As we are dealing with several bank failures and rescues in India, good to read about another bank from other country.
Clive Horwood refers to an extract from the book by Prof Harold James – Making a Modern Central Bank – The Bank of England 1979-2003:
It was inherent in the mandate of the Bank of England in the 1980s and 1990s, as overseer of UK financial services, that its successes remained hidden in the shadows, while its failures were exposed to the harshest of lights.
Those two decades saw high-profile collapses, including of the Bank of Credit and Commerce International and Barings, which provoked much criticism of the Bank. This led, in 1997, to a new Labour government handing supervision of UK banking to a newly-created Financial Services Authority under the aegis of HM

Kevin Stiroh of New York Fed in this speech discusses how and whether the pandemic will impact culture in financial industry:
From the perspective of cultural capital, this sudden and dramatic shift in how we work raises multiple questions. First, how does cultural capital influence outcomes in this new environment? How are we drawing on, or depleting, the cultural capital that already existed? Does this environment pose new challenges regarding behavioral risk? And finally, is it possible to identify new opportunities to build cultural capital in a predominately remote environment?
As we look across the industry, hear the experiences of firms and read the emerging literature, like the recent report by the UK FCA, one can identify factors that are likely to impact, and possibly erode,

The link says these reports have been up since 1997 but somehow I have missed them.
Anyways, just like RBI has put up its Annual Reports, Banking data, RBI’s several Reports, there are Reports on Trends and Progress of Banking in India as well.
Goto this link
Click on 1997 at the bottom right corner.
And there you have all the reports from 1949 onwards
The Report was started from 1949 following Bank Regulation Act (194) which mandates RBI to publish the report. Section 36 (2) of the Act says:
The Reserve Bank shall make an annual report to the Central Government on the trend and progress of banking in the country, with particular reference to itsactivities under clause(2) of section 17 of the Reserve Bank of India Act, 1934 (2 of 1934), including in such report its suggestions, if

Pierre Ortlieb of OMFIF in this piece:
As the Covid-19 pandemic began rippling through financial markets and the global economy earlier this year, central banks quickly unveiled a raft of initiatives aimed primarily at easing short-term liquidity conditions. These policy innovations took place across developed and emerging markets, encompassing new assets purchases, lending facilities and institutional relationships.
Many emerging market central banks broke new ground by engaging in large-scale asset purchases. The monetary authorities of Poland, Hungary, Malaysia, Chile and Colombia, among others, established quantitative easing programmes. While relatively small as a share of GDP compared to the asset purchases of developed economy central banks, these programmes are of

Dr. Patrick Njoroge, Governor, Central Bank of Kenya in this speech:
Digitalization, the theme I have been asked to focus on, has seen us through this difficult period. In the context of the COVID-19 containment measures—and particularly movement restrictions and curfews—digital platforms have enabled our citizens to access financial, health, education and medical services, entertainment, and shop online. In Kenya, the digital rails built over the last fifteen years have been a saving grace as we have battled COVID-19.
The starting point of Kenya’s digital rails in March 2007 was in using mobile phones to serve a need to transfer money from urban workers back to their families in the rural areas. These P2P transfers were supported by a network of agents who facilitated cash

Patrick Blagrave and Weicheng Lian in their new IMF research:
We study the inflation process in India, focusing on the periods before and after the adoption of flexible inflation-forecast targeting (FIT) in India. Our analysis uses several approaches including standard Phillips curve estimation for headline and core inflation, an examination of the sensitivity of medium-term inflation expectations to inflation surprises, and the properties of convergence between headline and core inflation. Results indicate an important role for domestic factors in driving the inflation process, and there is evidence that expectations have become more anchored since 2015. This result could be attributable to FIT adoption, or to persistently low food prices which dominate the post-FIT-adoption period.

In 2020 crisis, EME central banks were able to cut policy rates despite fears over currency depreciation and capital outflows.
Ana Aguilar and Carlos Cantú of BIS in this short paper point how EME central banks could do so:
During the Covid-19-induced financial stress in March 2020, central banks in emerging market economies (EMEs) departed from their monetary policy playbook by cutting rates even in the face of sharp currency depreciations and massive capital outflows.
Two factors were at play. First, the cyclical position of EMEs gave more room for easing of monetary policy, while structural changes improved the anchoring of inflation expectations and kept a lid on exchange rate pass-through. Second, the swift monetary policy easing by the Federal Reserve and other advanced economy

