Governor’s exit kills myth of India’s central bank 10 Dec 2018 Urjit Patel's resignation after a spat with New Delhi makes him the second chief to leave in almost as many years. That removes the illusion of independence. Finding a successor will be tough too. Investors will now significantly reprice risk as India hurtles into elections.
Alexis Tsipras mistimes Greek pre-election gamble 7 Dec 2018 After nearly a decade of bailout-related austerity, the prime minister is promising giveaways ahead of a 2019 vote. There’s a case for spending more. But Italian jitters and the end of the European Central Bank’s bond-buying make this a bad moment to test investors’ patience.
Trade truce gives China room to loosen up 7 Dec 2018 Wary of sending the wrong signal, Beijing has left its benchmark interest rate untouched since 2015. But central bankers eager to foster growth have other monetary policy levers they can pull, like interbank rates. A period of diplomatic calm gives them the space to do just that.
EU gives Mediobanca Christmas gift on Generali 5 Dec 2018 Finance ministers extended until 2024 a generous capital treatment for banks’ stakes in insurers. It allows Mediobanca, which has 13 pct of Generali, to add 100 bps to its capital ratio and delay a sale. CEO Alberto Nagel has a larger buffer to resist market jitters, or do deals.
Review: Paul Volcker’s exemplary life 30 Nov 2018 The former Fed chairman is famous for crushing inflation. His new memoir, “Keeping At It”, reveals the attributes that made him arguably America’s greatest central banker. His common sense, distrust of economic theory and personal integrity are valuable guides to his successors.
Powell and Carney at least know their own limits 29 Nov 2018 The Fed chair irks U.S. President Donald Trump when rates rise, while the Bank of England boss took all-around flak for unveiling worst-case Brexit scenarios. Central bankers are imperfect but, unlike some critics, they rarely claim infallibility and usually show their workings.
Fed’s stability checkup downplays wobbly features 28 Nov 2018 Chairman Jerome Powell says the financial system is in good health, echoing a report from the U.S. central bank. The jobless rate is low while inflation remains in check. But risks like trade fights and corporate debt only get brief mentions. Watchdogs may regret that posture.
Bank of England hurls a lifebelt to UK Brexit plan 28 Nov 2018 The UK central bank has warned domestic GDP could fall 8 pct in a disorderly Brexit scenario. A deal more akin to the state’s exit plan could lead to a 0.75 pct dip. That helps Prime Minister Theresa May’s deal, but maybe not enough to get it through parliament.
Greece tries “hair of the dog” bank recap plan 28 Nov 2018 Athens-based Eurobank, saddled with bad real estate debt, is buying property company Grivalia for 760 million euros. It can then use the latter’s equity to spin off 7 billion euros in dud loans. It’s a novel way to recapitalise a bank, but probably hard to copy.
China’s too-big-to-fail rules go the right way 28 Nov 2018 Regulators have published new guidelines for supervising key banks, insurers and brokers. Of course, Beijing owns most big banks and failures are rare. But indicating who should be saved means others may be allowed to sink: that's a step towards liberalising a $40 trln industry.
Goldman Sachs could wind up paying twice for 1MDB 28 Nov 2018 Abu Dhabi’s sovereign fund is now suing the investment bank for its role in the Malaysian scandal. Damages being sought could exceed Goldman's average net profit of $5.4 bln. U.S. authorities may want a piece, too. The longer this drags out, the worse the financial fallout looks.
New global bank cop faces political stress test 26 Nov 2018 Fed Vice Chair Randal Quarles is a strong choice to lead the Financial Stability Board but the Basel-based body faces many challenges. A divided U.S. Congress is fighting about whether to be tough or soft on Wall Street. Brexit and other forces will also test cross-border unity.
MTN’s $8 bln Nigeria spat requires Goldilocks fix 26 Nov 2018 The African phone giant is close to ending a row with the West African nation over dividends. A face-saving deal will repair ties in its biggest market. After protesting its innocence, a reported $800 mln settlement looks excessive. But too little will keep MTN in Abuja’s sights.
RBI’s piggy bank can stand a New Delhi raid 20 Nov 2018 Under government pressure, India’s central bank will consider cuts to over $100 bln of reserves. Its capital cushion looks generous next to BRIC peers, but the country’s large budget deficit, its dependence on foreign capital and the danger of a bad precedent demand caution.
Hadas: Fear of fiscal deficits is overdone 14 Nov 2018 Mainstream economists agree that governments can safely spend more than they take in, but worry about big funding gaps. Some dissidents make a good case for going deeper in the red. They could be bolder. Most domestic borrowing can be replaced with straight money-printing.
Italian group bank rescue is self-preservation act 12 Nov 2018 A vehicle funded by the country’s lenders is spearheading a 400 mln euro rescue plan for ailing Carige. A private sector bailout avoids using taxpayers’ money and should not clash with EU state aid rules. It’s a sensible way to minimise the risk of banking contagion.
Governor’s exit would gut India’s central bank 12 Nov 2018 A power struggle with New Delhi could force out Urjit Patel. Losing two RBI chiefs in two years would ruin the credibility of India’s most respected financial institution. It also heralds more jostling elsewhere between populist governments and independent-minded central bankers.
U.S. stress tests risk falling on slippery slope 9 Nov 2018 Fed supervision chief Randal Quarles wants to tweak the annual exams. Some revisions are warranted, like giving banks test results before they decide how much capital to return to investors. But scrapping the watchdog’s ability to fail a firm gives Wall Street too much leeway.
Hadas: Central bankers stuck between two myths 8 Nov 2018 Monetary authorities dream of a neutral technocracy though their jobs are inherently political. Politicians from the U.S. to India fantasise about exerting more monetary control, but wild policies quickly turn toxic. The uncomfortable status quo may be the least bad arrangement.
South Korea can correct its economic missteps 6 Nov 2018 Business investment has tumbled and hiring weakened following a steep minimum wage hike and cap on working hours. Growth in the $1.5 trln export-dependent economy also is sputtering just as the U.S.-China trade war intensifies. Seoul would be wise to make some small adjustments.