Mervyn King is leaving the Bank of England in a couple of months, and he’s got nothing to lose. So he’s spitting in George Osborne’s eye, blaming RBS for bollocking up the British economy and calling for a Solomonic solution to the problem. Read more »
Bank of England
When your economy has ground to a standstill and stayed there for a period of years, it would make sense to cast about for a new central banker whose approach was somewhat different. And by different we mean more successful. Read more »
Bankers’ pay needs to be curbed further to reflect the risk of a bank failure many years after a bonus has been awarded, the Bank of England (BoE) said before the annual bonus season begins next month. The European Union has already introduced curbs on bankers’ bonuses after huge payouts were criticized for helping to create the climate that led to the financial crisis in 2008. Bank shareholders, too, expressed dismay at large bonuses for bank employees despite poor returns. Measures taken so far include the requirement for a portion of bonuses to be paid in shares over several years, but the BoE’s Financial Policy Committee (FPC) believes that these do not go far enough. Chunks of a bonus are typically deferred for only three years. The FPC, which takes over British bank regulation next year, said that this is not sufficient to deter bankers from taking risky decisions that can have an adverse impact many years later. [Reuters]
Ben Bernanke gave another Augustinian give-us-QEn-but-not-yet* speech at Jackson Hole today and you could go read it but honestly why would you, you know what it says, which is “everything is bad, but not as bad as it could be, and we want to make it a bit better, but only once it’s gotten a bit worse.” Moving right along.
To Andrew Haldane’s speech, which is a treat! It is here and its title is “The dog and the frisbee,” so obviously he had Dealbreaker on his side right there. Haldane, the Bank of England’s financial-stability guy, basically argues that while the financial system is complex, it should be regulated simply – “As you do not fight fire with fire, you do not fight complexity with complexity” – just as a dog uses only elementary trigonometry and differential calculus to solve the complex and multivariate problem of catching a frisbee.**
Haldane’s main example of overcomplexity in regulation is risk-based capital regulation, in which the Basel accords have moved from simple leverage tests – common equity divided by total assets – to complicated tests where the numerator is made up of different tiers of capital and the denominator uses risk-weights that are largely driven by the bank’s own models of riskiness. One thing you could do is compare the performance of those measures in the recent crisis, so he did. Here is how Basel risk-based capital did:
That looks bad and also is bad, with no statistically significant difference between banks that blew up and banks that did not. This is just boring leverage: Read more »
Post LiborGate, Area Investment Advisor Doesn’t Think He’s Being Extreme In Suggesting We Relaunch The Revolutionary War
By Bess LevinAs long ago as June 2008, New York Federal Reserve President Timothy F. Geithner was warning the Bank of England that letting bankers set the benchmark interest rate for global finance was open to abuse. Governor Mervyn King’s failure then to take greater responsibility for Libor now poses a new threat to London’s drive to rival New York in the battle for a larger share of a shrinking international financial industry. “As a company, we now avoid London,” said David Kotok, who manages about $2 billion as chief investment officer at Cumberland Advisors Inc. in Sarasota, Florida. “It’s tarnished. Passing the buck to others, shirking responsibility and avoiding accountability characterizes the people at work there.” [Bloomberg via Heidi Moore]
-
Posted in:
LIBOR
When You’ve Got A Global Financial Crisis To Worry About, A Few Trillion Dollars Of Fraud Don’t Seem Like That Big A Deal
By Matt Levine
The Libor scandal presents a whole range of questions from the very micro “how much did I lose on my mortgage”* through the micro yet fantastically large “what kind of total damages are floating around in lawsuits” past the pseudo-philosophical “how can I ever trust the financial system again”** all the way up to the metaphysical “what is a price?” Somewhere in the middle realm there is a good set of questions of “what did regulators know and when did they know it and what did they do and why didn’t they do it?” The Times and Reuters get to those questions today and they’re unsurprisingly awkward.
The awkwardness starts with word choice. The verb “fix” is in market usage a bit of a contranym, in that “fixing” something, when that something is a price, can either solve or create a problem with it. No doubt the Fed regrets this meeting title:
In early 2008, questions about whether Libor reflected banks’ true borrowing costs became more public. The Bank for International Settlements published a paper raising the issue in March of that year, and an April 16 story in the Wall Street Journal cast doubts on whether banks were reporting accurate rates. Barclays said it met with Fed officials twice in March-April 2008 to discuss Libor.
According to the calendar of then New York Fed President, Timothy Geithner, who is now U.S. Treasury Secretary, it even held a “Fixing LIBOR” meeting between 2:30-3:00 pm on April 28, 2008. At least eight senior Fed staffers were invited.
“Let’s fix Libor,” said the Fed staffers, and so did a bunch of traders at Barclays, meaning … well, I was about to say meaning different things, but who knows? Reuters goes on: Read more »
The U.S. v. U.K. battle continues. Remember all that talk about how the taxpayer might actually see a profit from all these bailout efforts? You know, when the Treasury or the Fed or whatever sold all this stuff back to dumb moneyinvestors with a long-term perspective at prices higher than they paid? Well, The Bank of England is a bit ahead of us there.
The Bank of England revealed yesterday that it had racked up record profits of almost £1 billion in the year to February as its fee-earning activities burgeoned amid the global financial and economic turmoil.
During a crisis that has brought some of the mightiest forces in global banking to their knees — and some to collapse and oblivion — the Bank emerged as having thrived while famed commercial institutions foundered.
Figures released yesterday in the Bank’s annual report showed that in the 12 months to February 28 it raked in profits before tax of £995 million. This marks a more than fivefold rise from £197 million in 2008 and is the biggest figure since its establishment in 1694.
This little note after the main article made our day, however:
The proportion of banknotes found to be counterfeit has more than doubled in a year, the result of three “major criminal gangs” pumping fake notes into the economy, the Bank of England said.
As if there isn’t enough inflation going on….
Bank of England makes £1bn profit from bailouts after riding to rescue of high street lenders [The Times Online]
You will be relieved to know that this whole subprime thing is WAY overblown. I have it on good authority. I know what you are thinking. Really, good authority. Oh yeah? How about the Bank of England? Yeah, that Bank of England. See, this “mark-to-market” thing, bad idea.
While market-based estimates and the write-downs announced by firms may be unduly pessimistic, if such concerns persist there is a risk they could become self-fulfilling.
[...]
In that environment, firms may find that previous mark-to-market loss estimates have been overstated and some writebacks of reported losses may occur.
Bank of England Votes for Mark to Model [FT Alphaville]
- Use the Bloomberg command
NH BLG_DEALBREAKER <GO>
to access Dealbreaker