Interesting IMF paper by  Reda Cherif ,Marc Engher and Fuad Hasanov. HT: Manas Chakravarty who reviews the paper in his typical style (link corrected; Thanks Anantha for the pointer).
The authors track how and why certain growth terms/factors become fashionable over time:
The debate among economists about an optimal growth recipe has been the subject of competing “narratives.” We identify four major growth narratives using the text analytics of IMF country reports over 1978-2019. The narrative “Economic Structure”—services, manufacturing, and agriculture—has been on a secular decline overshadowed by the “Structural Reforms”—competitiveness, transparency, and governance. We observe the rise and fall of the “Washington Consensus”—privatization and liberalization— and the rise to

Lakshmi Vilas Bank (LVB) has been under trouble for quite some time now. It has been in talks with Clix Capital for raising capital but nothing seemed to have worked.
At the end, Lakshmi Vilas Bank (LVB) has failed and RBI had to impose a moratorium.
The financial position of The Lakshmi Vilas Bank Ltd. (the bank) has undergone a steady decline with the bank incurring continuous losses over the last three years, eroding its net-worth. In absence of any viable strategic plan, declining advances and mounting non-performing assets (NPAs), the losses are expected to continue. The bank has not been able to raise adequate capital to address issues around its negative net-worth and continuing losses. Further, the bank is also experiencing continuous withdrawal of deposits and low levels of

David Marsh of OMFIF reviews two books which discuss how the seeds of Brexit were sowed in 1992 currency crisis:
Currency dramas linking the UK and continental Europe are tangled tales of confusion, intrigue and progressive estrangement. Harold James’ book on the 1979-2003 history of the Bank of England, to be launched by OMFIF on 23 November, acts as a powerful companion volume to Six Days in September: Black Wednesday, Brexit and the making of Europe, by William Keegan, David Marsh and the late Richard Roberts. The book, published by OMFIF Press in September 2017, marked the 25th anniversary of Britain’s 1992 departure from the exchange rate mechanism of the European Monetary System.
Both books provide important information about events leading up to the 2008 financial crisis and

SO far, the coloour of finance was seen as either black or red as in profits or loss.
Dr Sabine Mauderer of the Deutsche Bundesbank in this speech points that Germany is planning to build a Green yield curve:
Germany issued a green bond with a 10-year term for the first time in September, followed by another green bond with a 5-year term last week. Both issues, with a total outstanding volume of € 11.5 billion, attracted huge interest among investors.
Looking back at these successful issuances, I can conclude that it was worth entering the market a little later, but with a tailored approach.
Germany entered the market with the innovative “twin bond” concept meeting market’s liquidity needs: Each of these “Green Bunds” is twinned with a pre-existing conventional bond with identical

Jon Ellingsen, Vegard H. Larsen and Leif Anders Thorsrud in this Norges Bank research paper:
Using a unique dataset of 22.5 million news articles from the Dow Jones Newswires Archive, we perform an in depth real-time out-of-sample forecasting comparison study with one of the most widely used data sets in the newer forecasting literature, namely the FRED-MD dataset. Focusing on U.S. GDP, consumption and investment growth, our results suggest that the news data contains information not captured by the hard economic indicators, and that the news-based data are particularly informative for forecasting consumption developments.

This entry was posted on November 16, 2020 at 3:21 pm and is filed under Academic research & research papers,

Giulio Cornelli, Sebastian Doerr, Leonardo Gambacorta and Ouarda Merrouche in this BIS paper evaluate impact of sandboxes:
The rise of fintechs promises to spur competition in the financial sector. This could lead to sizeable efficiency gains, more choice for consumers, and enhanced financial inclusion. However, the potentially disruptive growth of firms offering novel products and services poses new challenges for financial stability and consumer protection. In response, policymakers around the world are creating “regulatory sandboxes” to foster innovation in the financial sector while keeping alert to emerging risks. One key objective of sandboxes is to facilitate start-ups’ access to capital. The UK Financial Conduct Authority pioneered the world’s first regulatory sandbox in 2015.

Hiroaki Abe presents aa fascinating analysis of Trump’s attempts at upending the election results:
The American General Election 2020 was, when seen in broader context, a miracle, given the multitude of critical moments where things could have gone wrong for Joe Biden’s campaign. But Donald Trump and the Republican leadership are declining to accept the election result, and an alternate reality has been born that Trump won the election but had it stolen from him. Some sort of constitutional coup d’état may be in its early stages and, though bound to fail, Americans must remain vigilant to protect their democracy until a Biden presidency can lead them to safe waters.
What all will we see in such a short time? Truly decades are happening in days/months..

