pressing Hollande’s government to make deeper and quicker cuts…
Let’s take a look at the Banque de France, which recently published its annual report. Apart from being lavishly located in the Hotel de Toulouse, a 17th-century gem, its operating costs are bewilderingly high. It employs 13,000 agents for a total human resources expenditure of nearly €1.5 bn a year (including pensions). With 6% of its staff aged under 30 and 32% over 55, the Banque de France’s age pyramid looks more like a cocktail glass. Read more
Yes, the Wall Street Journal caught our eye on Wednesday with The Federator, a fun retro-looking QE game that flies Helicopter Ben over Main Street USA, spewing cash.
Yes, it’s hardly a neutral document on the matter.
Still, there are lots of interesting charts in the UK government’s latest report on the finance and economics of Scotland becoming a sovereign state, this time covering the dangers from banks…
…Although we think they missed one.*
From ICAP’s Gilt Repo Comment on Monday:
The announcement by the DMO of further supply of UKT4T 15 (1.75 bln on the 29th May) is welcomed in light of the issue’s “tightness” in the REPO market. The bond overnight has averaged 11 bps through DBV to date in May and was tight in the 1st quarter. However, post Friday’s announcement the bond held its premium in term and it is not certain the additional supply will cheapen the issue despite the free float increasing.
Remember the Bank of England audits? Launched in May last year. Covered banking rescues, the really super top-secret hush-hush banking rescues, and fan-charting.
The bank’s official response to them is out. Read more
Breaking: deputy prime minister Nick Clegg has hit soundbite pay dirt.
In Tuesday’s FT he is quoted as saying that the Funding for Lending Scheme, whereby financial institutions get cheap loans from the Bank of England to boost credit to the wider economy, should be “put on steroids”.