This guest post is from Kate Mackenzie, a former Alphavillian who now works with The Climate Institute in Australia.
Fears are growing that the next crisis, if it should manifest, won’t come from any of the areas that spawned the 2008 crisis. To the contrary, it will emerge from areas we’ve not really had to worry about to date.
The key areas those in high places are now worrying about: the taken-for-granted presumed liquidity of the system.
This is an easy assumption for the asset management industry to make. For years investment banks have made a business of carrying liquidity risk on their balance sheets, mainly by internalising the inventory nobody else is prepared to hold. This sort of “we’ll buying anything just to make money from making markets” service as a result conditioned the buy-side to presume liquidity risk is something that just doesn’t really manifest anymore. Read more
On Monday Mark Carney, Bank of England governor, injected fear into the hearts of highly paid bankers everywhere by stating…
Standards may need to be developed to put non-bonus or fixed pay at risk. That could potentially be achieved through payment in instruments other than cash. Bill Dudley’s recent proposal for certain staff to be paid partly in ‘performance bonds’ is worthy of investigation as a potentially elegant solution. Senior manager accountability and new compensation structures will help to rebuild trust in financial institutions. In a diverse financial system, trust must also be rebuilt in markets.
His comments came on the back of growing regulatory concerns that banks avoid bonus caps by boosting fixed salaries and so offer less variable pay, weakening the link between performance and compensation. Read more
If this is all getting confusing…
Sterling fell on Tuesday after Bank of England governor Mark Carney damped expectations of an imminent UK interest rate.
Appearing before MPs on the House of Commons Treasury select committee, Mr Carney repeatedly stressed that despite a robust recovery in employment and GDP, wage and productivity growth had been slower than expected, indicating there was still additional spare capacity in the labour market…
First take a trip down Gavyn Davies way where he’ll explain that macro prudential controls are nothing new, that they’re making a comeback post-Greenspan and that they are aimed at stabilising the financial cycle rather than the economic cycle (not always mutually exclusive, of course):
The case for macro prudential controls is straightforward. During economic upswings, the behaviour of the financial system can become destabilising. Banks’ balance sheets are flattered by the expanding economy and low interest rates, so credit supply expands aggressively. This fuels the boom until risk taking becomes excessive, and even a moderate rise in interest rates produces a financial crash.Direct intervention in the financial system to head off these problems early, through increased capital and liquidity standards, seems to be justified.
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:
As Mark Carney outlined at Wednesday’s press conference for the BoE inflation report, much-awaited ‘forward guidance’ will be linked to unemployment falling through the 7 per cent level. But it will also in some sense be related to the committee’s evaluation of how much slack there is in the economy.
Or rather, they’re linking rates to unemployment (targeting, in everyone else’s book) because they can’t explicitly target slack. Read more
Sir Merv, as portrayed by Diana Blakeney. Click the image for full effect.
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.
This Monday edition of rising Japanese equities/weak yen is brought to you by Haruhiko Kuroda, president of the Asian Development Bank and according to various media reports, the likely nominee for Bank of Japan governor.
It’s Carney live. We know George Osborne is
frustrated excited. Mark Carney, the next Governor of the Bank of England and the man Osborne once called “quite simply the best, most experienced and most qualified person in the world to do the job”, is in front of the Treasury select committee.
Here’s the live feed:
BoE governor-to-be Mark Carney made a speech titled ‘Guidance’ last night. It was all about communications strategies, for both companies and central banks — a very interesting topic for students of monetary Jedi tactics.
Carney stressed at the beginning that his talk would be about guidance, and not containing guidance. Tee hee! However, he did drop the N-bomb and when a central bank governor talks in positive terms about a non-mainstream monetary policy framework, it’s… interesting. Read more
Canada’s central bank governer Mark Carney may have played hard to get with British chancellor George Osborne, but Ozzy was up for the challenge. Doubt this man’s resolve at your peril. Read more
We say old – he’s only 47. But what kind of “quality guvnor” (George Osborne’s words) will Mark Carney be at the Bank of England?
Well, one thing pops out from the Bank of Canada press release announcing Carney’s move across the Atlantic: “The Governor will remain Chair of the Financial Stability Board.” Emphasis ours. Read more
The race for Mervyn King’s job is hotting up — months before it’s even officially advertised — as rumours circulate that a second Goldmanite could be in the running.
The focus on Monday was on Jim O’Neill, chairman of Goldman Sachs’ asset management division, after a piece in The Sunday Times lauded his “unique qualifications” for the job. The paper added that the UK Treasury had approached O’Neill about the job several months ago, but did not cite sources. O’Neill has neither denied or commented on the story. Read more
Do not Forseke me, oh my darling, as Frankie Lane might have sung, had he been an Alliance Trust shareholder. That’ll be Karin Forseke, the new chairman, and next Friday is High Noon (GMT) as the outlaws from Laxey Partners renew their efforts to shoot their way into the Dundee citadel of Britain’s largest investment trust. Colin Kingsnorth and his gang have already spurred Alliance into a frenzy of activity, overturning the habit of several lifetimes and buying in shares for cancellation, but now the gang is demanding a “comprehensive review of the company”.
There is something to be said for this. Alliance has struggled to make its diversifications (including the excellent Alliance Trust Savings) into profit centres, and even if ATS finally does turn the corner, it will be years before it has any impact on Alliance’s net asset value, the measure by which investment trusts are judged. The suspicion remains that its moves away from managing the main fund are to give the executives under Katherine Garrett-Cox the prospect of growing the business. Read more
“Shadow banking” must be dragged into the harsh light of day and both it and global banks must be forced to serve the real economy, the new chief of the Financial Stability Board has warned. Mark Carney, who also serves as governor of the Bank of Canada, told the FT that bankers must stop trying to delay or water down the reforms so they can return to “business as usual”. He said shadow banking market-based sources of credit, which include corporate bond sales and direct lending by hedge funds, are now half the size of the traditional banking sector and growing still, even as many banks scale back their lending.
The eurozone crisis is in danger of creating a global wave of instability by sucking liquidity out of financial markets worldwide, according to leading policymakers and financiers, the FT reports. Mark Carney, the new chairman of the Financial Stability Board, the international association of regulators, told an audience in London on Tuesday that the stresses in the eurozone were creating financial volatility around the world that would soon start dragging down global economic growth. “As global liquidity recedes, volatility is increasing and activity falling. The effect on the real economy will soon be felt,” said Mr Carney, who is also governor of the Bank of Canada. Mr Carney’s concerns that turbulence in eurozone credit markets would hit emerging market economies were echoed on Tuesday by Guido Mantega, Brazilian finance minister, and Stuart Gulliver, chief executive of HSBC, the international bank.
Jamie Dimon of JPMorgan Chase launched a tirade at Mark Carney, Bank of Canada governor, in a closed-door meeting in front of more than two dozen bankers and finance officials, underscoring mounting tensions between bankers and officials over financial regulation, the FT says, citing several people at the meeting. The JPMorgan chief executive’s remarks to Mr Carney, who is touted as a potential next head of the Financial Stability Forum, the international group of regulators, were focused on a capital surcharge for the largest banks, according to several people who attended the meeting of about 30 bank chiefs. The JPMorgan chief executive’s remarks to Mr Carney, who is touted as a potential next head of the Financial Stability Forum, the international group of regulators, were focused on a capital surcharge for the largest banks.