Category Archives: Banking industry

Northern Rock: How a Non-Systemic Risk Led to a "Systemically Important Event"

At least in the US, the Fed rate cut yesterday crowded out most other financial news. As the Wall Street Journal’s MarketBeat blog put it (hat tip Paul Kedrosky): Lehman Brothers probably could have reported that it was shutting down operations and moving to Kazakhstan and the Fed move would have still inspired a rally. […]

Paulson Opposed to "Hasty" New Regulations

It’s generally not a good sign when a regulator exhibits distaste for his job. Recall that Federal banking supervision takes place through a variety of channels, but the main actors are the Fed and the Treasury, through the Office of the Comptroller of the Currency and the Office of Thrift Supervision. So Treasury Secretary Hank […]

UK Overnight Rates Spike Up on Northern Rock Worries

Yet another indicator of the seriousness of the Northern Rock crisis: UK overnight rates increased 60 basis points on liquidity concerns. As Bloomberg reports: The cost of overnight borrowing in pounds rose the most since June as the bailout of U.K. lender Northern Rock Plc stoked concern other home-loan providers will be forced to seek […]

The Journal Tells Us Now A Rate Cut Will Have Little Impact?

If one didn’t know better, it might be possible to think that a page one story today, “Too Much Hope May Be Pinned On Rate Cut.,” was a decent piece of journalism. But to reach that conclusion, you need to overlook a few things. First, the story is late. Those who were early to recognize […]

Northern Rock: Assessing the Damage to the Bank of England’s Credibility

In today’s Financial Times, Willem Buiter, professor of political economy at the London School of Economics, and and Anne Sibert, professor of economics at Birkbeck College, University of London, take stock of the impact of the Northern Rock bailout on the Bank of England’s reputation. The article points out various dimensions on which the Bank’s […]

Are Credit Cards as Beneficial to the Poor as Advocates Claim?

As the credit crisis has worsened, we no longer hear the argument once commonly made in support of subprime mortgages, namely, that they were good for people with poor credit, since it enabled them to buy housing they could not otherwise afford Maybe it’s because the problems we are seeing resulted from the fact that […]

Northern Rock: A Real Bank Run

Bloomberg and the Financial Times both have reports on the fact that British customers have been queuing up to pull their funds out of Northern Rock, ironically as a result as the emergency cash infusion by the Bank of England announced yesterday. There’s a potent message here; the information conveyed by regulatory action can counteract […]

Is Capital Adequacy A Problem?

Sorry to be brief, but a good article by Charles Goodhart, emeritus professor at the London School of Economics, acknowledges that lack of transparency and dubious ratings have played a major role in the current credit crisis. Unlike most other writers, however, he points to a looming third culprit: insufficient bank capital. Observers may find […]

Bank of England’s Tough Position Absent From the Wall Street Journal

One of our forms of recreation is keeping an eye on how coverage of certain news stories in the Wall Street Journal is curiously different than elsewhere. We’ve noted before that the WSJ tends to put a happy face on economic and market news (its company reporting is considerably more evenhanded). The latest reporting disparity […]

Nouriel Roubini: "The Coming U.S. Hard Landing"

Some may have already seen Nouriel Roubini’s latest piece, “The Coming U.S. Hard Landing.” He goes through an exhaustive and exhausting litany of what ails the US economy (short answer: pretty much everything, although he did spare weak-kneed readers the role of global imbalances). His article is worth reading, and the extracts that relate to […]

The Asset Shuffling Game

Financial Times writer John Authers passed along an interesting observation from UBS’s George Magnus (the man who popularized “Minsky moment”) about the credit crisis: Issuance of commercial paper – short-term borrowing central to many financial institutions – is drying up, while Libor, reflecting the interest rates at which banks lend to each other, is spiking […]

Task Force to Encourage More Mortgage Modifications

I’m late to this item, “Task Force Will Seek More Loan Revisions,” which appeared in the Saturday Wall Street Journal. It seemed to merit comment and I haven’t seen much online. Here’s the premise: Attorneys general and banking regulators from 10 states have formed a task force hoping to persuade mortgage-servicing companies and investors in […]

Fed President Plosser: Don’t Count on the Fed Put

In a speech in Hawaii this morning, Philadelphia Fed President Charles Plosser the Fed’s views on stability and monetary policy, and his words were cold cheer to anyone expecting a rate cut. Calculated Risk noted that it was unusual for for a Fed president to speak so directly about monetary policy. Plosser noted that monthly […]

A Call for Central Bankers to Hang Tough

With today’s weak non-farm payrolls report, financial markets participants have turned up the volume on their calls to the Fed to lower interest rates. Even Barney Frank, chairman of the House Financial Services Committee, has weighed in, urging a “meaningful” cut. So the Financial Times comment today by Raghuram Rajan, professor of finance at the […]

Nostalgia for Glass Steagall

Boy, is sentiment changing. The latest indicator: an article in MarketWatch bemoaning the demise of Glass Steagall, the law enacted in 1933 that separated commercial banking from investment banking. The article by Thomas Kostigen gets the history wrong. It makes it sound as if the repeal of Glass Steagall in 1999 was a watershed event. […]