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Global Financial System Shows Signs of Recovery, IMF Says
September 30, 2009
Systemic risks recede as result of policy actions, nascent economic recovery
Expected asset writedowns decline
Broad reforms required to forestall future crises
Risks to the global financial system have subsided as a result of unprecedented policy actions and, more recently, a nascent global economic recovery, according to the IMF’s latest Global Financial Stability Report (GFSR).
But the semiannual report, released on September 30, cautions that the road to financial rehabilitation is unlikely to be straight and that there will be significant policy issues ahead.
"We are on the road to recovery, but this does not mean that risks have disappeared,” José Viòals, Director of the IMF’s Monetary and Capital Markets Department.
The report points to the need to further repair bank balance sheets to enable the institutions to make loans needed to support the economic recovery. Without this step, downside financial and economic risks could reemerge, the report said.
"If we fail to meet the challenges still being faced by the financial system in the present crisis, we risk reigniting systemic risks and even derailing the economic recovery now in train. As you know, that is something we simply cannot afford," Viòals told a press briefing in Istanbul, Turkey, where the IMF released the report ahead of its annual meetings.
View the Global Financial Stability Report-
Navigating the Financial Challenges Ahead
October 2009
The International Framework for Modernizing Financial Regulation
Acting Assistant Secretary Sobel Testimony Before Senate Committee on Banking, Housing, and Urban
September 30, 2009--Chairman Bayh, Ranking Member Corker, members of the Senate Subcommittee on Security and International Trade and Finance, thank you for this opportunity to testify on the subject of international efforts to promote regulatory reform. I commend the Subcommittee for bringing greater public attention to this critical issue and for choosing such a propitious time, coming on the heels of the G-20 Pittsburgh Summit, to hold this hearing. It is also a personal privilege to testify alongside Dan Tarullo and Kathy Casey.
G-20 Cooperation and Progress Made
The Pittsburgh Summit marks another milestone in the effort to promote a more integrated approach between national and international regulation and supervision. In the wake of the onset of the crisis, and particularly over the last year, policy-makers and regulators from across the globe have redoubled their efforts to repair financial systems and put in place a stronger regulatory and supervisory framework to help ensure that a crisis of the magnitude we have witnessed does not occur again, to strengthen our financial systems so they are more robust in the face of duress, and to create a culture of greater integrity and responsibility in financial markets that guards against reckless behavior and excessive risk-taking.
Good progress is being made. Last year's Washington G-20 Summit produced a 47 point Action Plan to strengthen regulation. The London Summit in April advanced that work. Already, before we went to Pittsburgh, the international community working through the G-20 had achieved much.
For example:
* Prudential oversight has been strengthened. Capital requirements had been increased for risky trading activities, some off-balance sheet items, and securitized products. Principles had been developed for sound compensation practices to better align compensation with long-term performance. Banks were acting to put in place strengthened liquidity risk management principles.
Agreement had been reached to extend the scope of regulation to all systemically significant institutions, markets and products. Non-bank financial institutions, credit rating agencies, and hedge funds are being subjected to greater scrutiny, while the transparency and oversight of securitization and credit default swap (CDS) markets are being improved. International cooperation is being reinforced. More than thirty colleges of supervisors have met to discuss supervision of large, globally active firms. The Financial Stability Board (FSB, previously the Financial Stability Forum – FSF) has been strengthened, including by expanding its membership to include all G-20 countries, promoting financial policy coordination and regulatory cooperation throughout the world.
Market integrity has been strengthened. The G-20 has acted to improve adherence to international standards in the areas of prudential supervision, anti-money laundering and counter financing of terrorism, and tax information exchange as part of a U.S. initiative to deal with jurisdictions that fail to commit to high-quality standards in these areas.
Core Principles for Effective Deposit Insurance Systems have been developed to protect depositors around the world in a more consistent fashion. On a personal note, I would commend Martin Gruenberg, a former staff member of this Committee and now Vice-Chair at the FDIC and chair of the International Association of Deposit Insurers, for his leadership on this front. Pittsburgh Summit
A fundamental objective of the Pittsburgh Summit was to build on these accomplishments and the critical work underway and to identify and gain agreement on the necessary financial supervisory and regulatory reforms to prepare financial institutions to better withstand shocks in the future. G-20 Leaders agreed on timetables to take action in four key priority areas: capital, compensation, over-the-counter (OTC) derivatives and cross-border resolution.