This central bank business of introducing new notes and withdrawing older ones became a huge interest post-demonetisation in India.
Norway central bank introduced new series of notes last year. Now it has decided to withdraw the old series of notes and they will no longer be legal tender. However, the old notes can be exchanged from the central bank for next 10 years:
When a banknote has been withdrawn, it is no longer legal tender. This means, for example, that shops are no longer obliged to accept it as payment for goods. However, the note still retains its value, since it can be exchanged at Norges Bank for at least 10 years. Even though some banks (via their cash deposit machines) and shops will still accept the old series 1000-krone notes, only Norges Bank is obliged to accept

Francesca Carapella and Jean Flemming of Federal Reserve in this research sum up the literature so far:
Technological advances in recent years have led to a growing number of fast, electronic means of payment available to consumers for everyday transactions, raising questions for policymakers about the role of the public sector in providing a digital payment instrument for the modern economy. From a theoretical standpoint, the introduction of a central bank digital currency (CBDC) raises long-standing questions relating to the provision of public and private money (Gurley and Shaw 1960), and the ability of the central bank to use CBDC as a means for transmitting monetary policy directly to households (Tobin 1985). The theoretical literature on CBDC to date relates to these questions

My new piece in Moneycontrol (behind a paywall).
I look at this recent speech by RBI DG M Rajeshwar Rao where he speaks about the NBFC sector. Rao covers recent policy changes in regulating NBFCs and lists future challenges as well.

This entry was posted on November 12, 2020 at 3:19 pm and is filed under Central Banks / Monetary Policy, Economics – macro, micro etc, Financial Markets/ Finance, Indian Economy/Financial Markets. You can follow any responses to this entry through the RSS 2.0 feed.
You can leave a response, or trackback from your own site.

RBI Bulletin for Nov-2020 has 7 research articles. All worth reading.
 I. State of the Economy; 
II. An Economic Activity Index for India; 
III. Preliminary Estimates of Household Financial Savings – Q1:2020-21; 
IV. Revisiting the Determinants of the Term Premium in India; 
V. India’s Gilt Market; 
VI. LIBOR: The Rise and the Fall; and 
VII. Fintech: The Force of Creative Disruption.

This entry was posted on November 12, 2020 at 10:55 am and is filed under Academic research & research papers, Economics – macro, micro etc, Financial Markets/ Finance. You can follow any responses to this entry through the RSS 2.0 feed.
You can leave a response, or trackback from your own site.

Superb paper by BIS econs – Jon Frost, Hyun Song Shin and Peter Wierts:
This paper draws lessons on the central bank underpinnings of money from the rise and fall of the Bank of Amsterdam (1609-1820). The Bank started out as a “stablecoin”: it issued deposits backed by silver and gold coins, and settled payments by transfers across deposits. Over time, it performed functions of a modern central bank and its deposits took on attributes of fiat money. The economic shocks of the 1780s, large-scale lending and lack of fiscal support led to its failure. Using monthly balance sheet data, we show how confidence in Bank money gave way to a run equilibrium, where the fall of the premium on deposits over coins (“agio”) into negative territory was swift and precipitous. This holds lessons for

Two articles in Proj Syndicate.
Werner Hoyer (President of European Dev Bank) makes claims for a public development bank in EU.
An EU development bank would have an immediate, significant, and resource-efficient impact. By putting the bloc’s national development ministers in the driver’s seat, while ensuring that finance ministries have overall oversight, the new institution would bring a coordinated, transparent, and European approach to development financing that so far has been sorely lacking. Moreover, a strong governance role for the European Commission and the European External Action Service would guarantee that the bank’s strategy and all its individual projects served the EU’s development policy targets from day one.
Team of authors writes on age of arrival of PDBs:

With

Very soon what will matter for banks (and other organisations) is how green they are.
IFC has started this alliance for Green Commercial Banks and Hong Kong is its first Asian partner:
The Alliance for Green Commercial Banks is a new global initiative that brings together financial institutions, banking industry associations, research institutions, and innovative technology providers to work together to develop a community of green commercial banks across emerging markets and finance the infrastructure and business solutions needed to urgently address climate change. Starting in Asia, in partnership with the Hong Kong Monetary Authority (HKMA), IFC will work to support financial institutions on their journey to become leading green banks.
The Alliance will connect ambitious

James Feigenbaum & Daniel P. Gross have some interesting insights in this new NBER paper:

Telephone operation, one of the most common jobs for young American women in the early 1900s, provided hundreds of thousands of female workers a pathway into the labor force. Between 1920 and 1940, AT&T adopted mechanical switching technology in more than half of the U.S. telephone network, replacing manual operation. We show that although automation eliminated most of these jobs, it did not affect future cohorts’ overall employment: the decline in demand for operators was counteracted by growth in both middle-skill jobs like secretarial work and lower-skill service jobs, which absorbed future generations. Using a new genealogy-based census linking method, we show that incumbent telephone

