Subscribe to Dollars & Sense magazine. Recent articles related to the financial crisis. Quantitative Easing Fails To Get Banks To LendAnalysis from FT Alphaville. Here are the main ideas:The Deputy Governor's remarks on 'quantitative easing' (QE) suggest the Bank of England has abandoned any hopes it might have had that its asset purchases would lead to a revival in bank lending. If QE is purely and explicitly aimed at flattening yields, it also raises certain questions for central bankers beyond those of the moral hazard of monetising debt. For instance, if yields (10-year gilt shown below) stop responding to government-bond buybacks, and rates start rising, what then? Today's FT also notes that the Bank of England is considering a move already taken by Sweden's Riksbank, of introducing negative interest rates on balanced banks hold with the central bank, to induce banks to finally lay out cash to borrowers (which has been liberally financed by the taxpayer, of course...) Labels: Bank of England, bond market, financial crisis bailout, Monetary Policy, Quantitative easing, The Riksbank, yield curve Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Failed Stress Tests...in 2004From the Financial Times:Northern Rock risk revealed in 2004 By Norma Cohen and Chris Giles Published: May 30 2009 00:03 | Last updated: May 30 2009 00:03 Banking regulators identified Northern Rock as the weak link in Britain's banking system during secret "war games" held as long ago as 2004, the Financial Times has learned. The risk simulation planning, conducted by the Financial Services Authority, the Bank of England and the Treasury, made clear the systemic risks posed by Northern Rock's business model, and its domino effect on HBOS, then the UK's largest mortgage lender. The revelation is at odds with the notion that no one could have foreseen the September 2007 collapse of Northern Rock or the subsequent rescue of HBOS, which was sold to Lloyds Bank. The FT has found the troubled lender and HBOS were at the centre of a 2004 war game that regulators held to test how banks would cope with sudden turmoil in mortgage markets and the withdrawal of the money from foreign banks on which Northern Rock's business model relied. Regulators chose that scenario because they were worried about the growing dependency of banks such as Northern Rock and HBOS on such funds rather than on stable retail deposits. Even though the exercise revealed the banks' vulnerability, the regulators concluded they could not force the lenders to change their practices, according to several people familiar with the matter. It was felt that it was too hard to say Northern Rock's business model was excessively risky, and in any case banks following that strategy were profitable and growing, though the Bank did warn of the growth in wholesale deposits repeatedly in its financial stability reports. However, as wholesale lending markets dried up in mid-2007, the war game's findings proved eerily prescient. Both banks sustained irreparable damage beginning in 2007 as wholesale lending markets seized up and mortgage-backed securities became unsaleable. Regulators on Friday confirmed that Northern Rock and HBOS were central to the war game. But spokespeople for the FSA and the Bank of England said the exercise was focused on uncovering weak regulatory practices rather than predicting individual bank failure. Mervyn King, Bank governor, alluded to the war games in a 2005 interview with the FT, saying the Bank had looked at a situation in which "there could be a problem in a particular institution which isn't terribly big, which may for completely unpredictable reasons turn out to pose a liquidity problem to a very big institution". But until now no one has known the name of any banks used in the exercise. The Financial Times sought details in early April under the Freedom of Information Act from the Bank and the Treasury, but those requests have so far been unsuccessful. Copyright The Financial Times Limited 2009 Labels: baillout, Bank of England, financial crisis, HBOS, Lloyd's TSB, Mervyn King, Northern Rock Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Meanwhile, at the Bank of England...From The Independent:Bank tells staff: Don't forget the lipstick, girls Anger over seminar where women employees are given advice on what to wear and how to wear it By Rachel Shields Sunday, 1 February 2009 While dress codes are standard in many professions, specifying the colour of heels that should be worn and insisting on make-up is interpreted by many as sexist Independent.co.uk Web The Bank of England came under fire last night for "institutional sexism", after it held a seminar for female staff to advise them on what clothing, shoes and make-up to wear. In a week when the IMF announced that the British economy will be the hardest hit of all the developed nations, when strikes erupted across the country and as world leaders gathered in Davos to discuss global recession, senior figures at the Bank turned their minds to lipstick and high heels. On Wednesday, Bank of England employees gathered for a Dress for Success summit, at which female employees were lectured on the importance of wearing appropriate jewellery and make-up in the workplace. A memo leaked from the meeting details the advice given to staff, including the warning that wearing certain accessories would make women workers look like prostitutes. Read the rest of the article Labels: Bank of England, financial crisis, labor Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Co-centric Vicious CyclesThis posting is from D&S collective member and frequent blogger Larry Peterson. To see more of his posts, click here.The European Central Bank and Bank of England, as expected, cut interest rates (with the BoE coming down an unprecedented 1.5% to 3.0%), but exceedingly poor corporate and consumer outlooks are pulling stocks down anyway. In Asia, both the Japanese Nikkei and Hang Seng in Hong Kong endured terrible losses. Obama is putting on a full-court press to contain the damage (expect him to name Clinton ex-Treasury secretary Lawrence Summers or New York Fed chair Timothy Geither today to head the Treasury Department), but if stocks continue their slide, he'll have to announce some sort of stimulus proposal, probably involving infrastructure spending, very soon. It remains extremely worrying that extraordinary measures, like the BoE cut, and circumstances, like the hurry-up Obama transition, have exerted only temporary effects on a downward spiral in global markets that has seen trillions wiped away from pension funds and other forms of wealth people really rely on (not just the ill-gotten gains of the filthy-rich), in just a few weeks: there will be a real shock when people get their fourth-quarter 401 K statements, even if they don’t spend much on Christmas shopping, which will itself deliver another body-blow to the economy. And, meanwhile, hedge fund redemptions continue, and that cycle of deleveraging shows no sign of abating: in fact, be prepared for an uptick in hedge fund bankruptcies. What you have here is a series of co-centric vicious cycles, all collapsing into each other. What anyone can do to stop it is still anyone's guess. Tomorrow the employment report for October comes out, and I believe it will be horrible (expect 150,000 jobs to be gone). At this rate, the Obama administration could be worn out before it even officially takes office. Labels: Bank of England, Barack Obama, european central bank, financial crisis, Larry Peterson, larry Summers, stock market, Timothy Geither Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Bank of England Doubles Bailout EstimateApologies for the error in the first sentence (they had a US dollar figure in the original article, which is contradicted by the title). From The Independent:BoE warns credit crisis losses could hit 2.8trn Pounds By Sean O'Grady, Economics Editor Tuesday, 28 October 2008 Global bank losses as a result of write-offs on mortgage-backed and other badly devalued securities will spiral to $2.8 trillion before the credit crunch is over, according to the latest estimates produced by the Bank of England. The figure is around double the Bank's previous estimates and calculations by the IMF. It suggests that, while the recent injections of bank capital by governments may help stabilise the financial system, it is far from fully over the ravages of the credit crisis. The Bank says that the losses for the UK's banks will run to 122.6bn pounds, against a forecast of 62.7bn pounds made in April. For the US and the euro area, it gives figures of $1,577.3bn (was $738.8bn) and 784.6bn (previously 344.1bn euros) respectively. Read the rest of the article Labels: Bank of England, financial crisis bailout, The Independent Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). |
