Economy1 Comment

The real reason for maintaining artificially low interest rates – and what banks can do

Colin Henderson

A remarkable (if hard to read) piece from Martin Wolf highlights the underlying reason that artificially low interest rates are essential to prevent “uncontrolled collapse .. mass bankruptcy” Why we have to live with low interest rates | ft.com – Martin Wolf The deepest question is whether current policy risks generating huge disturbances in future. As both Ms Altmann and Mr Smithers note, encouraging spending by raising asset prices evidently risks creating another round of what Austrian economists label “malinvestment”. Credit may also surge, once more, generating another round of irresponsible behaviour in the financial sector and ultimately another wave … Continue reading The real reason for maintaining artificially low interest rates – and what banks can do

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DB Research points the way to analyse bank cross border exposures

Colin Henderson

This is an interesting piece from DB Research looking at banks exposure to countries which in Europe is one of the root causes of the problem there. The first slide graphically displays the Irish problem.  Remember Ireland guaranteed all banks and thus took on their exposure as sovereign debt.  This decision taken in 2009 increased Irish sovereign exposure by an incredible 900%. But we knew that,  The second slide was a surprise.  It displays country bank exposure due to lack of diversification – banks keeping all their eggs in one basket.  Canada leaps to the top here due to lending … Continue reading DB Research points the way to analyse bank cross border exposures

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Consumer lending evolution | Deloitte

Colin Henderson

A Deloitte survey on the latest experiences in consumer lending.  The biggest finding is that 11% have experienced a negative credit event for the first time in the last 2 years. The next chapter in consumer lending | Deloitte To determine the scale of the challenge facing the banks and to find out how consumers have been reacting to these developments, the Center for Financial Services sponsored a survey to sample a national sample of U.S. retail banking customers. According to our survey, many consumers are still dealing with the aftermath of the financial crisis and recession of 2007-2009. In … Continue reading Consumer lending evolution | Deloitte

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Canadian households are borrowing but many are saving too

Colin Henderson

After posting about the US borrowing landscape, I thought I would look at Canada.  I was looking at the latest Bank of Canada statistics for Canadian chartered banks as a reference point.  I compared the end of 2006, right before the banking crisis began to now.  These numbers are interesting and display behavioural change amongst consumers and amongst bank marketing.  Millions Nov 2006 Oct 2010 % increase Personal Loans $   40,936 $   53,400 30% Credit Cards $  38, 627 $   57,276 48% Lines of credit $ 123,310 $ 218,937 78% Mortgages $ 421,138 $ 500,217 19% Total $  624,011 $ … Continue reading Canadian households are borrowing but many are saving too

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QE2 and the gamble it represents for us all

Colin Henderson

A nicely written piece from Scott S. Powell, a visiting fellow at Stanford’s Hoover Institution, is a managing partner at RemingtonRand Corp. and Alpha Quest in the NY Post.  It makes the reality of QE2 clear.   This is not some subtle central bank maneuver. On the contrary it represents a gamble. The road to a US insolvency crisis | NY Post Today’s auction of 10- and 30-year US Treasury notes and bonds won’t tell us as much about the US economy as auctions used to — because the Federal Reserve has started buying up the notes as part of Fed … Continue reading QE2 and the gamble it represents for us all

Economy2 Comments

BMO relies on rising stock prices to cover over the risk inherent in increasing debt

Colin Henderson

I really have to call out BMO for irresponsible commentary in this report on Canadian debt.  Basically the report says that despite even faster increases in debt of Canadians, that increases in the stock market cover the increase so overall its ok. Does anyone at BMO really believe that]? Family debt rising but financial health improving | BMO “Balance sheet repair is quietly underway among Canadian households thanks to a slight rise in savings and firmer equity markets, while debt growth is poised to slow amid the clear cooling in the housing market,” the report said. “A singular focus on … Continue reading BMO relies on rising stock prices to cover over the risk inherent in increasing debt

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Morgan Stanley quietly move ‘peripheral sovereign debt’ to the collections department

Colin Henderson

There is a shift occurring in world economics in the wake of the credit crisis, and this move at Morgan Stanley sums it up.  There is an assumption that there will be a sovereign debt default, and for now is it assumed it will come from the ‘peripherals’. Government bonds: A coinage debased | ft.com It was a small decision but the symbolism was huge. A few months before Ireland’s multibillion-euro bail-out, announced last week, Morgan Stanley quietly switched dealing in the country’s bonds, along with those of Greece, Portugal and Spain – together, the four “peripheral” countries often seen … Continue reading Morgan Stanley quietly move ‘peripheral sovereign debt’ to the collections department

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Citi looks to Apple store model for branches in Europe

Colin Henderson

I have picked up over the last 3 years, Citi interest in employing a new model.  Of course every bank wrestles with the extremes of virtual bank versus optimised branches.  The results has been boring so far.  Maybe Citi has something here.  We shall see. Citi looks to Europe retail revival | ft.com But, according to people close to the bank, Citiis determined to rebuild a slim network of flagship outlets – mimicking the store model employed by Apple, the technology group – to underpin an operation in key parts of western Europe. Technorati Tags: Citi,Citibank,Europe banking,online banking Continue reading Citi looks to Apple store model for branches in Europe

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The Irish bank bailout is a clarion call to allow “Too Big” to fail

Colin Henderson

This resolution of the Irish situation is an unmitigated disaster.  Lets consider what has happened here.  Irish banks got greedy and took on enormous risk through external investments including US subprime mortgages.  The Irish government chose to guarantee 100% of bank liabilities.  That took the Irish debt /GDP from 60% to 176%.  Ministers sign off on €85bn Ireland deal | ft.com About €50bn is aimed at bolstering Ireland’s public finances while it implements a €15bn austerity package over the next four years. Of the remaining €35bn, €10bn will be used to recapitalise Ireland’s stricken banks, while another €25bn will be … Continue reading The Irish bank bailout is a clarion call to allow “Too Big” to fail

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The Shadow Banking system is twice the size of normal banking

Colin Henderson

Gillian Tett from the FT points out the report from the Fed on the Shadow Banking (unregulated and misunderstood) system that represents value almost double the regular banking system ($20 trillion vs $11 trillion).  Her point is that this is unknown misunderstood and unregulated territory. Here is a snapshot of one small part of the picture of the shadow banking system as depicted by the NY Fed.  This small (< 10%) part of the larger picture provides a sense of the complexity.  While the immediate conclusion might be that the regulators should focus on the primary offerors of banking services … Continue reading The Shadow Banking system is twice the size of normal banking