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G-7 and Financial Stability Forum |
HenryTo
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 Posted: Mon Mar 31, 2008 10:07 pm Post subject: G-7 and Financial Stability Forum |
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As discussed in one of our recent commentaries:
http://www.marketthoughts.com/members/z20080327.html
The Financial Times has just obtained a copy of the final version of the paper:
http://www.ft.com/cms/s/0/51da42b4-ff63-11dc-b556-000077b07658.html
| Quote: | Radical strategies to fight the credit crisis including temporary suspension of capital requirements, taxpayer-funded recapitalisation of banks and outright public purchase of mortgage-backed securities are being actively discussed by governments and central banks.
These were among possible next steps discussed in Rome on Friday at a meeting of the Financial Stability Forum, the body co-ordinating the global response to the market turmoil. |
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G-7 and Financial Stability Forum Replies |
Suomodo
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| Posted: Tue Apr 15, 2008 10:12 am Post subject: |
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| rffrydr wrote: | Used to be the Czechs, Poles, Hungarians would ride day-and-night on chartered buses to spend the day in Venice. They'd sit in the Pl. San Marco watching the sun set in the brown light and eat out of a paper sack. But they lived the dream.
http://photo.net/italy/venice-san-marco |
1990 Oh yeah ...  ) beautiful times, I was still teenager |
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rffrydr
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| Posted: Tue Apr 15, 2008 8:45 am Post subject: |
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Used to be the Czechs, Poles, Hungarians would ride day-and-night on chartered buses to spend the day in Venice. They'd sit in the Pl. San Marco watching the sun set in the brown light and eat out of a paper sack. But they lived the dream.
http://photo.net/italy/venice-san-marco
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Suomodo
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| Posted: Tue Apr 15, 2008 7:43 am Post subject: |
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| rffrydr wrote: | | Isn't this the inflation that obsesses Trichet? |
I think he expects the growth in emerging economies (i.a. eastern europe) can for the EU companies balance the slowdown in US at least partially. I doubt that.
Alltogether the the economic size of east is no more than Texas. We are not yet that far to buy French wine and Camamberts and Mercedeses in a big style, still not staying in Hiltons.
The main Labor unions argument is the rise in the companies profits and they want their share. Politicians nodding. Once increased, the wages can go down only through higher unemployment here and that takes months (laying off people is extreeeemly complicated in Europe)
So ECB rather accepts recession, unemployment, companies profit fall than inflation ....I am afraid they can get both. |
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rffrydr
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| Posted: Tue Apr 15, 2008 6:52 am Post subject: |
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Yet Labor is now in the forfront, no? I see that Ford and Renault both recently settled strikes at big wage increases. "We are no longer Europe's slaves...." was the rallying cry. Isn't this the inflation that obsesses Trichet?
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Suomodo
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| Posted: Tue Apr 15, 2008 4:50 am Post subject: |
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| rffrydr wrote: | | You're in Eastern Europe: I've heard that the vacuum created by the pullout in London and Wall St. financiers is being filled regionally and that the boom goes on in small to medium sized companies. The Austrian banks say they are getting along fine.... Agree? |
Eastern Europe thats 3 distinct regions
Central - app. 100 mil people, Poland, Czech, Slovak, Hungary, Baltic, Slovenia, Croatia - historically Habsburg, catholic/protestant, EU members
Balkan 60mil (Serbia, Albania, Macedonia, Bulgaria, Romania, Greece)- historically battlefield of civilsations, orthodox/muslim, EU aspirations, politiclly unstable
Eastern Europe app. 200 mil- Russia, Ukraine, Caucasus region +/- Central Asia, orthodox, ex-soviet
I can speek for central Europe. There are no signs of economic slowdown here, GDP growth of app. 8% 1995-2005 driven by exports by manufacturing in factories bought/owned by western companies (VW, US Steel ...) In recent 2-3 years driven by growing domestic demand, first of all by mortgages IMHO. Only app. 3% of population has a mortgage with growth rates of 50-100% per year, building houses, buing cars, investing in own small companies. Growing business of local private equite companies (http://www.pentainvestments.com/en/)
Banks are mostly austrian, german, italian, a few remained in domestic hands. Mostly doing very well.
Stocks - following the global trend of last months, down 20-30%
e.g. Prague: http://www.pse.cz/
Currencies 30% appreciation in 5 years |
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HenryTo
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rffrydr
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| Posted: Mon Apr 14, 2008 5:42 am Post subject: |
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Ironically with a frenchman at the helm: the first time they are entrusted a hard currency and, like LBJ during Vietnam, will do all they can from being perceived "ungerman."
You're in Eastern Europe: I've heard that the vacuum created by the pullout in London and Wall St. financiers is being filled regionally and that the boom goes on in small to medium sized companies. The Austrian banks say they are getting along fine.... Agree?