Capital. The crisis demonstrated that capital and liquidity requirements were simply too low and that firms were not required to hold increased capital during good times to prepare for bad. Thus, G-20 Leaders agreed to develop rules to improve the quantity and quality of bank capital and to discourage excessive leverage by end-2010. The Leaders' agreement recognizes that strengthening capital standards is at the core of the reform effort and it tracks closely with the Principles for Reforming the U.S. and International Regulatory Capital Framework for Banking Firms, which Secretary Geithner set forth just before the G-20 Ministerial meeting in London earlier this month.
KLD Launches New Global Socrates ESG Research Platform
September 30, 2009--KLD Research & Analytics, Inc. of Boston, MA, has launched its new Global Socrates™ ESG research platform. The third generation of KLD’s proprietary web-based client interface, Global Socrates provides a comprehensive set of research, ratings and screening tools to investment professionals worldwide.
“KLD developed the first computer-based ESG research platform, and in 2001, the first web-based client interface,” said Noel Friedman, KLD Managing Director of Research Products. “We have over 20 years of experience supporting ESG analysis by a broad global client base, and Global Socrates puts everything we’ve learned in the hands of investors.” Institutional investors and money managers, including signatories to the UN Principles for Responsible Investment (PRI), can utilize Global Socrates to engage with companies and integrate environmental, social and governance (ESG) factors into their investment practices.
Economic crisis is remaking global power relations, Zoellick says
September 29, 2009--The global economic crisis is contributing to shifts in power relations in the world that will impact currency markets, monetary policy, trade relations and the role of developing countries, said World Bank Group President Robert B. Zoellick.
In a speech ahead of the Annual Meetings in Istanbul, Turkey of the World Bank and IMF, Zoellick said leaders should reshape the multilateral system and forge a “responsible globalization” that would encourage balanced global growth and financial stability, embrace global efforts to counter climate change, and advance opportunity for the poorest.
“The old international economic order was struggling to keep up with change before the crisis,” Zoellick told an audience at the Paul H. Nitze School of Advanced International Studies of the Johns Hopkins University, in Washington, DC. “Today’s upheaval has revealed the stark gaps and compelling needs. It is time we caught up and moved ahead.”
In the speech entitled “After the Crisis?”, Zoellick said: “Peer review of a new Framework for Strong, Sustainable and Balanced Growth agreed at last week’s G-20 Summit is a good start, but it will require a new level of international cooperation and coordination, including a new willingness to take the findings of global monitoring seriously. Peer review will need to be peer pressure.”
It was also important for the G-20 to remember those countries not at the table. “As agreed in Pittsburgh last week, the G-20 should become the premier forum for international economic cooperation among the advanced industrialized countries and rising powers. But it cannot be a stand-alone committee. Nor can it ignore the voices of the over 160 countries left outside.”
China’s strong response during the economic crisis and rapid recovery had underscored its growing influence as a stabilizing force in today’s global economy. But its leaders face challenges caused by rapid credit growth and the economy’s dependence on exports.
The United States had clearly been hit hard by the crisis. Its prospects depend on whether it will address large deficits, recover without inflation, and overhaul its financial system. The United States has a history of recovering from setbacks. “But the United States would be mistaken to take for granted the dollar’s place as the world’s predominant reserve currency,” Zoellick said. “Looking forward, there will increasingly be other options to the dollar.”
The crisis has brought to the attention of lawmakers the significant role played by central banks. Central banks performed well once the crisis hit but their role in the build-up was less convincing. “In the United States, it will be difficult to vest the independent and powerful technocrats at the Federal Reserve with more authority,” said Zoellick. “My reading of recent crisis management is that the Treasury Department needed greater authority to pull together a bevy of different regulators. Moreover, the Treasury is an Executive department, and therefore Congress and the public can more directly oversee how it uses any added authority.”
Developing countries had already been on the rise before the crisis and their position has been further strengthened because of it. Their growing share of the world economy was a positive development. “Looking beyond, a more balanced and inclusive growth model for the world would benefit from multiple poles of growth,” Zoellick said. “With investments in infrastructure, people, and private businesses, countries in Latin America, Asia, and the broader Middle East could contribute to a “New Normal” for the world economy.”
Middle East investors buy 17 percent of UK market Plus
September 28, 2009-London-based Plus Markets Group said Middle East investors had agreed to buy a 17.2 percent stake in the British exchange for 5 million pounds ($7.9 million).