Klass Knott , Governor of Netherlands Central Bank in this speech compares State of European capital markets with European Railways:
If you travel by train from the city of Bordeaux southward to Spain, at the border you will have aslightly strange experience. Since the rail gauges in France and Spain are of a different width, the rail bogies, that’s basically the wheels of the train, have to be replaced. A very heavy machine lifts the  train up, the bogies are rolled away and replaced by others. It takes about one hour before the traveler can resume his or her journey.
This rather remarkable example of systems that do not fit together, and that reminds one of the nineteenth century, is not uncommon in European capital markets. This becomes clear if you compare it with the United

Isabela Manelici and Smaranda Pantea in this voxeu research:
Industrial policies can be an effective tool for governments to shape the development of different sectors to achieve productivity growth. But there is little evidence of their effectiveness or efficiency. This column examines the impact of an income tax break for IT workers in Romania. The findings suggest that targeted policies of this kind can boost key sectors. This finding is encouraging in terms of the ability of governments to design and implement effective industrial policies.

…..
We find that the income tax break for workers in IT had positive effects on the size of eligible firms in IT sectors relative to non-eligible firms in other high-tech knowledge-intensive service sectors, the expansion of the IT sector in

National Accounts Division has started its YouTube channel (HT: Sourit Dey). It has started uploading videos on how all the national accounts come about.
Very useful resource.

This entry was posted on November 6, 2020 at 9:12 pm and is filed under Indian Economy/Financial Markets. You can follow any responses to this entry through the RSS 2.0 feed.
You can leave a response, or trackback from your own site.

I was surprised to read this new circular from SEBI:
In order to give more flexibility to the mutual funds and taking into account the recommendations of Mutual Fund Advisory Committee (MFAC), a new
category named “Flexi Cap Fund” under Equity Schemes will be available with the following scheme characteristics.

The fund can invest across large cap, mid cap, small cap stocks. The minimum investment in equity and equity related instruments should be 65%/.

Further, SEBI says:

For easy identification by investors and in order to bring uniformity in names of schemes for a particular category across Mutual Funds, the scheme name
shall be the same as the scheme category.

Now why did it surprise me? Well there was a fund launched by Franklin India called Franklin Flexicap Fund whose

The new DG of RBI Shri M. Rajeshewar Rao makes his speech debut. The topic of the speech is regulation in India’s NBFC sector.
19. The Global Financial Crisis was primarily attributed to feather-touch regulatory approach, ignoring of the liquidity risks by financial intermediaries and unabated financial innovation. Abundant Liquidity, light touch regulation and financial innovation has also aided the growth of the NBFCs. The financial system today is significantly different from what it was at the outset of the financial crisis more than a decade ago. Regulatory reforms implemented in response to that crisis in India and globally, changes in technology and, more importantly, the growth of NBFCs have contributed to this dynamic landscape. The NBFC sector has become extremely diverse.

Mattias Danielsson of the Riksbank in this research paper:
Climate change is one of the greatest challenges of our time in that it creates climate-related risks of various kinds. Rising sea levels form one such risk. Over the next century, higher average temperatures due to climate change will lead to higher sea levels and new coastlines higher up on what is now dry land.
Sweden has a long coastline, reflected by the fact that about 8 per cent of Sweden’s owner-occupied and tenant-owned homes are situated within 3 kilometres of the coast and no more than 5 metres above sea level. This housing thus runs a greater risk of material damage in a future climate scenario in which sea levels have risen.
This may have negative effects on financial stability in Sweden. For example, an increased

Amidst ongoing fears of loss of central bank autonomy, Brazil Senate passes bill to strengthen central bank autonomy:
Brazil’s Senate voted overwhelmingly on Tuesday to approve a bill that would establish the autonomy of the central bank to reduce political interference in monetary policy and align the country with other major economies.
Senators voted 56-12 in a remote session to pass the bill, which still needs to be voted on by the lower chamber of Congress to deliver on a campaign promise by President Jair Bolsonaro.
Although Brazil’s central bank has administrative autonomy from the government, it is not fully independent. The bank’s governor is considered a member of the president’s cabinet of ministers.
The bill introduces conditions for appointing and firing bank directors,

The website of International Financial Services Centre Authority is up and running.
IFSCA is a regulator who has been given the task of shaping international financial services centre in India. It is almost like watching SEBI and RBI in their initial years.
The chairperson Mr Injeti Srinivas message says:
As the first chairperson of the International Financial Services Centres Authority (IFSCA), established under the IFSCA Act 2019, it shall be my continuous endeavour to proactively interact with all stakeholders with a view to creating the most appropriate regulatory framework and underlying ecosystem for establishing the international financial services centre in India as a preferred destination for raising capital, trading in various types of financial products and availing of all