What banks can learn from this credit crisis
By Francisco González
There has been an increasing disconnection between the real and financial economies in the past few years. The real economy has grown at a brisk pace but nothing like that of the financial economy, which grew even more rapidly – until it imploded.
Formidable financial expansion was a response in part to the dynamism of economic activity and in part to a prolonged period of low interest rates. But there has also been the rise in securitisation and the development of structured investment vehicles, conduits, hedge funds, private equity, leverage loans and the like. These were probably the biggest stimulus to the credit multiplier.
The process has been driven by agents that have grown up (and made big profits) in unregulated areas without taking into account the basic principles of prudence and risk management. Some have been non-bank intermediaries. Others have been banks that have used different off-balance sheet vehicles to duck and dive through the regulations in order to join the party.
A clear underestimation of risk and huge flows of finance have been the results. In turn these have fed an unsustainable level of leveraging and asset inflation. The financial community ought to draw conclusions from all this in order to re-establish the normal functioning of the markets.
Regulators and supervisors need to get closer to the activities of unregulated agents that may have a strong bearing both on markets and on regulated firms.
The main question, however, is how to make sure that the activities of high-risk-taking agents do not contaminate the balance sheets of the traditional banking sector. Because the banking sector has a fundamental role in the payments system, there is a considerable amplification of systemic risks when it is hit. Negative knock-on soon filters through to affect the flows of credit and savings of businesses and individuals.
Moreover, it is the banks that have direct access to the liquidity supplied by the central banks and act as a transmission mechanism for changes in monetary policy.
It is clear that we are not up against a problem of lack of regulation. Any overreaction in this direction would be not only futile but also counterproductive. The real challenge is to apply regulation in the right way. And that means looking again at the use of judgment, procedures and incentives in applying the rules.
Various approaches to this challenge should be examined.
First, dealing with the risks of liquidity and funding. It is obvious that in the short term central banks will need to continue supplying ample liquidity to alleviate tensions in interbank and wholesale credit markets.
But beyond that it is clear that supervisors, auditors, rating agencies and, above all, companies themselves will have to pay a lot more attention to getting liquidity management right. This must include, among other things, the use of rigorous stress-testing scenarios.
Second, the mis-pricing of risk. Risk valuation models have improved enormously in the run-up to the incoming Basel II capital adequacy rules. This crisis, however, has revealed that they have their limitations and that it is the markets that provide the final measure of value. It is a reminder that transparency and prudence in decision-making procedures are just as important as the most sophisticated model.
The third approach that should be examined is making sure the incentives of agents are in line with some basic principles of prudent finance. For example, the crisis in the securitised assets markets suggests that originators should be obliged to retain a significant part of the risk on their own balance sheets.
A further area that needs to be revisited is that of executive compensation schemes, to ensure that in future they adequately reflect performance in the medium and long term.
Fourth, it is necessary to enhance the transparency of the exposures of banks. The Basel pillar III, which deals with market discipline, is a good starting point.
But there are big differences in the internal models used by both banks and supervisors and a great deal of harmonisation is required. Harmonisation of models needs to be part of a much broader process. The nature of the global crisis demonstrates the need for greater co-ordination of what are currently national frameworks of regulation and supervision. Greater dialogue and contact among regulators, supervisors and the industry will be essential if they are to be effective in the future.
Finally, and most importantly, the crisis illustrates once again the relevance and usefulness of principles over and above even the most precise rules. All financial intermediaries’ decisions and actions must be morally and socially acceptable, not just legally enforceable, and should withstand any amount of public scrutiny.
We face a complex set of problems. But the good news is that the crisis has exploded during a phase of robust global economic growth and before it could produce long-lasting damage.
If we all apply what we have learnt, our markets and firms have the resources to overcome the current crisis – as we have overcome others before. This will allow us to move forward towards a stronger financial environment, taking advantage of the new opportunities offered by globalisation and technological advance.
The writer is chairman and chief executive of BBVA
Thursday, February 14, 2008
Monday, February 11, 2008
DEPRESSIONS...
