Evidence of a potentially large change in India’s banking system from Credit Suisse and Neelkanth Mishra’s India markets team:
Even within bank loans, which are losing share to bonds in corporate borrowing, [public sector, or PSU, banks] are losing share to private banks, being short of capital. In this environment, by allocating just Rs80 bn for PSU bank recapitalisation in the FY16E budget (half that of the previous year, and the lowest after FY10), the government has shown willingness to let PSU banks fall in relevance, and not perpetuate moral hazard by bailing out weak banks. This is a remarkable and unexpected change in stance, given the potential advantages in micro-managing three-fourths of the bank lending space in India.
And lo did the wails of certain politicians rent the sky. Read more
That was our takeaway from reading Bill Dudley’s speech at the “Workshop on Reforming Culture and Behavior in the Financial Services Industry”.
His thesis is that skewed incentives in banks and other financial firms encourage excessive risk-taking and even outright illegal behaviour. Losses from wild bets that go badly tend to be borne by shareholders and the rest of society, while the gains are often hoarded by the mid-level individuals making the trades. There is also a timing issue, where a trader can collect a bonus today for engaging in an activity that appears profitable in the short-term but has a high likelihood of catastrophic failure in the medium term. Read more
There was no bald supervillain stroking a white cat, but other than that the City of London hosted a conspiracy theorists’ perfect scenario yesterday: a meeting organised by the Rothschilds, sponsored by the Rockefellers and with managers of $30tn, or more than a tenth of all financial assets worldwide, in the room. Even the British royal family was represented, essential for any decent conspiracy, although usually Prince Philip is preferred to the Prince of Wales.
Perhaps there were shape-shifting reptilians present, as per David Icke. But if so, they were keeping their heads down: rather than discussing how to rule the world, the focus was on “inclusive capitalism”. Read more
The Bank of England is perhaps a little late getting around to this explanation of money creation and a debunking of the money multiplier theory… but that really doesn’t mean it shouldn’t get a wide reading.
Do click through for the full thing and we’ll put some tl;dr fodder below the break:
It’s bad enough having the most expensive bank bailout around. But not getting official recognition for it? Unbearable!
Luckily for Ireland, there’s a concerted effort underway to right that wrong… (h/t Nama Wine Lake) Read more
It’s bad enough finding out that you’ve been made redundant when your pass fails to let you in to the building. But finding out that you’ve been sacked and replaced by a computer (which has more or less made your skills redundant)? That’s even worse.
So spare a thought for David Gallers, former head of CDS index trading at UBS, who was let go last week, to be replaced by snazzy new algo. 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
John Mann, the battler from Bassetlaw, is back with the results of his very own banking inquiry.
The Labour MP set up the alternate inquiry after expressing his displeasure at the omission of fellow committee member Andrea Leadsom and his good self from the specialist Libor inquiry because they were “too outspoken”. The words “whitewash” and “farce” also made an appearance: Read more
There are many gems in the annual report of the Bank of International Settlements that came out on Sunday. One of the most intriguing is a trail which leads to an actual estimate of the cost to society of scientists becoming hedge fund managers.
The trail starts at a section about debt sustainability across a number of countries. It notes that elevated levels of debt got us into this crisis and the situation still hasn’t improved for many countries. In fact, for some countries, the debt burden of the private sector has gotten even worse. Check out the last row of these charts on debt service ratios (looking at the red lines): Read more
It’s a commonly-held belief that the bailout of Spain’s banks won’t be sufficient to solve the country’s problems. It will increase the government’s borrowing, and may not be large enough anyway.
The real solution is
fiscal banking political some kind of union. See if you can spot one of the barriers to moving forward with that: Read more
It has come to FT Alphaville’s attention that the NYMag is admirably trying to completely prepare the latest crop of would-be bankers for their summer sojourn as interns.
For those in NYC, there is advice on where to live. For those who haven’t clocked that working at a bank involves dressing up in a suit and not having a ridiculous haircut, there’s advice on what to wear and appearance. Finally, there’s advice on what to do, and what most definitely not to do, inside and outside the work environment. Read more
Banking in Europe boomed upon the creation of the euro and the global expansion of credit in the 2000s. In the US, banks were also riding high on strong assets growth and accompanying increases in market capitalisation. Cross-border claims also climbed as banks sought to grab an even bigger share outside their domestic markets.
Things have since changed. Read more
A particularly eagle-eyed FT Alphaville reader noticed this when strolling in the heat of Miami Beach:
Time for more BIS-timates of international banking activity — this time looking at developments in the deleveraging turn among eurozone lenders in late 2011.
These stats from the Bank for International Settlements go up to the end of December. Predictably they show a massive pullback in credit throughout the banking system with Europe and the eurozone leading the way. Read more
Royal Bank of Scotland is to cut an additional 3,500 jobs as the state-controlled bank rapidly shrinks its investment banking activities in response to the worsening economic outllook and wide ranging reforms of the banking sector due to take effect before the end of the decade, the FT reports. Stephen Hester, chief executive, on Thursday outlined plans to restructure RBS’ wholesaling or investment banking operations into two divisions and withdraw from activities such as cash equity broking and merger and acquisition advisory work that were aggressively expanded by former disgraced chief executive Sir Fred Goodwin. Risk weighted assets, under Basel III regulatory definitions, will be shrunk to £150bn from £225bn under the restruring plan. The bank will continue to operate in the fixed income and debt raising markets where it has a strong position but reduce its dependence on wholesale funding markets which have frozen up in the last three years. Since taking over in 2009, Mr Hester has shrunk RBS’s balance sheet by £600bn following the disastrous acquisition of Dutch bank ABN Amro in 2008 by Sir Fred, which forced the bank to seek a government bail-out.
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
Ireland’s stricken banking sector will require €24bn in additional capital, pushing the total cost of the government’s rescue to about €70bn (£62bn), according to the country’s latest banking “stress tests”, reports the FT. Also on Thursday, Dublin announced a radical shake-up of the industry aimed at restoring confidence in the troubled sector, which remains dependent on the European Central Bank for funding. Allied Irish Banks, which had been told to raise an additional €5.3bn, must now raise €13.3bn. Bank of Ireland must raise €5.2bn, Irish Life & Permanent €4bn and Educational Building Society €1.5bn. Essentially, says the WSJ, Ireland is on track to nationalise its banking sector, belying politicians’ claims that the tests are the final episode in the country’s banking crisis.