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Suomodo
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| Posted: Mon Apr 14, 2008 12:19 am Post subject: |
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| rffrydr wrote: | | What would you have liked to have seen from the G7? Japan wanted more direct movement. |
Sort of implicit concern about the "economic slowdown" (read recession) from the EU part. That would implicate a more coordinated action. Despite DAX etc .... 20% down off its highs in 10/2007 the ECB does close to nothing, neither verbaly, neither in terms of policy actions. This is the traditional German attitude to Strong Deutsche Mark policy. ... No matter the costs...
Growth is not the aim, the value of savings of the pensioners is (mostly in cash, moneymarkets, bonds - favourite investments of Germans)....
Stock markets are the thorn in the eye of the socialist here in Europe:) , let them bleed, the bad capitalists ....!
And this meeting despite the credit crisis did not change anything aside of proclaimed concern about the euro strengt and suggestion of tighter control..
So US/Fed seems to be alone... ECB is reactive and late ... |
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rffrydr
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| Posted: Sun Apr 13, 2008 9:14 pm Post subject: |
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That was true until last week: when they put Bush on tv proclaiming "a stong dollar policy." Oil has brought more than US around on their currency policy. Before the "beggar thy neighbor" policy took hold of the buck and shook it...hard. Of course few believe it. But I believe WE believe it now.
Since that the "meltdown" has been licked and rates stabilized above market expectations we've put the brakes on. As this "economy stupid" selloff continues I think the earlier recession transmission notions will spark some kind of dollar move off the floor, again. Last time we got 1.53. The more recession the better the buck (vs. euro) will hold strangely enough.
What would you have liked to have seen from the G7? Japan wanted more direct movement.
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Suomodo
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| Posted: Sun Apr 13, 2008 1:37 pm Post subject: |
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"Since our last meeting, there have been at times sharp fluctuations in major currencies, and we are concerned about their possible implications for economic and financial stability," the group of leading industrial nations said in the statement on Friday.
So what? US is happy, any inflation is better than a deflation at this point. Weak dollar is i.a. a beutiful support for inflation ...and exports .. and debt problem... and can eventually even force ECB to lower the rates ...
Reuters reports a hot discussion on the above noted statement..
http://www.reuters.com/article/hotStocksNews/idUSL1323305420080413 |
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Suomodo
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| Posted: Sun Apr 13, 2008 1:17 pm Post subject: |
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G7 tries to achieve a better disclosure of big banks risks, "true value" of complex assets, positions by end of July 08 and establish panel of supervisors at the big banks by end of 08 (sounds like a next century in these speedy markets)...
I am so far not aware of any other relevant news... I dont know whether this is what the markets were hoping for. So G-7 will not be a reason to celebrate... What if the books reveal a nightmare...many will ask.
http://www.bloomberg.com/apps/news?pid=20601087&sid=ac5LB3Jb7nHk&refer=home
Last edited by Suomodo on Sun Apr 13, 2008 1:40 pm; edited 1 time in total |
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rffrydr
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| Posted: Sat Apr 12, 2008 7:47 am Post subject: |
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Price by committee: that's the reform. And that's what the "market" will need to learn to accept. It shouldn't be that hard--like investing in the EEM. Markets always only exists within broader social contexts. The grain market for most of its modern history is a market trading on the government's idea of the market (and weather, of course).
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HenryTo
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| Posted: Sat Apr 12, 2008 1:37 am Post subject: |
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Hot off the press. This is the latest report from the Financial Stability Forum:
http://www.fsforum.org/publications/FSF_Report_to_G7_11_April.pdf
Recommendation II.2 on page 13:
| Quote: | Supervisors will assess the impact of Basel II implementation on banks’ capital levels and will decide whether additional capital buffers are needed.
It is important for supervisors to closely monitor the operation of Basel II and its effect on capital levels and on banks’ behaviour more generally. While Basel II sets minimum capital requirements on an international basis, national supervisors are free to complement the Basel II framework in ways that set higher minimum requirements in their own jurisdictions. As more evidence from Basel II’s implementation becomes available, supervisors should determine whether there is a need for additional capital buffers or, as appropriate in national contexts, supplementary measures of capital strength as a complement to risk-based capital measures. Supervisors should share experiences of developing and using such measures.
Supervisors, working through the BCBS, will enhance the regulatory capital treatment of structured credit and off-balance sheet activities. Changes will be implemented over time, being sensitive to the need to put the system on a long-term sound footing without exacerbating short-term stress. |
Recommendation II.3 on pages 13 to to 14:
| Quote: | The BCBS will issue proposals in 2008 to raise capital requirements for certain complex structured credit products such as CDOs of asset-backed securities (ABSs).