A repeat of the Great Depression is unlikely
By Wolfgang Munchau
How big is the risk of global deflation? Five years ago, central banks led by the US Federal Reserve fretted and cut short-term interest rates aggressively. This time the Fed is largely alone in seeking insurance against the possibility of a deflationary depression. Both the European Central Bank and the Bank of England may ease further. But neither is inclined to follow the Fed into “whatever it takes” territory.
Deflation is the ultimate economic calamity – because of the human and financial misery it brings and the constraints it puts on policy. We fear deflation because of its self-reinforcing effects. If people expect prices to fall tomorrow, they hold back on consumption today. If investors expect falling returns, they hoard cash. This is also known as the liquidity trap.
In his debt-deflation theory, the US economist Irving Fisher explained a truly toxic mechanism that has some potential implications for our own post-subprime world. If a debt crisis coincides with severe deflation, the value of outstanding debt rises even as debt gets repaid. While all this is happening, central banks are constrained in their ability to stimulate the economy by the zero nominal interest rate bind.
But it is important to remember that these destructive mechanisms do not kick in the minute the officially recorded rate of inflation falls a fraction below zero. The deflation we fear is a large slump in the price level and a permanent shift in price expectations. During the Great Depression, the US wholesale price index fell by 33 per cent. Such a price fall is not likely in our globalised economy.
So even if a repeat of the Great Depression is unlikely, how about a Small Depression, similar to Japan’s in the 1990s? Popular folklore has it that the bursting of an asset price bubble and a restrictive monetary policy caused that country’s 1990s stagnation. While Japan undoubtedly suffered a fall in consumer prices in the second half of the 1990s, its deflation was relatively mild, with annual prices falling by less than1 per cent. More important, these price falls did not produce nearly as many of those toxic self-reinforcing effects that were in evidence during the early 1930s.
A far more plausible explanation of Japan’s lost decade is that by Professors Fumio Hayashi and Edward Prescott* who explain it in terms of weak factor productivity growth. When productivity falls, so does an economy’s long-run real interest rate. And when that happens, the effect of monetary policy stimulus is accordingly reduced. An examination of credit conditions and flow of funds data led them to conclude that a credit crunch might have contributed to Japan’s economic misery only briefly from late 1997 to early 1998, but cannot explain a whole decade of low growth.
Is there a risk that the US will suffer a Japanese-style lost decade? Of course, but for different reasons. US growth will slow as the savings rate needs to rise. For a country with an unsustainable current account deficit, this is necessary and inevitable adjustment, not a catastrophic event against which one should seek insurance. In terms of its structural characteristics, the US economy is not comparable to Japan in the 1990s and even less comparable to the US in the 1930s. US productivity growth is much higher than Japan’s and much of Europe’s.
That said, there is one scenario that could produce a 1930s-style deflationary depression in the US: a large-scale financial meltdown. By that I mean a situation in which the financial sector would cease to fulfil one of its basic functions: to provide liquidity to the real economy. But surely, lower central bank interest rates today could neither prevent such a scenario from happening, nor provide any comfort to an economy when it has no physical access to credit.
In the eurozone, deflation is not likely either. There is no comparable indebtedness problem, except perhaps in Spain; no property crash, except in Spain and Ireland; and a relatively robust financial sector. Of course, the eurozone is not decoupled from the global economy.
The UK is perhaps more vulnerable, because of the relatively large size of the financial sector in the economy, an over-reliance on a property market that is about to deflate, and chronically low productivity growth in non-financial sectors. There is now clearly the possibility of a severe and prolonged recession, followed by a long period of low growth.
So the risk of a global deflationary depression is small. But might it still not be worth insuring against? The trouble is that such “insurance” does not come in the form of a “price” but in the form of additional risk – of future inflation and financial instability. Last week, 10-year US Treasuries bonds yielded a mere 3.7 per cent, a rate below the actual rate of US consumer price inflation. In the event that the US recession turns out to be unexpectedly shallow and short (not very probable in my view, but vastly more probable than a deflationary depression), yields may well shoot up to 6 or 7 per cent. So the “price” for avoiding deflation may be a bond market meltdown, your quintessential financial crisis.
The rise in interest rates implicit in such a scenario would then give us a valid reason to fret about the future.
