In The Know

August 18 2011

WSJ – Fed Eyes European Banks : Regulators Scrutinize Ability of Institutions’ U.S. Units to Fund Themselves Federal and state regulators, signaling their growing worry that Europe’s debt crisis could spill into the U.S. banking system, are intensifying their scrutiny of the U.S. arms of Europe’s biggest banks, according to people familiar with the matter. The Federal Reserve Bank of New York, which oversees the U.S. operations of many large European banks, recently has been holding extensive meetings with the lenders to gauge their vulnerability to escalating financial pressures. The Fed is demanding more information from the banks about whether they have reliable access to the funds needed to operate on a day-to-day basis in the U.S.

TELEGRAPH – Bank of England more worried about recession than in downturn: The Bank of England is more pessimistic now about the prospects for the UK economy than it was when the country was in recession. Tables published today show that the Bank believes there is at least a one-in-10 chance the UK will suffer a double dip over the next 18 months. Its current forecast is more bleak than any projection since February last year, as Britain was coming out of the deepest slump since the 1930s, and even worse than its outlook in May 2008, when the recession had just started. Details of the Bank’s forecast came as it emerged that the two remaining members of the Bank’s nine-strong rate-setting committee voting for a rise abandoned their position. Spencer Dale, the Bank’s chief economist, and Martin Weale, an external member of the Monetary Policy Committee (MPC), dropped their vote for a quarter-point rise this month and joined the majority view for rates to remain at 0.5pc, minutes of the MPC meeting showed. It was the first time the committee had been unanimous since May 2010. Just three months ago, three members were voting for an increase, including a half-point hike from Andrew Sentance, who has now left the MPC. 

REUTERS – “Flawed” financial tax plan could raise volatility – think tank: France and Germany should abandon “economically illiterate” proposals for a tax on financial transactions because a tax could make markets more volatile rather than bring stability, a free market think tank said on Thursday.The London-based Adam Smith Institute said numerous academic studies suggest such a tax would lead to more erratic movements in equity and foreign exchange markets, falling share prices and poor liquidity. French President Nicolas Sarkozy and German Chancellor Angela Merkel announced the tax proposal on Tuesday as part of a range of measures aimed at restoring confidence in the euro zone. Supporters say it would make markets more stable by deterring short-term speculation and would give countries a degree of protection against exchange rate pressures. Others say it would provide governments with much-needed money for areas such as health and education.

REUTERS – Bank opens door for QE as joblessness surges: The Bank of England inched closer on Wednesday to launching a second round of quantitative easing, after two policymakers unexpectedly dropped their calls for higher interest rates against a backdrop of rising unemployment. Bank chief economist Spencer Dale and former academic Martin Weale — who had called for tighter policy for the past six months — voted with the majority to keep rates at a record low this month, largely due to a darkening economic outlook. “The slowing in world demand growth and the heightened tensions in financial markets meant that the balance of risks to the medium-term inflation outlook had clearly shifted to the downside,” minutes to the Bank’s August 3-4 Monetary Policy Committee meeting said. Only long-standing dove Adam Posen has called for more quantitative easing this month, but other policymakers considered it and said further asset purchases might be needed if risks to Britain’s economy materialised, the minutes showed.

BLOOMBERG – Chavez Emptying Bank of England Vault as Venezuela Brings Back Gold Hoard: Venezuelan President Hugo Chavez ordered the central bank to repatriate $11 billion of gold reserves held in developed nations’ institutions such as the Bank of England as the metal rises to record levels behind a weakening U.S. dollar. Venezuela, which holds 211 tons of its 365 tons of gold reserves in U.S., European, Canadian and Swiss institutions, will progressively return the bars to the central bank’s vault, Chavez said yesterday. JPMorgan Chase & Co. (JPM), Barclays Plc (BARC), Standard Chartered Plc (STAN) and the Bank of Nova Scotia (BNS) also hold Venezuelan gold, the president said. “We’ve held 99 tons of gold at the Bank of England since 1980. I agree with bringing that home,” Chavez said yesterday on state television. “It’s a healthy decision.”

Bad Debt at China Banks Growing: Jain: Bad loans at Chinese banks will rise to “shockingly high” levels, eroding profits and slowing growth in the world’s second-biggest economy, said Vontobel Asset Management Inc.’s Rajiv Jain, who runs some of this year’s best-performing mutual funds. China’s local governments are struggling to repay their debt and “frothy” real-estate markets may leave banks exposed to falling prices, Jain said in an Aug. 16 phone interview. While valuations on Chinese banks have dropped to the lowest levels since October 2008, Jain said the shares aren’t cheap enough to buy because the lenders’ leverage is too high and earnings are likely to disappoint investors. “We have not owned a Chinese bank, and I don’t see owning one any time soon,” said Jain, who oversees about $15 billion, including three funds that beat 99 percent of peers this year, data compiled by Bloomberg show. “If you look at the accounting, I don’t see how anyone could put a penny there.”

This entry was posted in Bank of England, Bloomberg, BOE, China, Daily Telegraph, Debt, Euro Zone, European banks, Fed, Federal Reserve Bank of New York, Gold, Merkel, Monetary Policy Committee, Quantitative Easing, Recession, Reuters, Sarkozy, Tax, Unemployment. Bookmark the permalink.

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