In a new 70-page report the BIS has acknowledged that unconventional quantitative cbank operations may have encouraged volatility in repo markets. They advise cbanks to engage in more securities lending operations to ease the problem.
How a high-profile corruption investigation fell apart; Fed officials still holding private meetings; Brexit and Britain’s prohibition; cows now acceptable as collateral in Zimbabwe; area man told his “genius” didn’t entitle him to a larger share of divorce pie; other stuff.
A couple of weeks ago we chatted to Michael Gastauer about his fintech startup WB21, a “digital bank” that has claimed one million customers and a $2.2bn valuation after less than a year in operation. It’s a remarkable trajectory for a company with a relatively unknown management team, no outside investors and what appear to be thousands of fake Twitter followers. WB21 has recently won mainstream attention by announcing a move from London to Berlin following the UK’s vote to leave the European Union. The WSJ said it was “one of the first startups” to quit the UK for Germany as a result of Brexit and the city of Berlin has welcomed WB21 and Gastauer with open arms.
- Anne Case on mortality and morbidity in the 21st Century
- An all-media Alphachat episode
- Robert Cialdini on how persuasion works in business and politics (transcript)
- Adaptive markets, and the lessons of an infamous call to sell
- How economics has evolved since the crisis
- Erica Grieder on the Texas model
- An experiment in Kenya
- Sebastian Edwards on why economic populism always disappoints
- Newly conceivable ideas in economics
- The brief history of Airbnb, and what’s next
Ryan Avent is the Free Exchange columnist at the The Economist and the author of The Wealth of Humans, a new book about the challenges and opportunities presented by a world of labour abundance. (Mostly the challenges.)
Compared to most rich countries, Sweden handled the twin challenges of the 2007-8 crisis and the never-ending euro crisis with aplomb. The share of people in Sweden with a job is at all-time highs. Real output per person is at all-time highs, and has grown much more than in most other rich countries over the past ten years. Underlying inflation is essentially at its long-term average. The trade surplus remains massive. And Swedish house prices continue to float into the stratosphere. Yet despite all this, Sweden’s central bank has been unusually aggressive in trying to stimulate its economy by cutting interest rates far below zero, buying assets, and cheapening its (already undervalued) currency. We recently had the chance to talk to a former Swedish central banker about this. He suggested the Riksbank could potentially justify its behaviour as an attempt to heal structural problems in Sweden’s jobs market.
Good idea: More reactive than a quantitative target; can signal long-term commitment to policy; potentially reduces purchases required if market believes your yield target is credible; potentially good for effectiveness of fiscal policy; potentially good for banks as it can imply a steeper yield curve; and allows for an “automatic exit” from the policy if everything goes to plan.
The tendency toward restriction that runs through the tone of the presentation seems to me to be quite problematic. It seems to me to support a wide variety of misguided policy impulses. –Larry Summers, Jackson Hole 2005 You might think Summers had changed his mind in the eleven years since he called Raghuram Rajan a “Luddite” for daring to suggest the financial system had gotten riskier since the 1970s thanks to competition and the rise of performance-based pay. After all, in a new paper, Summers and graduate student Natasha Sarin not only cited Rajan’s work approvingly, they concluded lenders are still too vulnerable to panics. You would, however, be wrong.
This will be a mostly charted recap of where exactly in the rabbit hole of negative yielding corp bonds we are following last week’s knee-shaking sale of some brand new negative yielders by non-state owned Henkel and Sanofi. It was a first. It was exciting.
This is a prophecy brought to you by Citi: Over the past five years the incumbent UK domestic banks have managed to maintain and improve net interest margins. As asset yields have declined the banks have been able to respond via careful liability management, lowering savings rates and retiring expensive legacy wholesale funding issued during the financial crisis. We believe this positive trend is now set to stall and reverse. While banks will probably be able to mitigate the impact of lower rates over the next 6 months, we fear that beyond this net interest margins [NIMs] could fall sharply.