By Wolfgang Munchau
How big is the risk of global deflation? Five years ago, central banks led by the US Federal Reserve fretted and cut short-term interest rates aggressively. This time the Fed is largely alone in seeking insurance against the possibility of a deflationary depression. Both the European Central Bank and the Bank of England may ease further. But neither is inclined to follow the Fed into “whatever it takes” territory.
Deflation is the ultimate economic calamity – because of the human and financial misery it brings and the constraints it puts on policy. We fear deflation because of its self-reinforcing effects. If people expect prices to fall tomorrow, they hold back on consumption today. If investors expect falling returns, they hoard cash. This is also known as the liquidity trap.
In his debt-deflation theory, the US economist Irving Fisher explained a truly toxic mechanism that has some potential implications for our own post-subprime world. If a debt crisis coincides with severe deflation, the value of outstanding debt rises even as debt gets repaid. While all this is happening, central banks are constrained in their ability to stimulate the economy by the zero nominal interest rate bind.
But it is important to remember that these destructive mechanisms do not kick in the minute the officially recorded rate of inflation falls a fraction below zero. The deflation we fear is a large slump in the price level and a permanent shift in price expectations. During the Great Depression, the US wholesale price index fell by 33 per cent. Such a price fall is not likely in our globalised economy.
So even if a repeat of the Great Depression is unlikely, how about a Small Depression, similar to Japan’s in the 1990s? Popular folklore has it that the bursting of an asset price bubble and a restrictive monetary policy caused that country’s 1990s stagnation. While Japan undoubtedly suffered a fall in consumer prices in the second half of the 1990s, its deflation was relatively mild, with annual prices falling by less than1 per cent. More important, these price falls did not produce nearly as many of those toxic self-reinforcing effects that were in evidence during the early 1930s.
A far more plausible explanation of Japan’s lost decade is that by Professors Fumio Hayashi and Edward Prescott* who explain it in terms of weak factor productivity growth. When productivity falls, so does an economy’s long-run real interest rate. And when that happens, the effect of monetary policy stimulus is accordingly reduced. An examination of credit conditions and flow of funds data led them to conclude that a credit crunch might have contributed to Japan’s economic misery only briefly from late 1997 to early 1998, but cannot explain a whole decade of low growth.
Is there a risk that the US will suffer a Japanese-style lost decade? Of course, but for different reasons. US growth will slow as the savings rate needs to rise. For a country with an unsustainable current account deficit, this is necessary and inevitable adjustment, not a catastrophic event against which one should seek insurance. In terms of its structural characteristics, the US economy is not comparable to Japan in the 1990s and even less comparable to the US in the 1930s. US productivity growth is much higher than Japan’s and much of Europe’s.
That said, there is one scenario that could produce a 1930s-style deflationary depression in the US: a large-scale financial meltdown. By that I mean a situation in which the financial sector would cease to fulfil one of its basic functions: to provide liquidity to the real economy. But surely, lower central bank interest rates today could neither prevent such a scenario from happening, nor provide any comfort to an economy when it has no physical access to credit.
In the eurozone, deflation is not likely either. There is no comparable indebtedness problem, except perhaps in Spain; no property crash, except in Spain and Ireland; and a relatively robust financial sector. Of course, the eurozone is not decoupled from the global economy.
The UK is perhaps more vulnerable, because of the relatively large size of the financial sector in the economy, an over-reliance on a property market that is about to deflate, and chronically low productivity growth in non-financial sectors. There is now clearly the possibility of a severe and prolonged recession, followed by a long period of low growth.
So the risk of a global deflationary depression is small. But might it still not be worth insuring against? The trouble is that such “insurance” does not come in the form of a “price” but in the form of additional risk – of future inflation and financial instability. Last week, 10-year US Treasuries bonds yielded a mere 3.7 per cent, a rate below the actual rate of US consumer price inflation. In the event that the US recession turns out to be unexpectedly shallow and short (not very probable in my view, but vastly more probable than a deflationary depression), yields may well shoot up to 6 or 7 per cent. So the “price” for avoiding deflation may be a bond market meltdown, your quintessential financial crisis.
The rise in interest rates implicit in such a scenario would then give us a valid reason to fret about the future.
