Saturday, 31 May 2014

The dance of the central banks

At Forbes, I explain how monetary policy and the control of the US dollar is actually shared between the Fed and the People's Bank of China:
There has been a sort of trade war going on between the US and China for a long time. It surfaces briefly during election campaigns – remember Mitt Romney promising to end China’s “currency manipulation”? But the rest of the time it simmers coldly under the surface.
The chief protagonists in this war are the two central banks – the Federal Reserve and the People’s Bank of China (PBOC). And the principal weapons are US dollars and US Treasuries (USTs).
Read the whole post here.

Friday, 30 May 2014

Hounding the Poor

The Independent reports that the UK Government is using debt collection agencies to recover overpaid tax credits from some of Britain's poorest families. In many cases the debts are due to errors by HMRC. And in many more cases they are due to fundamental flaws in the design of the system. Some are due to errors on the part of the claimants. Few, if any, are due to fraud.

The tax credits system is complex. But the fundamental problem is simple. The design of the system does not match the reality of people's lives.....

Read on here.

Thursday, 29 May 2014

Liquidity hoarding and the end of QE

Isn't this interesting?

(lines and QE annotations mine)

Every time QE is announced, yields rise: when it ends, they fall. And no, this doesn't just affect the 10-year yield. The same basic shape can be observed on just about any maturity over 1 year (short-term rates are propped up by the positive IOER policy).

I've written about this before, and concluded on that occasion that the rise in yields was due to the closed-end nature of previous rounds of QE bringing forward sales that would not otherwise have happened and encouraging carry capture strategies due to raised inflation expectations. I expected therefore that if QE was continued for long enough, or announced in a way that indicated no definite end, yields would fall as expected rather than rising. But it seems this is not the case. The current round of QE was announced in September 2012 with no end date for purchases. But yields started to rise soon after it was announced: admittedly they rose more gradually than in previous rounds, but rise they did. And they continued to rise until December 2013, when the Fed announced its taper. Since then, yields have been falling.

Now of course there may be all manner of explanations for this. Correlation doesn't indicate causation, ceteris is not necessarily paribus, and all that. Deutsche Bank came up with eleven reasons for falling US Treasury yields, none of which mentioned the taper, and David Ader of CRT Capital Group produced another eleven that didn't mention it either. And I am sure there are plenty more reasons that don't include tapering.

But I have a theory. I think it IS at least partly due to the taper. And the reason is the effect that QE has on global liquidity.

QE increases liquidity in the financial system, or rather in the regulated part of it*, by buying assets that carry some form of risk - usually duration risk and interest rate risk. This has the effect of moving risk from the financial system to the central bank's balance sheet. The consequence of this is that the financial system is absolutely awash with the safest form of safe asset, namely cash, and rather short of slightly more risky cash substitutes. Those who want safety have no reason to buy longer-dated treasuries when there is so much cash around, while those who want yield will still prefer riskier assets. Rather than depressing yields on longer-dated treasuries, therefore, QE actually raises them as investors substitute cash for treasuries**.

When QE stops, whether suddenly or gradually, there is of course no immediate withdrawal of liquidity. But the sudden removal of the INCREASE in liquidity gives the impression of a drought. It's like someone washing their hands under a running tap instead of in the sink: when that tap is suddenly turned off, or the flow through it is restricted, the washer thinks they have run out of water, even though there is an entire sink full because of the previous flow. This is what is happening in financial markets. The Fed is turning off the QE tap.

A year ago, when Bernanke first announced that the Fed intended to end QE, markets thought the tap would suddenly be turned off. And they panicked. So that's not how the Fed is doing it. They are turning off the tap very, very slowly, giving lots of time for market participants to find other ways of managing liquidity. And, prodded by regulators, market participants are doing so. They are building up substantial liquidity reserves in the form of safe liquid assets. This is happening across all types of market players: governments, especially EMs, are building up FX reserves; corporates are building up cash and near-cash holdings on their balance sheets: banks are vastly increasing their liquidity buffers; and asset managers are increasing their safe asset holdings to give them collateral so they can meet day-to-day liquidity needs, for example for cash margin calls on derivatives traded through central clearing houses.

To be sure, all of these players have been building up liquidity reserves for quite a while - in some cases, since well before the financial crisis. But the withdrawal of QE makes this need more acute.  As I explained here, the age of easy money is over, at least for the moment.

