John Plender writes a piece in today’s FT on a recent speech by Andrew Haldane, executive director for financial stability of the Bank of England. He describes how “bank equity is treated as a call option on bank assets by investors, because the upside payoffs are unlimited while downside risks are capped by limited liability. …
Continue reading “Limited liability is a ‘faultline’ in more than just banking governance”
The EU wants to prevent speculation on credit defaults by banning short- or naked-selling of Credit Default Swaps. Unintended consequences could be either that the entities that wanted to take the short positions would then switch to shorting other instruments, such as government bonds or bank equity, which pushes government borrowing costs up. And/or that …
Continue reading “Banking regulation may have negative side-effects”
While the west continues to deal with the fallout of deregulated banks, the Reserve Bank of India has deregulated the interest rates paid on savings accounts. Rates in the largely state-controlled sector have been regulated at 3.5% for the past eight years, while inflation has been as high as almost ten percent. Commercial lending rates …
Continue reading “India’s banks raise savings rates to attract local capital”