Friday, February 8, 2008
SUBPRIMES...
es analystes de la place francfortoise peuvent souffler. La Deutsche Bank a confirmé, jeudi 7 février, avoir été épargnée au quatrième trimestre 2007 par la crise des crédits hypothécaires américains, les fameux subprimes. La première banque privée outre-Rhin n'a supporté, au dernier trimestre, que de faibles dépréciations, "moins de 50 millions d'euros".
OAS_AD('Middle1');
Au troisième trimestre, la Deutsche Bank avait annoncé que les charges liées aux subprimes lui avaient coûté 2,2 milliards d'euros. Depuis, son patron, Josef Ackermann, avait maintes fois affirmé en avoir fini avec les subprimes ; mais la rumeur d'un avertissement sur résultats et les pertes enregistrées par ses concurrentes, la suisse UBS et l'américaine Citigroup, avaient alarmé les marchés ces dernières semaines. La Deutsche Bank étant très présente dans les activités de banque d'investissement aux Etats-Unis, elle se trouve naturellement exposée à la tourmente du crédit immobilier américain.
"La capacité de résistance que nous avons montrée en 2007 nous donne de l'assurance pour le futur", s'est réjoui M. Ackermann. Le patron a d'ailleurs annoncé des résultats meilleurs que prévu pour 2007. L'an passé, Deutsche Bank a enregistré un nouveau record, avec un bénéfice net de 6,5 milliards d'euros, en hausse de 7 %. Le résultat avant impôts a atteint 8,7 milliards, soit un rendement de ses fonds propres de 29 %.
PAS DE RACHAT DE LA GÉNÉRALE
Ces bons résultats n'ont pas empêché quelques mauvaises nouvelles. Au dernier trimestre de 2007, le bénéfice net de la banque a dégringolé de 47 % sur un an. Les activités de banques d'investissement, en particulier, ont payé un lourd tribut à la crise financière. Le bénéfice imposable de ce secteur- clé de la Deutsche Bank a chuté de 43 % entre octobre et décembre. "Les inquiétudes sur la crise des subprimes persistent, a rappelé M. Ackermann. Et les tensions sur les marchés vont se poursuivre." La banque a toutefois maintenu ses objectifs pour 2008 d'un bénéfice imposable de 8,4 milliards d'euros.
M. Ackermann n'a pas manqué d'aborder le dossier Société générale. Après avoir appris les mésaventures de sa consoeur, qui a perdu près de 5 milliards d'euros à cause des placements irréguliers de l'un de ses traders, la banque allemande a lancé un audit de ses systèmes de contrôle, dont les résultats devraient bientôt être connus. Le patron reste prudent sur les risques encourus par la Deutsche Bank : "J'aimerais dire que c'est inconcevable dans notre établissement, mais je ne peux pas l'exclure."
Selon M. Ackermann, aucun rachat de la banque française n'est au programme. La Deutsche Bank se montre en revanche intéressée par Postbank, la filiale bancaire de la Deutsche Post, qui pourrait être cédée cette année. "Nous pensons que cela pourrait être une bonne solution pour l'Allemagne", a-t-il expliqué. D'autres banques sont déjà sur les rangs, dont le deuxième établissement allemand la Commerzbank.
OAS_AD('Middle1');
Au troisième trimestre, la Deutsche Bank avait annoncé que les charges liées aux subprimes lui avaient coûté 2,2 milliards d'euros. Depuis, son patron, Josef Ackermann, avait maintes fois affirmé en avoir fini avec les subprimes ; mais la rumeur d'un avertissement sur résultats et les pertes enregistrées par ses concurrentes, la suisse UBS et l'américaine Citigroup, avaient alarmé les marchés ces dernières semaines. La Deutsche Bank étant très présente dans les activités de banque d'investissement aux Etats-Unis, elle se trouve naturellement exposée à la tourmente du crédit immobilier américain.
"La capacité de résistance que nous avons montrée en 2007 nous donne de l'assurance pour le futur", s'est réjoui M. Ackermann. Le patron a d'ailleurs annoncé des résultats meilleurs que prévu pour 2007. L'an passé, Deutsche Bank a enregistré un nouveau record, avec un bénéfice net de 6,5 milliards d'euros, en hausse de 7 %. Le résultat avant impôts a atteint 8,7 milliards, soit un rendement de ses fonds propres de 29 %.