So market participants are increasing their purchases of safe assets in order to improve their liquidity. All classes of goverment bonds are involved: after all, if liquidity drought is the perceived risk, a future claim on Government cash that it is obliged to honour is valuable. As is anything that is guaranteed by government and readily tradeable for cash. It's worth remembering that for corporations, insured deposit accounts don't offer much in the way of safety because deposit insurance limits are too low: government bonds are nearly as liquid as an insured deposit account and benefit from an unlimited government guarantee. Corporations who wish to self-insure their own cash flows, therefore, will want to hold government bonds or equivalent safe assets as stores of liquidity. Banks, too, hold government bonds as liquidity buffers in addition to, or as substitutes for, reserves.

At the same time, we have capital rebounding back into Western safe assets from the troubled EM countries and a slowing China. And we have the beginnings of a slowdown in Germany, too. All of these combine to depress yields on USTs as fearful investors seek safety, fearful corporations and financial institutions hoard liquidity and the Fed continues its taper.

Government bonds are not the only safe assets whose price is being pushed up. Property, too, is rising in price. In Europe it is not the most liquid of assets, so the purchasers tend to be people looking for yield rather than liquidity hoarders. But in America, where the mortgage market is largely securitized, the price of MBS is soaring. Property itself may not be liquid, but its derivatives are.

If I am right that the cause of the current fall in safe asset yields is primarily liquidity hoarding due to the Fed taper, then eventually yields will reach equilibrium. But.....there is of course another explanation. Yields on safe assets have been falling for over thirty years:

Could it be that all QE3 did was temporarily prop up yields, and now that it is being be removed, yields are simply reverting to their previous trend?

I'm sure this is what Larry Summers would say. Welcome to secular stagnation.

Related reading:

Weird is Normal - Pieria
Rediscovering IS/LM - Pieria
The negative carry universe -FT Alphaville

* QE can actually create a liquidity drought for non-banks who rely on the same safe assets as collateral for repo financing as the central bank is buying. This is partly why the Bank of England used a collateral swap, rather than more QE, to provide banks with cheap funding for lending: increasing the volume of T-bills in circulation and encouraging banks to use them in the repo markets eased the safe asset shortage and therefore made liquidity conditions easier for non-banks as well as banks.

** Just to remind you: yield is the inverse of price. If yields rise, prices fall.

Tuesday, 27 May 2014

Categorising the poor

My latest post at Pieria traces the history of welfare from the fourteenth century and finds the same two mistakes being made again and again - right up to the present day. We try, and fail, to distinguish between those who deserve support and those who do not. And we try, and fail, to compel people to work. The consequences of both failures are terrible, both for those directly affected and for society as a whole. It's time for a completely new approach.

Read the post here.

Credit Suisse is too big to jail

My latest post at Forbes looks at the criminal penalty handed down to Credit Suisse for its part in helping high net worth US citizens evade tax. In no way does it fit the crime - and why have no top executives been prosecuted? Even more importantly, why have the names of the tax evaders themselves not been revealed? This is no way to convince the world that the US is serious about cleaning up banking.

Read the whole post here.

Friday, 23 May 2014

Barclays is in the doghouse again

Gold fixing, this time. Here's the FCA's summary:
The Financial Conduct Authority (FCA) has fined Barclays Bank plc (Barclays) £26,033,500 for failing to adequately manage conflicts of interest between itself and its customers as well as systems and controls failings, in relation to the Gold Fixing. These failures continued from 2004 to 2013.
It seems to have been a rogue trader, one Daniel Plunkett, who rigged the 3 pm Gold Fixing to avoid making a payment to a customer. He has been fined as well and struck off by the FCA.

But the timing is exquisite.  The very day after Barclays was censured by the FCA for rigging Libor and Euribor, Plunkett rigged the gold fixing in his favour. Clearly nothing had been learned from the FCA's enforcement action. This is worrying, given the high profile of the FCA's investigation into Libor-rigging at Barclays, and the fact that it cost the bank its CEO as well as regulatory fines and untold reputational damage.

It's also implied in the FCA's notice that although Plunkett's misconduct is recent, Barclays' systems and controls around its participation in the Gold Fixing have been inadequate for a very long time. It seems likely therefore that Barclays traders have routinely rigged the Gold Fixing.

Although the specific incident referred to by the FCA occurred in 2012, the fact that failures continued into 2013 is of course highly embarrassing for Anthony Jenkins, who is trying desperately to clean up the bank's image.  Clearly he didn't act fast enough to address systems and control failures on the trading floor.

