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Yet more bumps on the path to normal: BIS Quarterly Review
December 16, 2018--Financial markets went through a further sharp correction during the last quarter, marking another bump in the road as major central banks return policy to more normal settings.
Asset prices fell across the board. US government bond yields rose in October before retracing that increase and falling still further as the selloff of risk assets spread.
A further round of turbulence, accompanied by still lower yields, hit markets in December. Mixed signals from the global economy and the gradual, yet persistent, tightening of financial conditions triggered the market repricing. Protracted trade tensions and heightened political uncertainty added to the flight to safety.
view the BIS Quarterly Review December 2018 International banking and financial market
developments
Basel Committee consults on disclosure requirement to address leverage ratio window-dressing
December 13, 2018--The Basel Committee on Banking Supervision today published a consultative document entitled Revisions to leverage ratio disclosure requirements.
The Basel III leverage ratio standard comprises a 3% minimum level that banks must meet at all times, a buffer for global systemically important banks and a set of public disclosure requirements.
Growth Fears Dent Commodities Prices
December 13, 2018--Many key commodities are on track to notch declines this year, underlining how fears of slowing growth, global-trade tensions and a persistently strong dollar have hammered prices for raw materials.
The Bloomberg Commodity Index is down by more than 6% this year, led by a nearly 13% fall in oil prices. Other raw materials are also headed lower: Copper is off almost 16% this year, while iron ore has lost nearly 6%. Gold prices have declined by around 5%, and lumber is down by almost 28%.
Basel Committee publishes updated Basel III disclosure requirements
December 11, 2018--The Basel Committee on Banking Supervision has published today updated Pillar 3 disclosure requirements. These requirements, together with the updates published in January 2015 and March 2017, complete the Pillar 3 framework.
Pillar 3 of the Basel framework seeks to promote market discipline through regulatory disclosure requirements. The revised Pillar 3 framework reflects the Committee's December 2017 Basel III post-crisis regulatory reforms and pertains to the following areas:
credit risk, operational risk, the leverage ratio and credit valuation adjustment (CVA) risk;
risk-weighted assets (RWAs) as calculated by the bank's internal models and according to the standardised approaches; and
an overview of risk management, RWAs and key prudential metrics.
World Economic Forum Report Addresses Crisis of Trust, Slowing Growth in Our Digital World
December 10, 2018--The digital world is facing a crisis with slowing internet growth and declining levels of trust that urgently need to be addressed
60% of global GDP is expected to be digitized by 2022, with very little distinction between the digital economy and the economy, or between digital society and society.
The Forum highlights six priority areas for action: Access and adoption, identity, positive societal impact, security, governance, and data
Building a digital economy and society that is trusted, inclusive and sustainable requires urgent attention in six priority areas according to a new report, Our Shared Digital Future, published by the World Economic Forum today.
The report represents a collaborative effort by business, government and civil society leaders, experts and practitioners. It follows an 18-month dialogue aimed at restoring the internet’s capacity for delivering positive social and economic development.
IMF Working Paper-The Modern Hyperinflation Cycle: Some New Empirical Regularities
December 7, 2018--Using a database of up to 62 variables for 196 countries over 57 years, a hyperinflation cycle has been characterized to propose a broader setting of stylized facts. Beyond the usual facts, the findings in this paper contribute to the literature of modern hyperinflations in that these cycles occur in contexts where there are (i) depressed economic freedoms, (ii) deteriorated socioeconomic conditions and rule of law, as well as (iii) high levels of domestic conflictivity and government instability.
Despite social infraestructure factors improve during stabilization, they keep being substantially lower than the respresentative non-hyperinflation country, suggesting an important role for them in the occurrence of modern hypeinflations. Finally, the role of international financial assistance in stabilization was studied, noting that (i) a clear majority of hyperinflation countries used it, further improving their (ii) economic freedoms, and allowing themselves (iii) greater fiscal flexibility and (iv) more exchange rate stability.
view the IMF Working Paper-The Modern Hyperinflation Cycle: Some New Empirical Regularities
IMF Working Paper-Demographics, Old-Age Transfers and the Current Account
December 7, 2018--Building on the evolving literature on the topic, this paper reviews the relationship between demographics and long-run capital flows in both theory and in the data. For this purpose, we develop a two region overlapping generations model where countries differ in their population growth and mortality risk.
Besides exploring the implications of demographics for saving and the current account over the long-run, we also study how these might be affected by differences in the coverage and sustainability of old-age transfer schemes. The model predicts that population structure and life expectancy (which affects the need to save to meet old age consumption) affect current account levels, and that while countries with more generous unfunded transfer schemes tend to have lower saving and more capital inflows over the long-run, this effect may be dampened by natural limits (on taxation) of these schemes. The key predictions of the model are generally supported by a rich panel dataset.
view the IMF Working Paper-Demographics, Old-Age Transfers and the Current Account
IMF Working Papers-Pouring Oil on Fire: Interest Deductibility and Corporate Debt
December 7, 2018--Summary:
This paper investigates the role of tax incentives towards debt finance in the buildup of leverage in the nonfinancial corporate (NFC) sector, using a large firm-level dataset. We find that so-called debt bias is a significant driver of leverage, for both small and medium-sized enterprises and larger firms, with its effect accounting for about a quarter of leverage.
The strength of this effect differs with firm size, the availability of collateral, income and income volatility, cash flow, and capital intensity. We conclude that leveling the playing field between debt and equity finance through tax policy reform would decrease NFC leverage, reducing economic risks posited by leverage.
view the IMF Working Papers-Pouring Oil on Fire: Interest Deductibility and Corporate Debt
Fidelity eyes robo-advice launch as banks pile in
December 7, 2018--Fidelity eyes robo-advice launch as banks pile in
Fidelity International is weighing up the launch of a robo-advice service, in the latest sign that fund supermarkets are feeling the pressure to appeal to a wider range of customers amid increased competition.
$11trn emerging-market lure that heralds 2019 revival
December 4, 2018--First, the bad news: corporate earnings across emerging markets aren't as good as analysts hoped.
In four out of every five emerging economies, company finances have fallen short of estimates that were made 12 months ago, according to a study of 25 benchmarks. That's even after analysts cut their forecasts by 6% since a peak in April.