Banks’ answer to AIG question a qualified success 21 Mar 2014 How much big U.S. lenders would lose if their largest counterparty fails is now part of the Fed’s stress tests. Bear Stearns, Lehman and AIG all showed the importance of knowing this. But the usefulness is limited unless there’s also a broader picture of systemic frailties.
Market spared shame in gilt-rigging fiasco 20 Mar 2014 An ex-Credit Suisse trader has been fined by UK regulators for manipulating gilts during QE auctions. The Bank of England adds soft target to its role of passive watchdog earned in the Libor scandal. The market, which blew the whistle, gets rare kudos for self-enforcement.
Yellen and Carney miss chance for hard reset 20 Mar 2014 Central bankers say they’re paying more attention to the financial cycle but old economic fixations persist. The ECB hasn’t started to regulate banks and Janet Yellen’s Fed sounds as oblivious as Ben Bernanke’s. There’s progress at the Bank of England, but much more to be done.
Confused Fed adds to emerging market muddle 20 Mar 2014 U.S. policymakers have sent a garbled message about their intention to raise interest rates. Increased uncertainty makes global bond and currency markets more volatile. That raises the risks for developing countries already battling with slower growth and sagging investor morale.
Fed’s only useful guidance is for more stimulus 19 Mar 2014 The U.S. central bank has dropped its 6.5 pct jobless trigger for raising interest rates – a risk to its credibility. Moreover, the change in future outlook seems dictated by a bias toward long-term easy money. Janet Yellen’s Fed won’t be putting on the brakes any time soon.
Bank of England goes for subtle shakeup 18 Mar 2014 The UK central bank has appointed an outsider to look after markets. Nemat Shafik’s challenge is to be close to traders, but not too cosy. Insider Spencer Dale will oversee financial stability. He’ll be most effective if he emulates his free-thinking predecessor Andy Haldane.
Mystery bond shift doesn’t dent faith in dollar 18 Mar 2014 An unexplained $105 billion shrinkage in the Fed’s store of Treasuries held for other central banks caused no market ripples. That’s testimony to investors’ belief in the dollar’s reserve status. Even more remarkable: the world’s most liquid bond market still holds big secrets.
Central bank transparency is overrated 13 Mar 2014 The Bank of England destroys recordings of its rate-setting meetings. That’s a blow to future historians, and frustrates traders who mine information for profit. But in central banking, confidence is crucial. Too much candour about fears and hopes can be counterproductive.
Kiwi rate rise shows cows beating central bankers 13 Mar 2014 New Zealand is the latest developed country to exit record-low interest rates. Rivals in Europe, Japan and the U.S. will be envious. While they milk cheap money for rare droplets of inflation, dairy herds of the South Pacific are producing price pressures with effortless ease.
ECB’s bank review short on details, not on rigour 11 Mar 2014 Europe’s new supervisor has divulged key details about its new review of bank balance sheets. It isn’t too specific on critical areas such as the definition of loan forbearance, partly because the exercise is complex and rushed. But lack of specifics doesn’t mean a cop-out.
Just ditch forward guidance 10 Mar 2014 Central banks’ long-range rate forecasts prod excessive financial risk-taking and may slow necessary tightening, says the Bank for International Settlements. Forward guidance fails the risk-reward test. Although the BIS didn’t say it, the policy just doesn’t stack up.
BoE suspension underscores FX market limbo 5 Mar 2014 The central bank has suspended an official as it probes who knew what about alleged foreign exchange rigging. Being transparent may help avoid the mess it got into with Libor. But the move does not address the pressing need to clarify what is acceptable practice in FX.
China’s yuan plan looks too clever by half 27 Feb 2014 The central bank seems set on bashing speculators betting on a stronger yuan, without changing the currency’s long-term appeal. The trick is to target low volatility that fuels trades. But it’s a fine balancing act – and risks rewarding those who were betting on a China downturn.
UK GDP offers partial vindication for BoE caution 26 Feb 2014 The latest growth report shows consumer spending up a little and business investment up a lot. As more confident businesses invest, they should boost productivity, wages and then spending. It’s a slow process. In the meantime, “lower for longer” interest rates look justified.
Japan bond investors’ overseas trip may flop again 26 Feb 2014 The Federal Reserve’s taper talk discouraged Japanese investors from venturing abroad last year. Now wobbly emerging markets are threatening this year’s outing. That’s bad news for bondholders searching for better returns - and for the Bank of Japan’s anti-deflation campaign.
Sturdier Fed only so effective as meltdown averter 25 Feb 2014 The central bank’s 2008 records reveal a board honestly debating the worsening crisis, but ultimately acting too late. The Fed now has more powers, like stress-testing banks. These should give more insight earlier on. They will only go so far to overcome doubt and indecision.
Hugo Dixon: ECB faces severest stress test 24 Feb 2014 A lot is riding on the cleanup of euro zone lenders, which is being overseen by the bloc’s central bank. Progress so far is encouraging. But clarity is needed on a few more things to ensure that banks get a proper scrubbing and can therefore support an economic recovery.
Nigeria’s oil scandal may yet help it emerge 20 Feb 2014 President Jonathan suspended the central bank chief after he pointed a finger at the state oil company. Local markets roiled, but Nigeria’s non-petroleum economy is actually growing smartly. With any luck, more attention on corruption will curb one of the country’s biggest drags.
ECB uses poor measure to dismiss disinflation fear 20 Feb 2014 The euro zone central bank’s non-worry about deflation is partly based on the market’s long-term inflation expectations. But the ECB’s pet measures look too far in the future to be helpful. And the chosen gauges are so placid that they will probably only move after it’s too late.
U.S. rules show limits of global bank resolution 19 Feb 2014 The Federal Reserve’s decision to make European lenders hold more capital against their American operations could push up funding costs and make banking less global. But it is an admission of reality. Cross-border resolution without national safety nets is still a non-starter.