Amara Dhari Investment Ltd, a special-purpose vehicle representing Gulf investors, is to buy Plus shares at 7.5 pence, an 11.8 percent discount to Monday's close, Plus said in a statement.
Amara Dhari also secured a warrant to subscribe for a further 58 million shares at 5 pence each "upon the attainment of certain revenue performance targets".
Plus, which generates revenue from listing fees and selling market data, on Monday reported a wider first-half pre-tax loss of 5.7 million pounds from 2.4 million pounds last year. Revenue was marginally down at 1.5 million pounds.
September 2009 Monthly Preliminary Performance Report Dow Jones-UBS Commodity Indexes
September 28, 2009--The Dow Jones-UBS Commodity Index was down -1.87% for the month of September. The Dow Jones-UBS Single Commodity Indexes for Natural Gas, Cocoa and Silver had the strongest gains with month-to-date returns of 23.76%, 10.34%, and 7.62%, respectively. The three most significant downside performing single commodity indexes were Sugar, Nickel and Wheat, which were down -11.60%, -11.57%, and -9.82% respectively, in September.
Year-to-date, the Dow Jones-UBS Commodity Index is up 5.22% with the Dow Jones-UBS Lead Sub-Index posting the highest gain of 111.94% so far in 2009. Dow Jones-UBS Natural Gas Sub-Index has the most significant downside YTD performance, down -45.47%.
Dow Jones STOXX 600 Factoids - September 25, 2009
September 25, 2009--As of September 25, 2009
Dow Jones STOXX 600, down 5.97 points this week, or -2.44%, to 238.95.
Worst week since the week ending Friday, July 10, 2009.
Today, Dow Jones STOXX 600, down 1.03 points, or -0.43%.
Down for two consecutive trading days.
Down 5.79 points, or -2.37%, over the last two trading days.
Largest two day point & percentage decline since Tuesday, September 01, 2009.
Down four of the past six trading days.
Lowest closing value since Tuesday, September 08, 2009.
Off -41.07% from its record closing high of 405.50, hit on Monday, March 06, 2000.
Off -10.14% from 52 weeks ago.
Off -2.91% from its 2009 closing high of 246.10, hit on Thursday, September 17, 2009.
Up 51.26% from its 2009 closing low of 157.97, hit on Monday, March 09, 2009.
Month-to-date, Dow Jones STOXX 600, up 1.25%.
Year-to-date, Dow Jones STOXX 600, up 21.36%.
SIFMA Responds to G-20 Initiatives on Exec Comp and Other Reforms' Impact
September 25, 2009--The Securities Industry and Financial Markets Association (SIFMA) today responded to some of the initiatives launched by the G-20 this week, including barriers to global markets, executive compensation, over-the-counter derivatives (OTC derivatives) and the aggregate impact of these reform measures. Tim Ryan, president and CEO of SIFMA, made the following statements:
Aggregate impact of reform measures:
“International standard setters have unveiled an unprecedented level and range of regulatory and legislative initiatives. Before this list of new requirements is implemented, it is critical that we understand their aggregate impact on global economic growth. While individually each initiative may have merit – and the industry supports many reforms – taken together, these reforms could negatively impact investors, capital flows, and economic growth and job creation during a period of global economic vulnerability.”
Global markets:
“Open markets and the free flow of capital and goods are the cornerstones of our global markets. As such, it remains vital to seek a well-balanced and well-coordinated regulatory framework, including a globally agreed upon set of common accounting standards underpinning those initiatives. G20 nations must guard against the potential for the promulgation and implementation of reforms that can result in the type of regulation that the G20 committed to avoid – measures that create barriers to market entry, distort competition, and encourage regulatory arbitrage.”
Trade “We also support the Leaders’ call for a successful conclusion to the Doha Round in 2010, with a robust market opening package for financial services.”
Compensation:
“A responsible approach to executive compensation is crucial to restoring trust and confidence in the financial system. Since the crisis, the industry has set new guidelines that support long-term performance and effective risk management. The G-20’s proposals linking compensation to performance and risk, making compensation policies transparent and ensuring compensation committee independence are in line with those guidelines. Boards and compensation committees are reassessing their approaches to compensation to ensure that compensation levels are tied to performance and that compensation policies are aligned with the long-term interests of shareholders.”