The most serious risk management shortcomings and losses at major financial institutions related to structured credit securitisations. This was particularly so for re-securitisations of debt, i.e., CDOs of ABSs, which pooled and re-tranched already securitised debt. These structures had heightened exposure to systematic risk. In the interest of garnering fee income from selling equity and mezzanine tranches of these instruments, structuring firms retained a large quantity of the highly-rated tranches. In many cases, the complexity of these products led both the firms and CRAs to underestimate the associated risks, and banks to hold inadequate capital to back them. The BCBS will therefore raise the minimum capital requirements for highly rated CDOs of ABSs to reflect their higher default sensitivity to changes in macroeconomic conditions relative to highly rated ABSs of untranched underlying exposures. |
Recommendation II.8 on page 15 specifically addresses the monoline insurers:
| Quote: | Insurance supervisors should strengthen the regulatory and capital framework for monoline insurers in relation to structured credit.
enhancements provided by monoline insurers and financial guarantors. The declining credit quality of the instruments that they had guaranteed threatened the loss of the monolines’ and guarantors’ AAA status and added to dislocations in capital markets.
In view of monoline insurers’ and financial guarantors’ importance to the system, supervisors should strengthen their capital and other regulatory arrangements, to ensure that they are appropriate from a prudential point of view, do not encourage regulatory arbitrage and are sufficient to avoid market dislocations. Such changes should promote a reduction in the risks of these highly leveraged institutions. The IAIS is developing a set of principles-based solvency standards covering risk management, capital requirements and internal models allowing supervisory flexibility to respond effectively to different types of market circumstances. Other supervisors will strengthen guidance for regulated firms doing business with monolines and guarantors, including as part of the management of counterparty and concentration risk. |
Recommendation III.1 on page 22:
| Quote: | The FSF strongly encourages financial institutions to make robust risk disclosures using the leading disclosure practices summarised in this report, at the time of their upcoming mid-year 2008 reports.
Financial institutions should draw from leading practices to ensure that they provide meaningful disclosures about their risk exposures, risk management and accounting policies that are most relevant in view of current market conditions. Some examples of leading practice risk disclosures in current market conditions have been set forth in a supervisory report on recent quantitative and qualitative disclosures by a sample of global banks and securities firms.2,3 This analysis focused on public disclosures about exposures to instruments that the marketplace currently considers to be high-risk or involve more risk than previously thought. Each of the disclosures is presently made by at least one of the surveyed firms, though few of the firms come close to making all of the disclosures.
Enhanced disclosure by financial firms of more meaningful and consistent quantitative and qualitative information about risk exposures, valuations, off-balance sheet entities and related policies would be very useful in restoring market confidence. The FSF therefore strongly encourages financial institutions to make robust disclosures using these leading practice disclosures, at the time of their upcoming mid-year 2008 reports, for those activities where they have significant exposures. Some disclosures may not be relevant for firms that do not have significant exposure to the activity concerned. |
Recommendation III.6
| Quote: | The IASB will enhance its guidance on valuing financial instruments when markets are no longer active. To this end, it will set up an expert advisory panel in 2008.
The IASB has a project underway to improve its guidance on fair value measurement. During the market turmoil, active markets did not exist for many financial instruments, leading to challenges in valuing these products. The IASB will form an expert advisory panel to assist it in: (i) reviewing best practices in the area of valuation techniques; and (ii) formulating sound practice guidance on valuation methods for financial instruments and related disclosures when markets are no longer active. This panel will comprise experts representing both preparers and users of financial statements, as well as regulators, supervisors and auditors. The group will have a broad perspective of expertise encompassing risk modelling, valuation and auditing. |
Recommendation VI.2:
| Quote: | Policy frameworks should include the capability to conduct frequent operations against a wide range of collateral, over a wide range of maturities and with a wide range of counterparties, which should prove especially useful in dealing with extraordinary situations.
Many firms had contingency funding plans that were based on an expectation that asset market liquidity would not become impaired and that secured funding would always be available. However, many secured funding markets have been highly illiquid for several months. Where it was necessary, the widening by central banks of the set of eligible collateral made it possible for market participants to mobilise instruments whose markets had faced severe dislocation. Some central banks extended the maturity of their transactions or placed more emphasis on term operations. These actions enhanced the effectiveness of central bank efforts to address the financial market turmoil.
Operational frameworks need to be sufficiently flexible that, in stressed situations, central banks can make adjustments to increase the frequency of operations, widen the breadth of eligible collateral, the range of maturities and the range of counterparties as necessary. Central banks are reviewing, where appropriate, the adequacy of their current frameworks, including considering the experiences of other central banks. |
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HenryTo
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| Posted: Fri Apr 11, 2008 3:17 pm Post subject: |
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An update:
http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article3732166.ece
| Quote: | The G7 finance ministers and central bankers were last night laying out plans that would force banks to make concerted disclosures of their losses and risks to an agreed template.
This latest development came as Alistair Darling, Chancellor of the Exchequer, refused to dismiss a bail-out that would see G7 governments buy up mortgage-backed bonds to help banks to refinance themselves.
In a briefing before the key G7 meeting in Washington last night, Mr Darling said: “We are ready to look at any option to help reopen these markets. It would be quite wrong to rule out an option but options have to be realistic, affordable, practical and workable.” |
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rffrydr
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| Posted: Thu Apr 10, 2008 7:12 am Post subject: |
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Japan had initiated a co-ordinated approach: look for them to press the issue with Yen under 100.
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