Barclays is the first bank to be fined for rigging the Gold Fixing. But I doubt if it will be the last. The other banks involved in the Gold Fixing, namely Scotiabank, Societe Generale and HSBC - and Deutsche Bank, although it has now exited the Gold Fixing - are under investigation for the same thing. It's evident that price rigging has been common practice across all markets, so it seems unlikely that Barclays will be the only offender, and it may not even be the worst.

And roll on the next scandal, too. Fraud, price fixing and ripping off customers seem to be endemic not only on trading floors, but in retail banks and even private banks. It seems that we are gradually dismantling the entire ethos of late 20th Century banking. I wonder what the eventual cost will be....

Related reading:

That Barclays Libor-rigging matter....

The myth of the omnipotent central bank

"Inflation", said Milton Friedman, "is always and everywhere a monetary phenomenon". Upon this statement has been built three decades of faith in the omnipotence of central banks. It does not matter what government does: it does not matter what markets do: it does not matter what shocks there are to the economy. As long as central banks get the money supply right, there will be no inflation. Or deflation. Growth will simply proceed smoothly along a pre-determined path.

Leaving aside the question of whether central banks really control the money supply at all in an endogenous fiat money system, it is clear to me that the control of inflation - in all its forms - is by no means so simple. Despite Friedman's statement, the forces that create inflation and deflation are in reality poorly understood. The delicate balance between supply and demand in a monetary economy is easily disrupted: shocks to supply or demand reverberate around the economy in a manner similar to a tsunami, overwhelming everything in their path and causing lasting devastation. The means by which shocks propagate themselves are a matter of considerable debate in economic circles. There is no agreement whatsoever on what the transmission mechanisms are, let alone how to manage them. And there can therefore be no basis whatsoever for the blind faith that central banks can at all times control inflation. Or growth, for that matter (I'm looking at you, NGDP-targeters).

To be sure, central banks can limit the immediate effects of shocks. I am no fan of QE, but even I have to admit that its use by central banks around the world to prevent catastrophic debt deflation after the fall of Lehman was successful. But I would regard this as firefighting. Central banks were able to put out the bush fire caused by the fall of Lehman. But they were then expected to restore the forest to its previous green and growing state using exactly the same tools that they used to put out the fire. Flooding the place douses the flames, but it doesn't help new life to grow. On the contrary, it may actually drown it. Too much liquidity is as dangerous as too little.

What was needed after the Lehman bush fire was careful nurturing of a very damaged private sector by governments. And to start with, that is what happened. The ground healed, the plants started to grow again, and the animals began to return.

But then governments got scared. They didn't do the serious pruning of overgrown banks that was really needed to reduce the likelihood of another bush fire: instead, they encouraged central banks to flood the fire-damaged banks with liquidity in the hopes of getting them to flower again before they were really healed. But even worse, they decided that pouring water and fertilizer on the areas where fire had scorched the earth and life was slow to return was too expensive. So they stopped nurturing the scorched areas, and instead imposed a drought: the green shoots died and the animals left. They blamed the fire-damaged banks for this: if only they would flower, the plants would grow in the devastated areas even though there was no water, and the animals would return even though there was nothing for them to eat.....

And it worked, sort of. The fire-damaged banks did flower again, eventually. But the flowers they produced were not the life-giving variety that give nectar to the bees and food to the animals. They were toxic. All they fed was asset prices.

But the UK government thought this was wonderful. If asset prices rise, then that's new life in the economy, isn't it? Never mind that millions of people are unemployed or under-employed, real wages are stagnant and productivity is on the floor. The stock market is at an all-time high and London house prices are rising at over 10% a year. House prices elsewhere are rising too, because in addition to the liquidity with which the central bank flooded the banks, the starry-eyed government is adding fertilizer to the housing market.

There are now growing calls for the central bank to intervene to calm down the housing market. Central banks that have macroprudential responsibility, as the Bank of England does, have a wide range of tools that they can use to influence specific sectors: monetary policy is a blunt instrument that should be used only as a last resort. But that's not what the hawks think. A sledgehammer is the only tool they know. Therefore, because London house prices are reaching for the skies, interest rates must rise.

This is perverse. Firstly, as we have seen with the Eurozone, when monetary policy in a currency union is dictated by the needs of one particular area, the rest of the union suffers. The ECB has been under pressure to raise interest rates because of house price inflation in Germany: to its credit, so far it has resisted this. It would be a tragedy if the Bank of England gave in to equivalent pressure to raise interest rates because of house price inflation in London, and squashed the UK's fragile recovery.

