Posts Tagged ‘Basel III’

Notes From Underground: Who Knows What Lurks In the Mind Of the BOE, the Shadow?

July 9, 2014

Tomorrow the Bank of England’s Monetary Policy Committee meets to decide interest rates. Governor Mark Carney has recently confused markets by saying that interest rates would probably rise sooner than forecast. Then Mr. Carney changed directions by following the FOMC and suggesting that the slack in the labor market would allow the BOE to stay the present course and keep interest rates at present levels for an extended period. Overnight rates are currently at 0.50% and with the British pound strengthening against most currencies the BOE is expected to maintain the status quo.

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Notes From Underground: Macroprudential Regulation Versus Tapering

September 10, 2013
While I was away…
Friday, the unemployment report was much as expected in terms of nonfarm payrolls, wages and hours worked. The biggest surprise was that the previous two months had downside data revisions, but certainly nothing to dispel the FED‘s upcoming move to taper its large-scale asset purchase program.
Also, on Friday the Mexican Central Bank unexpectedly cut its lending rate by 25 basis points to 3.75%. The surprise was that the Mexicans had the backbone to cut in the face of rising U.S. interest rates. The Mexican peso reacted to the rate cut by RALLYING, proving the point that correlating all emerging markets is a fool’s paradise. The inflation rate in Mexico has dropped below the bank’s desired level of 4% as slowing global growth has led to weaker growth  and slowing prices. The PESO rallied has continued during the last two days even as President Nieto’s energy and budget plans have been met with a show of public demonstrations. The peso remains well below the highs it made in May but has held up in relation to the other emerging market currencies. A currency that rises in face of an unexpected cut in interest rates is something to watch. (The reverse, of course, was the Aussie dollar and its reaction to central bank cutting rates. )
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Notes From Underground: The Basel Accord Gets Watered Down. What Are The Potential Impacts?

January 8, 2013

In the most significant news over the weekend, the Basel Committee announced that it was backing off from the implementation of the 2015 enhanced capital requirements for banks. Under the original Basel III requirements, global banks were going to have to have enough LIQUID ASSETS to be able to sustain a possible financial crisis of 30 days. The ability to sell assets to meet a possible run meant that banks would be forced to hold a larger amount of high quality, easily sellable assets. European banks have been clamoring for relief from the new capital rules for fear that the new standards would create less bank lending as banks rushed to shore up their balance sheets. U.S. banks were supporting the lobbying efforts by the European banks and thus the Basel Committee showed forbearance and lessened the possible impact by extending full compliance with the new regs out until 2019.

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Notes From Underground: Weekend news is predominantly positive for the risk-on crowd

September 12, 2010

A quick overview of the weekend: The Chinese growth story is proceeding at a much stronger rate than previously expected and Chinese inflation levels seem well contained. The global equity markets have opened higher as the China’s surging growth has given a boost to the risk-on crowd. We are not big fans of the Chinese data releases. We are and will be suspect of official data from a country that seeks to harness what its populace can read. We also are not surprised by Chinese strength as the copper and energy and grain markets have been telling us for months that the Asian upturn is real. The slack demand in the the developed world has be more then replaced by emerging global boom.

The Turkish elections have added more power to tonight’s risk-on profile. The elections went better than expected for Turkish Prime Minster Recep Tayyip Erdogan and gave him even more latitude for reforming the Turkish polity to further meet European legal standards. Turkey’s equity and bond markets viewed this a positive as the consistency of reforms is what the markets are most desirous of pursuing.

There is also news from Basel that the Basel Committee on Banking Supervision agreed to the provisions of Basel III and though is means higher capital requirements, the new standards will not be phased in until 2013 to 2018, which gives the markets some breathing room. One of the more positive aspects will be based on what Bill White has called leaning into asset prices and acting in a countercyclical manner.  As economies heat up capital ratios will rise for banks, thus acting to curtail out of control asset appreciation. This is a very good regulation and will act to head off future “irrational exuberance.” It will be awhile before its full effect is felt but it is an acknowledgement that BUBBLES need to be deflated in the incipient stages.

We will also be watching the DPJ election that takes place Tuesday in Japan. The intra-party battle between Ozawa and Kan can have a very big outcome for YEN valuation. If the old warhorse OZAWA were to gain the party leadership–and the Prime Minister post–the YEN will weaken in the initial anticipation that Ozawa would move to weaken the YEN. We will certainly report more about this as events unfold, but there were several stories written about the Japanese unhappiness in regards to the Chinese purchases of JGBs putting unwanted bid to the YEN. Some Japanese are even suggesting that China has ulterior motives and wishes to keep the YEN unduly strong to further its own trade advantage. This is merely “speculation,” but it certainly adds to the heat on possible intervention. We don’t know the outcome but pay attention as Ozawa ‘s victory could move him to action.

Notes From Underground: The Brothers GRIMM and other fairy tales

July 14, 2010

We have word from Europe that the stress tests done on their regional banks will be fair and transparent. Do we believe that to be possible? No way, no how. The stress tests will be dependent on the questions asked and if the DESIRED OUTCOME is already known, then the questions are, of course, self-fulfilling. Right or wrong, the elites of Europe are too vested in the EU project to let any genuine tests bring this “edifice” tumbling down. Helmut Kohl often opined that the major purpose of the EU was to secure the blessings of peace for its children and grandchildren. This dream will not die easily–noble ideas seldom do.

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Notes From Underground: G-20 is waste of time and energy; finreg is just a waste

June 27, 2010

Germany added liquidity but it was all directed at the British goalie David James–nothing austere about their World Cup peformance. The news from the G-20 was as expected: Nothing short of a waste of time and the resulting communique will be the paradigm of vacuousness. The Chinese took center stage in that they spoke up for the developing nations, stating they wanted input in the discussions about global problems. We agree with the Chinese that the G-8 is an atavistic appendage of a past colonial world and is merely the delusional forum for those wishing to hold onto a past that left the arena long ago. Yes, we are sure that Russia, Brazil and the others that make up the most robust members of the emerging world want to advise the likes of Italy, Spain and France who have certainly failed to get their own economic houses in order.

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