PAS DE RACHAT DE LA GÉNÉRALE
Ces bons résultats n'ont pas empêché quelques mauvaises nouvelles. Au dernier trimestre de 2007, le bénéfice net de la banque a dégringolé de 47 % sur un an. Les activités de banques d'investissement, en particulier, ont payé un lourd tribut à la crise financière. Le bénéfice imposable de ce secteur- clé de la Deutsche Bank a chuté de 43 % entre octobre et décembre. "Les inquiétudes sur la crise des subprimes persistent, a rappelé M. Ackermann. Et les tensions sur les marchés vont se poursuivre." La banque a toutefois maintenu ses objectifs pour 2008 d'un bénéfice imposable de 8,4 milliards d'euros.
M. Ackermann n'a pas manqué d'aborder le dossier Société générale. Après avoir appris les mésaventures de sa consoeur, qui a perdu près de 5 milliards d'euros à cause des placements irréguliers de l'un de ses traders, la banque allemande a lancé un audit de ses systèmes de contrôle, dont les résultats devraient bientôt être connus. Le patron reste prudent sur les risques encourus par la Deutsche Bank : "J'aimerais dire que c'est inconcevable dans notre établissement, mais je ne peux pas l'exclure."
Selon M. Ackermann, aucun rachat de la banque française n'est au programme. La Deutsche Bank se montre en revanche intéressée par Postbank, la filiale bancaire de la Deutsche Post, qui pourrait être cédée cette année. "Nous pensons que cela pourrait être une bonne solution pour l'Allemagne", a-t-il expliqué. D'autres banques sont déjà sur les rangs, dont le deuxième établissement allemand la Commerzbank.
Monday, February 4, 2008
ERMENI YALANLARINA DAIR...
Kahire eski büyükelçisi AK Parti Düzce Milletvekili Yaşar Yakış, 1. Dünya Savaşı sırasında Osmanlı ordusundaki Ermenilerin durumunu anlattı. Düzce Sanayici ve İşadamlarının (DÜSİAD) Mısır’a düzenlediği geziye katılan eski dışişleri bakanı ve Kahire eski büyükelçisi AK Parti Düzce Milletvekili Yaşar Yakış 1. Dünya Savaşı sırasında Filistin cephesinde İngilizlere karşı savaşarak esir düşen binlerce Türk askeri gibi 88 Ermeni’nin de hastane ve esir kamplarında İngilizler tarafından öldürüldüğünü ya da ölüme terk edildiklerini söyledi.Yakış, ölen Türk askerleri gibi Ermenilerin de isimlerinin Kahire’deki Türk büyükelçiliğinde bulunduğunu belirtti.Yakış’ın yanı sıra Düzce Milletvekili Celal Erbay, Düzce Belediye Başkanı Mehmet Keleş ve Düzceli 20 işadamı DÜSİAD’ın organizesinde Kahire ve İskenderiye’ye gezi düzenledi. Gezi süresince Osmanlılardan Memlüklere, Tulunoğullarından Eyyübilere, Kahire’nin yaklaşık 1.200 yıllık Türk geçmişine ait eserler gezildi, iş görüşmeleri yapıldı. Gezi sırasında gruba rehberlik yapan Yakış, hem Mısır’daki Türk ve Osmanlı varlığı konusunda ilginç bilgilendirmelerde bulundu hem de Türkiye’nin Kahire’deki en sevilen büyükelçisi olmasının tesadüf olmadığını ortaya koydu:Osmanlı saflarında 88 Ermeni: 1. Dünya Savaşı sırasında Filistin cephesinde İngilizlere esir düşen binlerce Türk askeri, bakımsızlıktan ve kasıtlı olarak hastanelerde ve esir kamplarında öldürülürken, bunlar arasında Osmanlı saflarında çarpışan 88 Ermeni de bulunuyordu. Bu savaşta Moritanya’dan gelerek Türkiye’nin saflarında savaşan Mevaşi kabilesi mensupları da vardı. Daha sonra bu kabilenin kalanları Atatürk tarafından Adana’nın Kozan ilçesine yerleştirildi.