Secondly, it is by no means clear that raising UK interest rates would have any effect at all on the London housing market. The principal drivers of the London housing bubble are overseas cash buyers, many of them financed at very low interest rates by foreign banks, and UK investors diversifying into property in the search for yield. A rise of a few basis points in interest rates is not going to be enough to make the returns on financial assets more attractive than London property. To have any significant effect, an interest rate rise would have to be several percentage points - which would be an enormous negative demand shock to the UK economy. Using monetary policy to prick the London housing bubble would be likely to knock the economy back into severe recession.

And thirdly, it is not only perverse but morally wrong for an unelected central bank to attempt to override or counteract the intended economic effects of the policies of an elected government. Help to Buy is pushing up house prices outside London: this hurts the people it is primarily designed to help, but it does encourage construction, and the rising house prices create "wealth effects" which act as a much-needed economic stimulus in depressed areas such as the North East. Despite widespread derision at what appears to be blatant buying of homeowner votes, the government has made it clear it has no intention of ending Help to Buy. Therefore we must assume that the government likes the current housing boom. While Help to Buy remains in place, the Bank of England has no business raising rates purely to calm the housing market. If financial stability is threatened, Help to Buy must end.

I doubt if macroprudential tools would have much effect on the London housing market, since it is primarily driven by cash buyers. Fiscal tools would be far more effective, and there are numerous alternatives. Punitive taxation of capital gains on speculative purchases: 100% taxation of notional rents on properties left empty: wealth taxation on very high value properties: a top band on council tax: even a land value tax. Anything to give the clear message that housing is first and foremost shelter, and speculative activity that drives up prices beyond the reach of ordinary people is not acceptable. But this, of course, is the job of government - not the central bank.

And this brings me to the real point of this piece. The myth of central bank omnipotence has been carefully fostered by the academic economics profession, by central banks themselves and by politicians. The first two of these clearly have a vested interest in technocratic management of the economy. But it is perhaps less clear why politicians sell this myth.

Politicians sell the myth of central bank omnipotence because it allows them to pursue all manner of stupid fiscal and quasi-monetary policies while escaping responsibility for the consequences. If Help to Buy causes asset price inflation, it's the central bank's responsibility to sort it out - even at the cost of widespread collateral damage. If a front-loaded austerity programme in the teeth of oil price shocks and a sovereign debt crisis in our largest trade partners squashes a fragile recovery, it's the central bank's responsibility to get growth going again. If ill-considered and callous changes to the benefits system force a lot of people on to the unemployment register when the jobs market is already depressed, it's the central bank's responsibility to stimulate the economy so new jobs magically appear. If the central bank fails to achieve these because of an unhelpful fiscal stance, blame the central bank.

But the truth is that central banks are not omnipotent, and the tools they use are not cost-free. As already noted, interest rate changes can have unpleasant and unintended side effects. The effectiveness of QE when the fiscal stance is contractionary is uncertain, and it is unquestionably regressive, benefiting the very rich far more than any other section of society. Macroprudential tools are of questionable effectiveness too: they are easily evaded or watered down, and they are ineffective if improperly targeted. And the inadequacy of information available to central banks - and poor timing - means that their actions are always likely to be "too little, too late". For targeted sector interventions, fiscal tools can be both more powerful and more effective: we should be far more willing to use them.

Most importantly of all, central banks simply do not have the power to override a determined government. One of my favourite academic papers, Sargent & Wallace's "Some Unpleasant Monetarist Arithmetic" reminds us that central banks are powerless to control consumer price inflation generated by reckless government borrowing and spending. The same is true of asset price inflation generated by irresponsible and meretricious government support of housing markets. And in my view the same is also true of deflation caused by inappropriate fiscal contraction.

Whether they like it or not, politicians are accountable to their electorate for managing the economy. It is wrong of them to attempt to pass this hot potato to unelected central banks, and equally wrong of central banks to think they can accept it.

Related reading:
Why house prices are a problem for governments, not central banks - Pieria
The temples of the gods of capital
FLS and the Bank of England's independence
Making the desert of plenty bloom - Pieria

Monday, 19 May 2014

Deutsche Bank's latest capital raising won't end its problems

My latest post at Forbes looks at the troubled Deutsche Bank and its latest attempt to improve its capital ratio:
Deutsche Bank has finally admitted – to no-one’s surprise – that it needs more capital. It has announced plans to raise 8bn EUR of new Core Tier 1 equity capital (CET1).
Although everyone knew Deutsche Bank was short of capital, this admission is nevertheless somewhat embarrassing. Only last year, Deutsche Bank raised 3bn EUR with a rights issue and claimed that no further capital would be needed. Yet recently it announced plans to raise up to 1.5bn EUR of “additional capital” – debt which can convert to equity if CET1 falls below an agreed level. Now it seems even more of the best quality capital is needed as well. What on earth has gone wrong?
Find out here.