OTC Derivatives:
“We support reform of the OTC derivatives markets to bring more transparency and accountability, while ensuring that these vital economic tools remain accessible for firms to manage their risks.“
Speech of Chairman Gary Gensler, Commodity Futures Trading Commission, OTC Derivatives Regulation, European Commission
September 25, 2009--Good morning. It is a pleasure to be in Brussels with you today. Thank you to the European Commission for hosting this important conference. Thank you Commissioner Charlie McCreevy and David Wright for inviting me to speak today.
One year ago, the financial system failed. The financial regulatory system failed. We must now do all we can to ensure that it does not happen again. While a year has passed and the system appears to have stabilized, we cannot relent in our mission to vigorously address weaknesses and gaps in the global financial regulatory system. As a critical component of reform, I believe that we must bring comprehensive regulation to the OTC derivatives markets. We must lower risk, promote greater market integrity and improve market transparency.
We have all felt the effects of the failures of our regulatory system. Every U.S. taxpayer, for example, put money into a company that most Americans had never even heard of. $180 billion of those tax dollars went into AIG to keep its collapse from further harming the broader global economy. AIG, though a U.S.-based company, highlights how interconnected the global financial system has become. As the world came to discover, AIG had a large book of business – approximately $450 billion net notional value – of credit default swaps. About two thirds of that business was written to support regulatory capital of major banks, primarily right here in Europe. The other third of the business was written largely on mortgage securitization products. When the U.S. government first put money into AIG last year, about two thirds of the first approximately $90 billion flowed through AIG to its counterparties outside of the United States. AIG demonstrates the interconnectivity of the global financial markets and the need for all financial regulators to work together on a global solution.
ECB publishes the Euro Money Market Survey 2009
September 24, 2009--Today the European Central Bank (ECB) is publishing a report entitled “Euro Money Market Survey 2009”, which illustrates the main developments in the euro money market in the second quarter of 2009, in comparison with the second quarter of 2008.
The main results for the constant panel of 105 banks show the following.
Aggregate turnover in the euro money market decreased for a second consecutive year, falling by 5%. The most notable decrease in activity took place in the unsecured market, where turnover contracted by 25%.
The decline in the unsecured market was more severe for the longer maturities as turnover contracted by 44% for maturities from three months to one year. From the respondents’ point of view, liquidity conditions and efficiency in the unsecured market also continued to deteriorate.
The secured market showed resilience (with turnover increasing by 5%) following last year’s decline and remained the largest segment of the euro money market. Overnight activity in this market segment continued to increase this year, accounting for 27% of secured trades, the largest share since 2003.
For the first time, the 2009 survey compiled data on activity in the secured market cleared through central counterparties (as a subset of the bilateral repo market), which represented 39% of total secured market turnover.
Activity in the derivatives market was also affected, showing a decline of 2%, mostly on account of overnight index swaps (OISs) and other interest rate swaps excluding OISs (“Other IRSs”). Turnover in forward rate agreements (FRAs) and cross-currency swaps continued to increase this year. As a result, the FRA segment’s share of euro money market turnover reached 11%, whereas cross-currency swaps accounted for only 0.5%.
Looking at concentration among market participants, the market share of the top 20 banks tended to increase in most euro money market segments. The unsecured market remained the least concentrated segment, followed by the OIS and secured market segments.
The share of electronic trading declined in the unsecured and secured market segments, mostly reflecting an increase in direct trading between counterparties. The other segments recorded an increase in the share of electronic trading, albeit to varying degrees.
The share of trading between counterparties from the same country increased slightly in the unsecured and secured markets, whereas in most derivatives segments the share of transactions with non-euro area counterparties increased significantly.
The qualitative part of the study shows that, in most market segments, with the exception of the unsecured market, the majority of respondents reported some stabilisation and even some improvement in market liquidity conditions following the unprecedented deterioration recorded in the second quarter of 2008. However, a significant number of respondents continued to report a further deterioration in all segments of the euro money market also in the second quarter of 2009.
The Euro Money Market Survey, which refers to the second quarter of each year, has been conducted since 1999 on an annual basis by experts from the European System of Central Banks, i.e. the ECB and the national central banks of the European Union. Although the survey is carried out and its results are published every year, the ECB only publishes a complete study based on the survey data every second year. The last complete study, entitled “Euro Money Market Study 2008”, was published on 2 February 2009. Today’s report consists of a set of charts presenting the data from the 2009 survey with no explanatory text.
The “Euro Money Market Survey 2009” and a summarised version of the aggregate survey data (CSV file) can be downloaded from the ECB’s website. The full dataset is available in the ECB’s Statistical Data Warehouse. The next survey and the complete study will be published in 2010.