İngiliz komutanın keşfettiği Ressam Hidayet, ağabeyi Filistin cephesinde çarpışırken İngilizlere esir düşer ve annesi tarafından Mısır’a gönderilerek akıbetini araştırmasını ister. Henüz 15’inde olan Hidayet, İngiliz karargâhına gider ve ağabeyini sorar. Beklerken de masada bulunan kağıtlara resim çizer. Bunu fark eden İngiliz komutan, hem Hidayet’i üzmemek hem de oyalamak için, bilgi alamadığını söyler. Birkaç hafta Hidayet gidip gelirken, İngiliz komutan da o gelince kasıtlı olarak masaya kâğıtlar bırakır ve saatlerce orada oyalar. Bir gün İngiliz komutan Hidayet’e gerçeği anlatır; fakat para karşılığı İngiliz askerlerinin resmini çizmesini teklif eder. Hidayet, kabul eder ve çok iyi para kazanır. Daha sonra kraliyet ailesi onu himayesine alır.Kahire’de bir Lazoğlu: Günümüzde İçişleri Bakanlığı ve Mısır İstihbarat Birimi’nin bulunduğu Lazogli Meydanı’nın ilginç bir öyküsü var: Kavalalı Mehmet Ali Paşa’nın en güvendiği isim olan mali işlerden sorumlu Lazoğlu Muhammed Bey öldükten sonra Mehmet Ali Paşa’nın torunu Tevfik Paşa, kendi döneminde onun heykelini yapmak ister. Fakat heykelini yapacak olan Fransız ressam ona ait hiçbir resim bulamaz. Fransız ressam bir gün sokakta bir arkadaşıyla yürürken, arkadaşı yoldan geçen birini gösterir, ‘İşte Lazoğlu’ diyerek ona benzeyen birini gösterir. Sırtında su taşıyan bu kişiyi resmeden Fransız ressam, heykelini de meydana diker.Şivekâr’ın intikamı: Prens Fuad, kısa yoldan kral olabilmek için zengin bir ailenin kızı olan Şivekâr’la evleniyor. Ancak bir gün Şivekar’ın ağabeyi Fuad’la tartışır ve tabancısını çekerek ateşler. Kurşun Fuad’ın boğazını sıyırır ve Fuad sesi kısık biri olarak kalır. Bunun üzerine Şivekâr boşanır ve daha sonra İstanbul’da bir bankada çalışan İlhami Bey’le evlenir. Fakat İlhami Bey’in askere alınması gerekir. Şivekâr, kocasının askere alınmamasını ister, aksi takdirde Türk elçiliğine verdiği binayı geri alacağını söyler. İsteği reddedilir ve bugün Mısır’da başbakanlığın olduğu bina, Türk elçiliğinin elinden alınır.Kraliyet ailesinin mallarına el konuldu: Mısır, 1964’te aldığı bir kararla 1952’de devirdikleri krallığa mensup ailenin tüm mallarını da devletleştirdi. Türk soyundan gelen kraliyet ailesinin mensupları ülkeden çıkarıldı. Kraliyet ailesine mensup erkeklerin çoğunluğu İstanbul’da, kadınların da çoğunluğu Kahire’de kaldı. Bu da açılan davalarda ilginç mahkeme kararlarının çıkmasına sebep oluyor. Mısır kanunları erkeği üstün tutarken, Türk yasaları daha fazla kadınları koruyor. Bu durumda açılan mahkemelerde Mısır mahkemeleri Türkiye’den açılan davaları haklı bulurken, Türk mahkemeleri de Mısır’dan açılan davaları haklı buluyor. Bu arada İstanbul’da yaşayan 87 yaşındaki Neslişah Sultan da Mısır Hidivi 2. Abbas’ın oğlu Prens Abdulmunim’le evli olduğu için Mısır’da da bazı mülklere sahip. Ancak, bu mülkler üzerinde hak iddia edebilmesi için bu ailenin bir süre Mısır’da yaşaması gerekiyor ve Neslişah Sultan da her yıl bir süre Mısır’da kalıyor.Kahire’deki İslam eserlerinin yaklaşık yüzde 80’i Memlüklerden kalma. Memlükler dünyada Türk ismini kullanan ilk Türk devleti. Osmanlının tersine Memlüklerde idare her zaman Türklerde olmuştur.
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