Saturday, 17 May 2014

A tale of two reviews

The last few weeks for the Co-Op could perhaps be called “a tale of two reviews”. Firstly, there was Sir Christopher Kelly’s report into the disastrous takeover of Britannia Building Society by the Co-Op Bank. Secondly, there was Lord Myners’ review of governance in the Co-Op Group.

Sir Christopher Kelly’s report tells a shocking story of deceit, corruption and utter incompetence in both the Co-Op and Britannia, both before and after the merger. The true state of Britannia’s balance sheet appears to have been deliberately concealed from those tasked with doing due diligence, and there were financial shenanigans designed to create the illusion of value when in reality value was being destroyed.  Britannia was by no means a sound business prior to the merger: it had extensive subprime mortgage exposure and a highly leveraged (and it now transpires, overvalued) commercial property book. But what I find more worrying is the evidence that AFTER the merger the enlarged Bank was not in control of its loan book. In the 2011 accounts, nearly a third of its loan portfolio was described as “unrated” for risk. Put bluntly, the Co-Op Bank under Neville Richardson had no idea what risks it was carrying on its balance sheet, let alone how to manage them.  

Nor was this the only problem. The scale of compensation for PPI mis-selling at the Co-Op Bank is, proportionately to the size of its balance sheet, nearly as large as Lloyds Banking Group's. And the Co-Op Bank is the only bank to have been censured by the regulator for breaking the Consumer Credit Act by misleading people about the terms of their mortgages.

The failure of financial and risk management at the Co-Op Bank exposes a deeper malaise. What happened at the Bank was a failure of Co-Operative values. A bank that deceives its owners and mistreats its customers is not an ethical bank, however many ethical investments it makes. The Co-Operative Group lost control of its bank long before the hedge funds moved in.  

Sir Christopher makes it clear in his report that attempts by Group Board members to evade responsibility for the Britannia merger and its consequences are unacceptable. “We didn’t know, we were kept in the dark” is no defence.  Admittedly, professional boards in other financial institutions have been equally incompetent: but that is no reason to excuse what happened here. It is a sad reflection on the state of the Co-Op Group Board that those responsible for the disastrous Britannia merger and the subsequent mismanagement of the Bank could so comprehensively deceive them, to the detriment of the Co-Operative businesses and members.

And this brings me to the Myners Review.

Lord Myners’ review goes far beyond the troubles of the Bank. It examines the state of the Co-Op Group as a whole. And for me, it made incredibly sad reading.  The Co-Op Group is a shadow of what it was when I was a child, when it was the market leader in retail and at the heart of the communities it served. Despite successive attempts at reform, it has failed to respond to the challenges of an increasingly competitive retail environment. It is in long, slow, possibly terminal, decline.

It is clear that the Co-Op Group must undergo radical reform if it is to survive, and I have no doubt that Myners’ recommendations were done with the best of intentions. But he presented his argument so badly that instead of bringing together co-operators and executives in a shared commitment to reform, he set people’s backs up and generated opposition and even outright hostility.

And yet I think he was on the right track. 

The heart of the Co-Op Group is its values and principles (this table is from Myners' report):

These are not solely the province of elected representatives. They should be deeply embedded in the business culture and permeate throughout the organisation, from top executives down to those who serve on shop counters. 

There are two that I particularly want to highlight:

ETHICAL VALUES: Caring for others – we regularly fund charities and local community groups from the profits of our businesses

PRINCIPLES: Member economic participation – all profits are controlled democratically by members and for their benefit.

Both of these discuss how the profits created by the Co-Op Group should be used. But the existence of profits is simply assumed. I don’t know how many times I have heard people say to me, when discussing the future of the Co-Op Group, “It’s not about profits”. Many co-operators feel more at home with the values of the public sector and the third sector, where service, not profit-making, is the primary objective. 

But the Co-Op Group is a commercial business and its job is to make profits. Indeed it MUST make profits. Without them, the social purposes of the co-perators cannot be achieved. In order to redistribute profits, you must first make them.

It was clear to me from Myners’ report that lay directors are often more comfortable discussing how profits should be used than how they should be earned. This reflects a fundamental separation at the heart of the Co-Op. On one side there are what we might call the Value Generators – the Board, Executive and staff of the Co-Op Group – whose job it is to earn profits. On the other side are what we might call the Value Distributors – the co-operators – who have wider social interests and responsibilities. 

At the moment these two don't trust each other. Co-operators talk endlessly about the need to "control" the executive: the executive, it seems, is trying to sideline the co-operators. This rift is deeply damaging. 

Both sides are essential. Both are bound by the same set of co-operative principles. And both have shared objectives. They just have different jobs.

What Myners has attempted to do is reflect this separation in his new Board structure. On the Value Generation side, he has suggested a professional Board which has the knowledge and expertise to run the business on commercial lines while respecting co-operative principles & values. On the Value Distribution side, he has proposed a National Membership Council (NMC), made up of elected Co-Operative members. The new structure would free up lay directors to concentrate on their real interests and enable the Board to concentrate on running the business.

However, he has failed to explain adequately what the relationship between these two bodies should be. And this has unfortunately led to lay directors feeling that they are being “excluded” or “downgraded”. Nothing could be further from the truth.  The Board is accountable to the membership not only for its adherence to Co-Operative principles, but also for the financial performance of the Co-Op Group as a whole.  So the NMC is not a “subordinate Board”, and lay directors have not been “downgraded”. On the contrary, it is if anything an “upgrading”.

If the direction of accountability were clear, then I think Myners' model would be workable - it is, after all, similar to twin governance structures used in many successful co-operatives in other countries. But by itself, it does nothing to heal the hurt and mistrust at the heart of this business. And it is this, above all, that threatens the survival of the Co-Op Group. Unless co-operation is restored between elected members and the executive, I fear it is doomed. 

A shorter version of the above was given as a speech at the Cooperatives Renewal conference on 16th May 2014.

Related reading:

Final Report - Sir Christopher Kelly (pdf)
Report of the Independent Governance Review - Lord Myners (pdf)
Myners Plus - Cooperatives UK
Not Myners Plus but Myners Minus - Lord Myners

Sunday, 11 May 2014

A Place Called Home

My latest post at Pieria looks at the social and personal costs of economic migration:
Economists like people to move around. Where there is completely free movement of labour, long-term unemployment should not exist: there may be short-term unemployment, but this will dissipate as people leave regions where jobs are disappearing and move to places where new jobs are being created. If there is long-term unemployment, therefore, labour market reforms are needed to encourage people to “follow the work”.....
.....But even when there are completely open borders, labour does not move freely. It seems people are not actually that keen on chasing jobs. Many would rather stay where they are even if it means a sharp drop in their standard of living. The threat of starvation does tend to make people move, though even then some people choose to stay and starve. But if there is any sort of safety net, then people are likely to stay put.
I go on to discuss the reasons for their reluctance. The "wandering" lifestyle has a terrible price....

Read on here.

Friday, 9 May 2014

Is Investment Banking Dead?

My latest at Forbes considers the future of investment banking in the light of cutbacks in just about all global investment banks due to regulatory pressures and changing investor preferences. Barclays is late to the party:
In the wake of a disastrous performance in fixed income & commodities (FICC) trading, Barclays has announced severe cuts to its investment bank. 7,000 jobs are to go over the next two years, and much of the troubled FICC division is to be thrown into a new internal “bad bank” for eventual sale or winding up. Investment banking is to be reduced to no more than 30% of the Group’s asset base, and rather than trading, its focus is to be on client advisory services, wealth and asset management. The Diamond days, when investment banking was Barclays’ largest and most profitable activity and its ambition was to be among the premier global investment banks, seem to be well and truly over....
Read on here.

Thursday, 1 May 2014

It's not just banks that are too big to fail

So, we're moving nearly all OTC derivatives trading to Government-backed central counterparties (CCPs). All market participants can now be allowed to fail without endangering the system. We may not have ended Too Big To Fail in banking, but we have in OTC trading.

Or have we? As usual, it's not that simple.....

Read more here. (Forbes)

Martin Wolf proposes the death of banking

Martin Wolf is the latest in a long line of people to propose full reserve banking and removal of banks "money creation" powers. But as I noted when I reviewed the IMF researchers Benes & Kumhof's proposal for full reserve banking, this would mean the death of commercial banking. Maybe that's not such a bad thing.....but wouldn't it be better to say so directly?

Oh, and money creation by committee IS a bad thing. Definitely.

More here. (Pieria)